Copyright © 2009 Pearson Education Canada5-1 Chapter 5 Selecting the Proper Form of Business...

Copyright © 2009 Pearson Education Canada 5-1

Chapter 5Chapter 5 Selecting the Proper Form of Business Ownership

and Exploring Business

Combinations


FORMS OF FORMS OF BUSINESSBUSINESS

OWNERSHIPOWNERSHIP

The Three The Three Most Common FormsMost Common Forms

PartnershipPartnership

Sole Sole proprietorshipproprietorship

CorporationCorporation


Sole ProprietorshipSole Proprietorship

AdvantagesAdvantages

•Ease of establishment

•Self-satisfaction

•Privacy

•Owner keeps all the profits

•Tax advantages

DisadvantagesDisadvantages

•Unlimited liability

•Personal pressure

•Difficult to get funding

•Limited life


Business Business PartnershipsPartnerships

General PartnershipsGeneral Partnerships Limited PartnershipsLimited Partnerships

UnlimitedUnlimitedliabilityliability

UnlimitedUnlimitedliabilityliability

Equal Equal partnerspartners

Equal Equal partnerspartners

ShareShareownershipownership

ShareShareownershipownership

LimitedLimitedliabilityliability

LimitedLimitedliabilityliability

UnequalUnequalpartnerspartners

UnequalUnequalpartnerspartners

PassivePassiveinvestorsinvestors

PassivePassiveinvestorsinvestors


Easy to establishEasy to establishEasy to establishEasy to establish Tax advantagesTax advantagesTax advantagesTax advantages

Strength in numbersStrength in numbersStrength in numbersStrength in numbers Diversity of skillsDiversity of skillsDiversity of skillsDiversity of skills

Extended lifeExtended lifeExtended lifeExtended lifeIncreased capitalIncreased capitalIncreased capitalIncreased capital

Advantages of PartnershipsAdvantages of Partnerships


Disadvantages Disadvantages of Partnershipsof Partnerships

Unlimitedliability

Unlimitedliability

Interpersonalproblems

Interpersonalproblems

Unproductivepartners

Unproductivepartners

Decision-making

complications

Decision-making

complicationsLaw suitsLaw suitsSharing profits

Sharing profits


Partnership AgreementPartnership Agreement

Decision-makingauthority

Disputeresolution

Divisionof profits

Expectedcontributions


Corporations

Enter intoEnter intocontractscontractsEnter intoEnter intocontractscontracts

Own andOwn andsell propertysell property

Own andOwn andsell propertysell property

Sue andSue andbe suedbe suedSue andSue andbe suedbe sued

Enjoy limitedEnjoy limitedliabilityliability

Enjoy limitedEnjoy limitedliabilityliability


Ownership of CorporationsOwnership of Corporations

Shareholders Shareholders

Shareholders

Shareholders

Shareholders

Shareholders

Last claim on distributedprofits and sssets

Cash or stock dividends

Full voting rights

Common Stock

First claim on dividendsand assets

Cash or stock dividends

Minimal voting rights

Preferred Stock


Who Owns Who Owns a Corporation?a Corporation?

PublicPublicOwnershipOwnership

PublicPublicOwnershipOwnership

PrivatePrivateOwnershipOwnership

PrivatePrivateOwnershipOwnership

Not publiclyNot publiclytradedtraded

Not publiclyNot publiclytradedtraded

FewFewshareholdersshareholders

FewFewshareholdersshareholders

PubliclyPubliclytradedtraded

PubliclyPubliclytradedtraded

ManyManyshareholdersshareholders

ManyManyshareholdersshareholders


CorporationsCorporations

AdvantagesAdvantages

•Access to capital

•Limited liability

•Increased liquidity

•Unlimited life span

DisadvantagesDisadvantages

•Excess paperwork

•Double taxation

•Disclosure requirements


Corporate GovernanceCorporate Governance

CommonShareholders

•Individuals

•Companies

•Non-profits

•Pensions

•Mutual Funds

Boardof Directors

•Dividends

•Corporate Affairs

•Strategic Plans

•Select Officers

•Finances

CorporateOfficers

•Chief Executive

•Chief Financial

•Chief Operations

Employees ofthe Company

•Operations

•Finance

•Marketing

•Personnel

•Engineering

Elect Appoint Hire


Cooperatives: Another Cooperatives: Another ModelModel

• Organized and controlled by members who pool their resources to create benefits for themselves and their

clients.


Cooperatives: Another Cooperatives: Another ModelModel

Advantages

• Bargaining power

• Democratic structure

• Surplus earnings

distribution

• Limited liability

Disadvantages

• Longer decision-making

processes

• Extensive record keeping

• Less incentive to invest in

additional capital

• Potential conflict among

members


BusinessBusinessCombinationCombination

ss

MergersMergers

ConsolidationsConsolidations

AcquisitionsAcquisitions

LeveragedLeveragedBuyoutsBuyouts


Mergers and Mergers and AcquisitionsAcquisitions

AdvantagesAdvantages DisadvantagesDisadvantages

Economies of scaleEconomies of scale

EfficienciesEfficiencies

SynergiesSynergies

High risk fromHigh risk fromdebtdebt

Management Management distractionsdistractions

Culture clashesCulture clashes


Defenses AgainstDefenses AgainstHostile TakeoversHostile Takeovers

Tender OfferTender OfferTender OfferTender Offer Proxy FightProxy FightProxy FightProxy Fight

WhiteWhiteknightknightWhiteWhiteknightknight

SharkSharkrepellentrepellent

SharkSharkrepellentrepellent

GoldenGoldenparachuteparachute

GoldenGoldenparachuteparachute

PoisonPoisonpillpill

PoisonPoisonpillpill


Alternative Business Alternative Business FormsForms

Strategic AllianceStrategic Alliance Joint VentureJoint Venture

Expand market shareExpand market share

Access technologyAccess technology

Diversity offeringsDiversity offerings

Share best practicesShare best practices

Attain specific goalsAttain specific goals

Share strengthsShare strengths

Spread costSpread cost

Minimize riskMinimize risk

Copyright © 2009 Pearson Education Canada5-1 Chapter 5 Selecting the Proper Form of Business...

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