Forms of buiness ownership
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Basic Forms of Business Ownership
• Sole Proprietorship
• Partnership
• Corporation
Source: US Internal Revenue Service
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Basic Forms of Business Ownership
Source: US Internal Revenue Service
Type of Ownership Number Sales
Sole Proprietorship 72% 6%
Partnership 8% 13%
Corporation 20% 81%
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Sole Proprietorship
• Ease of start/end
• Be your own boss
• Pride of ownership
• Leave a legacy
• Retain profit
• No special taxes
• Unlimited liability
• Limited financial resources
• Management difficulty
• Time commitment
• Few fringe benefits
• Limited growth
• Limited life span
AdvantagesAdvantages DisadvantagesDisadvantages
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Types of Partnerships
GeneraGenerall
GPGP
GPGP
GPGP
GPGP
LimiteLimitedd
GPGP
PassivePassiveInvestorInvestor
PassivePassiveInvestoInvesto
rr
PassivePassiveInvestorInvestor
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PartnershipPartnership
• More financial More financial resourcesresources
• Shared Shared managementmanagement
• Longer survivalLonger survival
• No Special No Special TaxesTaxes
• Unlimited Unlimited liabilityliability
• Division of Division of profitsprofits
• DisagreementsDisagreements among among partnerspartners
• Difficult to Difficult to terminateterminate
AdvantagesAdvantages DisadvantagesDisadvantages
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Corporations
• Private: Not Traded on Any Stock Exchange
• Public: Shares are Traded on One or More Stock Exchanges
• Non-Profit: Performs Public Service, Has Special Tax Considerations to Encourage Formation
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CorporationCorporation
• Limited liabilityLimited liability• More money for More money for investmentinvestment• SizeSize• Perpetual lifePerpetual life• Ease of ownershipEase of ownership changechange• Ease of drawing Ease of drawing talented talented employeesemployees• Separation ofSeparation of ownership/mgmt.ownership/mgmt.
• Extensive Extensive paperworkpaperwork• Double taxationDouble taxation• Two tax returnsTwo tax returns• SizeSize• Termination Termination difficultdifficult• Conflict with Conflict with Stockholder & Stockholder & Board Board • Initial costInitial cost
AdvantagesAdvantages DisadvantagesDisadvantages
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World’s Largest Corporations
1. Citigroup
2. General Electric
3. American Intl Group
4. Bank of America
5. HSBC Group
6. ExxonMobil
7. Royal Dutch/Shell
8. BP
9. ING Group
10. Toyota Motor
11.UBS
12.Wal-Mart Stores
13.Royal Bank of Scotland
14.JP Morgan Chase
15.Berkshire Hathaway
16.BNP Paribas
17. IBM
18.Total
18.Verizon Communication
20.Chevron Texaco
Source: Forbes, 2005
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America’s Largest Private Companies
1. Cargill / agricultural commodities, food $66,669
2. Koch Industries / chemicals, energy, tech 60,000
3. Mars / candy, pet food electronics 19,100
4. PricewaterhouseCoopers / accounting 18,700
5. Publix Supermarket / supermarkets 18,686
Revenue 2004Revenue 2004 (In Millions)(In Millions)
Source: Forbes, 2005
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America’s Oldest Companies
Company Year Started Type of Company
J. E. Rhoads & Sons 1702 Conveyer Belts
Covenant Life Ins. 1717 Insurance
Philadelphia 1752 Insurance Contributorship
Dexter 1767 Adhesives & Coatings
D. Landreth Seed 1784 Seeds
Bank of New York 1784 Banking
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GM’s Ownership In:
Source: USA TODAY
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How Owners AffectHow Owners Affect ManagementManagement
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Types of Mergers
Conglomerate
Vertical
Horizontal
No Relationship
between companies
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Franchise System
• Franchise Agreement
• Franchisor
• Franchisee
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Franchise Contract
Franchisor, Inc.Franchisor, Inc.
FranchiseeFranchisee
Branded Branded Product/ServicProduct/Servic
eePerformancPerformanc
ee
MonitoringMonitoring$$$$$$$$$$
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Franchisor
• Assigns Territory
• May Provide Financial Aid/Advice
• Offers Merchandise/ Supplies at Competitive Price
• Provides Training/Support
• Business Expansion Using O.P.M.
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Franchisee
• Pays Up-Front Costs
• Makes Monthly Payment to Franchisor
• Runs Business by Franchisor’s Rules/Procedures
• Buys Materials from Franchisor/ Approved Supplier
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Franchises
• Management & Management &
marketing assistancemarketing assistance
• Personal ownershipPersonal ownership
• Recognized nameRecognized name
• Financial advice & Financial advice &
assistanceassistance
• Lower failure rateLower failure rate
• High start-up costsHigh start-up costs
• Shared ProfitShared Profit
• Management regulationManagement regulation
• Coattail effectsCoattail effects
• Restrictions on sellingRestrictions on selling
• Fraudulent franchisorsFraudulent franchisors
AdvantagesAdvantages DisadvantagesDisadvantages
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Cost of Fast-Food Franchise
CompanyCompany Initial FeeInitial Fee RoyaltyRoyalty
Burger KingBurger King $50,000$50,000 8.5%8.5%
McDonald’sMcDonald’s $45,000$45,000 8%8%
Wendy’sWendy’s $25,000$25,000 8%8%
Domino’sDomino’s NoneNone 8.5%8.5%
SubwaySubway $10,000$10,000 11.5%11.5%
Krispy KremeKrispy Kreme $40,000$40,000 5.5%5.5%