J0712 Pert04
-
Upload
lim-cia-chien -
Category
Documents
-
view
219 -
download
0
Transcript of J0712 Pert04
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 1/42
*
*Chapter Five
How to Form
a Business
Copyri ght © 2010 by the McGraw-Hil l Companies, Inc. All ri ghts reserved. McGraw-Hill/Irwin
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 2/42
*
*
• Bought a used truck and started Rubbish Boys,later changed the name to 1-800-GOT-JUNK?.
• $130 million in annual earnings from locations
across North America and Australia.• Expanded through franchising.
ProfileBRIAN SCUDAMORE1-800-GOT-JUNK?
5-2
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 3/42
*
*Basic Forms of
Business
Ownership
• Sole Proprietorship -- A business owned, and
usually managed, by one person.
• Partnership -- Two or more people legally agree to
become co-owners of a business.
• Corporation -- A legal entity with authority to act
and have liability apart from its owners.
MAJOR FORMS of OWNERSHIP
LG1
5-3
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 4/42
*
*Basic Forms of
Business
Ownership
LG1
FORMS ofBUSINESS OWNERSHIP
5-4
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 5/42
*
* Advantages of
Sole
Proprietorships
• Ease of starting andending the business
• Being your own boss
• Pride of ownership
• Leaving a legacy
•
Retention of companyprofit
• No special taxes
MAJOR BENEFITS of SOLEPROPRIETORSHIP
LG1
5-5
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 6/42
*
*Disadvantages
of Sole
Proprietorships
• Unlimited Liability -- Any debts or damages
incurred by the business are your debts, even if it
means selling your home, car or anything else.
• Limited financial resources
• Management difficulties
• Overwhelming time commitment
• Few fringe benefits
• Limited growth
• Limited life span
DISADVANTAGES of SOLEPROPRIETORSHIPS
LG1
5-6
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 7/42
*
*Progress
Assessment
• Most people who start businesses in the UnitedStates are sole proprietors. What are the
advantages and disadvantages of soleproprietorships?
• Why would unlimited liability be considered amajor drawback to sole proprietorships?
PROGRESS ASSESSMENT
5-7
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 8/42
*
*Partnerships
• General Partnership -- All owners share in
operating the business and in assuming liability for
the business’s debts.
• Limited Partnership -- A partnership with one or more general partners and one or more limited
partners.
MAJOR TYPES of PARTNERSHIPSLG2
5-8
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 9/42
*
*Partnerships
• Master Limited Partnership -- A partnership that
looks much like a corporation but is taxed like a
partnership and thus avoids the corporate income
tax.
• Limited Liability Partnership -- Limits partners’
risk of losing their personal assets to the outcomes
of only their own acts and omissions and those of people under their supervision.
OTHER FORMS ofPARTNERSHIPS
LG2
5-9
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 10/42
*
*Partnerships
• General Partner -- An owner (partner) who has
unlimited liability and is active in managing the firm.
• Limited Partner -- An owner who invests money inthe business but enjoys limited liability. LimitedLiability means that liability for the debts of thebusiness is limited to the amount the limited partner
puts into the company; personal assets are not atrisk.
TYPES OF PARTNERS LG2
5-10
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 11/42
*
* Advantages &
Disadvantages
of Partnerships
• More financial resources
• Shared management and
pooled skills andknowledge
• Longer survival
• No special taxes
ADVANTAGES ofPARTNERSHIPS
LG2
5-11
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 12/42
*
* Advantages &
Disadvantages
of Partnerships
• Unlimited liability
•
Division of profits• Difficult to terminate
• Disagreements among
partners
DISADVANTAGES ofPARTNERSHIPS
LG2
5-12
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 13/42
*
*
There is no such thing as a perfect partner butask these questions when you try to find yourbest match:
• Do you share the same goals?
• Do you share the same vision for the company?
• What skills does he/she have? Are yours the same?
•
What can he/she bring to the business?• What type of decision maker is he/she?
• Do you trust each other?
• How does he/she problem solve?
PICK YOUR PARTNER WISELY(Spotlight on Small Business)
5-13
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 14/42
*
*Progress
Assessment
• What’s the difference between a limited partner
and a general partner?
• What are some of the advantages anddisadvantages of partnerships?
PROGRESS ASSESSMENT
5-14
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 15/42
*
*Corporations
• Conventional (C)
Corporation -- A state-
chartered legal entity withauthority to act and have
liability separate from its
owners (its stockholders).
CONVENTIONALCORPORATIONS
LG3
5-15
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 16/42
*
* Advantages of
Corporations
• Limited liability
• Ability to raise more money for investment
• Size
• Perpetual life
• Ease of ownership change
• Ease of attracting talented employees
• Separation of ownership from management
ADVANTAGES ofCORPORATIONS
LG3
5-16
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 17/42
*
* Advantages of
Corporations
LG3
HOW OWNERS AFFECTMANAGEMENT
5-17
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 18/42
*
*
Source: Fortune, www.fortune.com, April 2009.
1. Exxon Mobil
2. Wal-Mart
3. Chevron
4. ConocoPhillips
5. General Electric
Advantages of
CorporationsThe BIG BOYS of BUSINESS
America’s Largest Corporations LG3
6. General Motors
7. Ford
8. AT&T
9. Hewlett-Packard
10. Valero Energy
5-18
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 19/42
*
*
Source: Forbes, www.forbes.com, November 2008.
Advantages of
Corporations
Company State Industry
Cargill MN Farming
Koch Industries KS Chemicals
Chrysler MI Automobiles GMAC Financial Services MI Financial
PricewaterhouseCoopers NY Business Services
Mars VA Food
Bechtel
CA
Construction
HCA TN Hospitals
Ernst & Young NY Business Services
Publix Supermarkets FL Grocery
PRIVACY PLEASEThe Ten Largest Private Corporations in the U.S.
LG3
5-19
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 20/42
*
*Disadvantages
of Corporations
• Initial cost
• Extensive paperwork
• Double taxation• Two tax returns
• Size
• Difficulty of termination• Possible conflict with stockholders and board of
directors
DISADVANTAGES ofCORPORATIONS
LG3
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 21/42
*
*Individuals Can
Incorporate
• Anyone - truckers, doctors, plumbers, athletesand small business owners can incorporate.
• Normally, stock is not issued when individualsincorporate so the advantages anddisadvantages are not exactly the same as forlarge corporations.
• Major advantages are limited liability andpossible tax benefits.
WHO CAN INCORPORATE?
LG3
5-21
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 22/42
*
*Individuals Can
Incorporate
Company Year Started Type of Company
J.E. Rhoads & Sons 1702 Conveyer Belts
Covenant Life Insurance 1717 Insurance
Philadelphia Insurance 1752 Insurance
Contributorship
Dexter 1767 Adhesives & Coatings
D. Landreth Seed 1784 Seeds
Bank of New York 1784 Banking
OLDIES BUT GOODIES America’s Oldest Corporations
LG3
5-22
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 23/42
*
*S Corporations
• S Corporation -- A unique government creation that
looks like a corporation but is taxed like sole
proprietorships and partnerships.
• S corporations have shareholders, directors andemployees, plus the benefit of limited liability.
• Profits are taxed only as the personal income ofthe shareholder.
S CORPORATIONS
LG3
5-23
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 24/42
*
*S Corporations
• Qualifications for S Corporations:
- Have no more than 100 shareholders.
- Have shareholders that are individuals or estates andare citizens or permanent residents of the U.S.
- Have only one class of stock.
- Derive no more than 25% of income from passivesources.
• If an S corporation loses its S status, it maynot operate under it again for at least 5 years.
WHO CAN FORMS CORPORATIONS?
LG3
5-24
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 25/42
*
*Limited Liability
Companies
• Limited Liability Company (LLC) -- Similar to a
S corporation but without the eligibility requirements.
• Advantages of LLCs:- Limited liability
- Choice of taxation
-
Flexible ownership rules- Flexible distribution of profit and losses
- Operating flexibility
LIMITED LIABILITY COMPANIES
LG3
5-25
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 26/42
*
*Limited Liability
Companies
• No stock, therefore ownership is nontransferable
• Limited life span
• Fewer incentives
• Taxes
• Paperwork
DISADVANTAGES of LLCs
LG3
5-26
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 27/42
*
*
• Since June 2008, Vermont allows a new kind ofLLC that exist only online.
• Registration documents can be filed online,meetings can be held through onlinecommunication, and relationships can beestablished electronically.
• Virtual companies allow online contributors withdifferent skills, availability and interest to interactand be successful.
VERMONT WANTS to be the HOMEof YOUR NEW VIRTUAL COMPANY
(Legal Briefcase)
5-27
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 28/42
*
*Progress
Assessment
• What are the major advantages anddisadvantages of incorporating a business?
• What’s the role of owners (stockholders) in the
corporate hierarchy?
• If you buy stock in a corporation and someonegets injured by one of the corporation’s products,
can you be sued? Why or why not?• Why are so many new businesses choosing a
limited liability company (LLC) form ofownership?
PROGRESS ASSESSMENT
5-28
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 29/42
*
*Corporate
Expansion:
Mergers and
Acquisitions
• Merger -- The result of two firms joining to form one
company.
•
Acquisition -- One company’s purchase of the property and obligations of another company.
MERGERS and AQUISITIONS
LG4
5-29
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 30/42
*
*Corporate
Expansion:
Mergers and
Acquisitions
• Vertical Merger -- Joins two firms in different
stages of related business.
•
Horizontal Merger -- Joins two firms in the sameindustry and allows them to diversify or expand their
products.
• Conglomerate Merger -- Unites firms in
completely unrelated industries in order to diversify
business operations and investments.
TYPES of MERGERS
LG4
5-30
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 31/42
*
*Corporate
Expansion:
Mergers and
Acquisitions
• Leveraged Buyout (LBO) -- An attempt by
employees, management or a group of investors to
buy out the stockholders in a company.• LBOs have ranged in size from $50 million to $31
billion and have involved everything from smallbusinesses to giant corporations.
• In 2007, foreign investors poured $414 billion intoU.S. companies.
LEVERAGED BUYOUTS
LG4
5-31
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 32/42
*
*Franchises
• Franchise Agreement -- An arrangement whereby
someone with a good idea for a business
( f ranchisor ) sells the rights to use the business
name and sell a product or service ( f ranchise ) to
others ( f ranchisees ) in a given territory.
• More than 900,000 franchised businesses
operate in the U.S., employing approximately 10million people.
FRANCHISING
LG5
5-32
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 33/42
*
* Advantages &
Disadvantages
of Franchises
• Management and marketingassistance
• Personal ownership
• Nationally recognized name
• Financial advice and
assistance• Lower failure rate
ADVANTAGES of FRANCHISING
LG5
5-33
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 34/42
*
* Advantages &
Disadvantages
of Franchises
• Large start-up costs
• Shared profit
• Management regulation
• Coattail effects
• Restrictions on selling
• Fraudulent franchisors
DISADVANTAGES ofFRANCHISING
LG5
5-34
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 35/42
*
*Diversity in
Franchising
• Women own about half of U.S. companies yetreceive less than 4% of venture capital.
• For the past 20 years, firms owned by womenhave grown at twice the rate of all companies.
• More women are becoming franchisors. Auntie
Anne’s, Decorating Den, Jazzercise and TwoMen and a Truck are owned by women.
WOMEN in FRANCHISING
LG5
5-35
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 36/42
*
*
• The Nationals in D.C. have the first sportsstadium to earn the U.S. Green Building Council’s
Leadership in Energy and Environmental Design(LEED) Rating.
• 95% of the stadium’s steel was recycled and low-flow toilets save millions of gallons of water.
• New stadiums of the Mets and Twins also haveearned LEED certifications.
ROOT, ROOT, ROOT for theGREEN TEAM
(Thinking Green)
5-36
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 37/42
*
*Home-Based
Franchises
Advantages:
• Relief from commuting stress
•
Extra family time• Low overhead expenses
Main Disadvantage:
•
Isolation
HOME-BASED FRANCHISES
LG5
5-37
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 38/42
*
*Franchising in
International
Markets
• Canada is the most popular target for U.S. basedfranchises; South Africa and the Philippines are
becoming popular despite high cost.• Franchising is successful when the product is
convenient, high quality, great service is includedand the franchisee adapts to the region.
• International franchising goes both ways – someforeign franchises have come to the U.S.
GLOBAL FRANCHISING
LG5
5-38
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 39/42
*
*
Source: Richard Gibson, Wall Street Journal, www.wsj.com, February 12, 2008.
• Focus on tried-and-true name brands.
• Stick to core goods and services.
• Be choosy about the site.
• Don’t pinch pennies.
• Have a fallback choice.
• Don’t assume the franchise will pay off .
Franchising in
International
MarketsWHAT to CHOOSE?
Picking Franchises that May Survive a RecessionLG5
5-39
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 40/42
*
*
Source: Wall Street Journal, www.wsj.com, February 12, 2008.
1. Arthur Murray Dance Studios2. Banfield Pet Hospitals3. Bojangles’ Famous Chicken ‘n
Biscuits4. Denny’s 5. Friendly’s 6. The Melting Pot7. Nathan’s Famous
8. Servpro9. Stanley Steamer10.Two Men and a Truck
Franchising in
International
MarketsHIGH FLYERS
Ten High-Performing Franchises LG5
5-40
*
7/27/2019 J0712 Pert04
http://slidepdf.com/reader/full/j0712-pert04 41/42
*
*Cooperatives
• Cooperatives -- Businesses owned and controlled
by the people who use it – producers, consumers, or
workers with similar needs who pool their resources
for mutual gain.
• Worldwide, 750,000 cooperatives serve 730million members – 120 million in the U.S.
• Members democratically control the business byelecting a board of directors that hiresprofessional management.
COOPERATIVES
LG6
5-41
*