Chapter 05 - * * * Basic Forms of Basic Business Ownership...

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Unformatted text preview: * * * Basic Forms of Basic Business Ownership Business Type of Ownership Sole Proprietorship Partnership Corporation Number 72% 8% 20% Sales 6% 13% 81% Source: US Internal Revenue Service 5- 1 * * * • • • • • • Sole Proprietorship Advantages Ease of start/end Be your own boss Pride of ownership Leave a legacy Retain profit No special taxes Disadvantages • • • • • • • Unlimited liability Limited financial Limited resources resources Management difficulty Time commitment Few fringe benefits Limited growth Limited life span 5- 2 * * * Types of Partnerships General GP GP GP GP Passive Investor Limited Passive Investor GP Passive Investor 5- 3 * * * New Forms of Partnerships • Master Limited Partnership • Traded Publicly • Taxed As A Partnership • Limited Liability Partnership 5- 4 * * * Partnership Advantages • More financial resources • Shared management Disadvantages • Unlimited liability • Division of profits • Disagreements among partners • Difficult to terminate 5- 5 • Longer survival • No Special Taxes * * * Types of Corporations Conventional • Conventional ‘C’ • S Corporation • Limited Liability Companies 5- 6 * * * Corporations • • • Private: Not Traded on Any Private: Stock Exchange Stock Public: Shares are Traded on Public: are One or More Stock Exchanges One Non-Profit: Performs Public Non-Profit: Service, Has Special Tax Considerations to Encourage Formation Formation 5- 7 * * * Corporation Advantages • Limited liability • More money for investment • Size Size • Perpetual life • Ease of ownership change • Ease of drawing talented employees • Separation of ownership/mgmt. Disadvantages • Extensive paperwork • Double taxation • Two tax returns • Size • Termination difficult • Conflict with Stockholder & Board • Initial cost 5- 8 * * * 1. Citigroup Citigroup 2. General Electric 2. General 3. American Intl Group 3. American 4. Bank of America 4. Bank 5. HSBC Group 5. 6. ExxonMobil 7. Royal Dutch/Shell Royal 8. BP 8. BP 9. IING Group 9. NG 10. Toyota Motor 10. Source: Forbes, 2005 World’s Largest World’s Corporations Corporations 1. UBS 2. Wal-Mart Stores 3. Royal Bank of Scotland 4. JP Morgan Chase 5. Berkshire Hathaway Berkshire 6. BNP Paribas 6. 7. IBM 8. Total Total 9. Verizon Communication 9. 10.Chevron Texaco 5- 9 * * * America’s Largest America’s Private Companies Private 1. 2. 3. 4. 5. Revenue 2004 (In Millions) Cargill / agricultural commodities, food Koch Industries / chemicals, energy, tech chemicals, Mars / candy, pet food electronics candy, PricewaterhouseCoopers / accounting accounting Publix Supermarket / supermarkets $66,669 $66,669 60,000 60,000 19,100 19,100 18,700 18,700 18,686 18,686 Source: Forbes, 2005 5-10 * * * America’s Oldest Companies Companies Company J. E. Rhoads & Sons Covenant Life Ins. Philadelphia Dexter D. Landreth Seed Bank of New York Year Started 1702 1717 1752 1767 1784 1784 Type of Company Conveyer Belts Insurance Insurance Contributorship Adhesives & Coatings Seeds Banking 5-11 * * * GM’s Ownership In: Source: USA TODAY 5-12 * * * How Owners Affect Management Management 5-13 * * * S Corporations • No more than 100 shareholders • Individual or Estates • U.S. citizens or permanent residents • 1 class of stock • <25% of income can be passive • Benefits change with new tax rules 5-14 * * * Limited Liability Companies Advantages • Limited Liability • Tax Choice Disadvantages • No Stock • Limited Life Span • Fewer Incentives • Taxes • Paperwork 5-15 • Flexible Ownership Flexible Rules Rules • Flexible Profit & Flexible Loss Distribution Loss • Operating Flexibility * * * Types of Mergers Horizontal Vertical Conglomerate No Relationship between companies 5-16 * * * Leveraged Buyout Individual + Loan = Purchase of Company Purchase Loan Company = Collateral 5-17 * * * Why Mergers Don’t Work! • • Companies Overpay to Companies Acquire Another Firm Acquire Acquiring Company Acquiring Overestimates Cost Savings and Synergies and • Managers Disagree About Integrating Operations Integrating • Obsession with Cost Cutting Hurts Business, Costing Top Employees & Customers 5-18 * * * Franchise System Franchise • Franchise Agreement Agreement • Franchisor • Franchisee 5-19 * * * Franchise Contract Franchisor, Inc. Branded Product/ Service Performance Monitoring $$$$$ Franchisee 5-20 * * * Franchisor • • • Assigns Territory May Provide May Financial Aid/Advice Financial Offers Merchandise/ Offers Supplies at Competitive Price Competitive • • Provides Training/ Support Business Business Expansion Using O.P.M. O.P.M. 5-21 * * * Franchisee • Pays Up-Front Costs Makes • Makes Monthly Payment to Franchisor Franchisor Runs • Runs Business by Franchisor’s Rules/Procedures Rules/Procedures Buys • Buys Materials from Franchisor/ Approved Supplier Approved 5-22 * * * • • • • • Franchises Advantages Management & Management marketing assistance marketing Personal ownership Recognized name Financial advice & Financial assistance assistance Lower failure rate Disadvantages • • • • • • High start-up costs Shared Profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors 5-23 * * * Cost of Fast-Food Franchise Franchise Company Burger King McDonald’s Wendy’s Domino’s Subway Krispy Kreme Initial Fee $50,000 $45,000 $25,000 None $10,000 $40,000 Royalty 8.5% 8% 8% 8.5% 11.5% 5.5% 5-24 * * * How to Avoid a Franchise Lemon! 1. 1. 1. 1. Research officers & their Research business experience business Get summary of any bankruptcy Get & litigation litigation Estimate all costs to set up Estimate all franchise franchise Review franchise contract & three Review most recent financial statements most 5-25 * * * Benefits of a Home-Based Franchise • Flexible work hours • Quality lifestyle Doing your • Doing the work of your • • choice choice Opportunity to expand Opportunity using technology using Self-motivation 5-26 * * * Franchising & E-Commerce Technology• Technology- Faster Customer Service Customer Markets Markets Access • Access to International 5-27 * * * Cooperatives • Farm Cooperative Owned • Owned & Controlled by People Who Use It Who • Pool of Resources • Economic Power 5-28 ...
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