Bài giảng Understanding Business - Chapter 5 How to Form a Business

How to Form a BusinessChapter 05McGraw-Hill/Irwin Copyright â 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Compare the advantages and disadvantages of sole proprietorships.Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships.Compare the advantages and disadvantages of corporations and summarize the differences between C corporations, S corporations and limited liability companies.Define and give examples of three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private.Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.Explain the role of cooperatives.LEARNING GOALSChapter Five5-2Basic Forms of Business OwnershipSole 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 OWNERSHIP5-3FORMS of BUSINESS OWNERSHIPBasic Forms of Business Ownership5-4Advantages of Sole ProprietorshipsEase of starting and ending the businessBeing your own bossPride of ownershipLeaving a legacyRetention of company profitNo special taxesMAJOR BENEFITS of SOLE PROPRIETORSHIPLG15-5Disadvantages of Sole ProprietorshipsUnlimited 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 resourcesManagement difficultiesOverwhelming time commitmentFew fringe benefitsLimited growthLimited life spanDISADVANTAGES of SOLE PROPRIETORSHIPSLG15-6Partnerships General Partnership -- All owners share in operating the business and in assuming liability for the business’s debts.MAJOR TYPES of PARTNERSHIPSLG2Limited Partnership -- A partnership with one or more general partners and one or more limited partners.5-7General Partner -- An owner (partner) who has unlimited liability and is active in managing the firm.Limited Partner -- An owner who invests money in the business, but enjoys limited liability. Limited Liability means that liability for the debts of the business is limited to the amount the limited partner puts into the company; personal assets are not at risk.TYPES OF PARTNERSLG2Partnerships 5-8Master 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 of PARTNERSHIPSLG2Partnerships 5-9Advantages & Disadvantages of PartnershipsMore financial resourcesShared management and pooled/complementary skills and knowledgeLonger survivalNo special taxesADVANTAGES of PARTNERSHIPSLG25-10Unlimited liabilityDivision of profitsDisagreements among partnersDifficult to terminateDISADVANTAGES of PARTNERSHIPSLG2Advantages & Disadvantages of Partnerships5-11There is no such thing as a perfect partner but ask these questions when you try to find your best 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?The TIES that BIND(Spotlight on Small Business)5-12CorporationsConventional (C) Corporation -- A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders).CONVENTIONAL CORPORATIONSLG35-13Advantages of CorporationsLimited liabilityAbility to raise more money for investmentSize Perpetual lifeEase of ownership changeEase of attracting talented employeesSeparation of ownership from managementAnyone can incorporteADVANTAGES of CORPORATIONSLG35-14HOW OWNERS AFFECT MANAGEMENTLG3Advantages of Corporations5-15Source: Fortune, www.fortune.com, accessed June 2011.WalmartExxon MobilChevronConocoPhillipsFannie MaeThe BIG BOYS of BUSINESSAmerica’s Largest CorporationsLG3Advantages of CorporationsPhoto Courtesy of: Walmart Stores5-16Disadvantages of CorporationsInitial costExtensive paperworkDouble taxationTwo tax returnsSizeDifficulty of terminationPossible conflict with stockholders and board of directorsDISADVANTAGES of CORPORATIONSLG35-17S CorporationsS Corporation -- A unique government creation that looks like a corporation, but is taxed like sole proprietorships and partnerships.S corporations have shareholders, directors and employees, plus the benefit of limited liability.Profits are taxed only as the personal income of the shareholder.Special qualifications for S CorporationsS CORPORATIONSLG35-18Limited Liability CompaniesLimited Liability Company (LLC) -- Similar to an S corporation, but without the eligibility requirements.Advantages of LLCs:Limited liabilityChoice of taxationFlexible ownership rulesFlexible distribution of profits and lossesOperating flexibilityLIMITED LIABILITY COMPANIESLG35-19No stock, therefore ownership is nontransferableLimited life spanFewer incentivesTaxesPaperworkDISADVANTAGES of LLCsLG3Limited Liability Companies5-20Vermont allows a new kind of LLC that exists only online.Registration documents can be filed online, meetings can be held through online communication, and relationships can be established electronically.Virtual companies allow online contributors with different skills, availability and interest to interact and be successful.VIRTUAL COMPANIES(Legal Briefcase)5-21Corporate Expansion: Mergers and AcquisitionsMerger -- The result of two firms joining to form one company.MERGERS and ACQUISITIONSLG4Acquisition -- One company’s purchase of the property and obligations of another company.5-22Vertical Merger -- Joins two firms in different stages of related businesses.Horizontal Merger -- Joins two firms in the same industry 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 MERGERSLG4Corporate Expansion: Mergers and Acquisitions5-23Leveraged 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 small businesses to giant corporations.In 2010, foreign investors poured $300 billion into U.S. companies.LEVERAGED BUYOUTSLG4Corporate Expansion: Mergers and Acquisitions5-24FranchisesFranchise Agreement -- An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory.More than 825,000 franchised businesses operate in the U.S., employing approximately 17.5 million people.FRANCHISINGLG55-25The Nationals in D.C. have the first sports stadium to earn the 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.PLAY BALL but PLAY GREEN(Thinking Green)New York stadiums for the Mets, Giants and Jets have also earned green certifications.5-26Advantages of FranchisesManagement and marketing assistancePersonal ownershipNationally recognized nameFinancial advice and assistanceLower failure rateADVANTAGES of FRANCHISINGLG55-27Diversity in FranchisingWomen own about half of U.S. companies, yet ownership of franchises is about 25%.Firms owned by women have grown at twice the rate of all companies.WOMEN in FRANCHISINGLG5More women are becoming franchisors. Auntie Anne’s and Jazzercise and are owned by women.5-28Large start-up costsShared profitManagement regulationCoattail effectsRestrictions on sellingFraudulent franchisorsDISADVANTAGES of FRANCHISINGLG5Disadvantages of Franchises5-29Minority-Owned FranchisesHome-Based FranchiseseCommerce FranchisingOnline FranchisingGlobal FranchisingTRENDS IN FRANCHISINGLG5Disadvantages of Franchises5-30Many businesses use social media to communicate with potential investors and franchisees.Họagen-Dazs launched a simulation game called Ice Cream Boss on Facebook.The company hopes that players may move on to become franchisees of real Họagen-Dazs stores.FRANCHISE EXPANSION on FACEBOOK(Social Media in Business)5-31Source: Richard Gibson, Wall Street Journal, www.wsj.com, accessed June 2011.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.WHAT to CHOOSE?Picking Franchises that May Survive a RecessionLG5Franchising in International Markets 5-32Cooperatives Cooperatives -- Businesses owned and controlled by the people who use them– producers, consumers, or workers with similar needs who pool their resources for mutual gain. Worldwide, 750,000 co-ops serve 730 million members – 120 million in the U.S.Members democratically control the business by electing a board of directors that hires professional management.COOPERATIVESLG65-33