Lecture 05

January 5, 2018 | Author: Anonymous | Category: Business
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Business Ownership Types.... •

Sole Proprietorship. –

Partnership. –

A business that is owned and usually managed by one person. A legal form of business with two or more owners.

Corporation. –

A legal entity with authority to act and have liability separate from its owners.

• Corporations make up 20% of the total number

of businesses. – They generate 81% of the total revenue.

• Sole proprietorships make up 72% of the total

number of businesses. – Generate 6% of the revenue.

Sole Proprietorships •

Pros –

– – – –

Ease of starting and ending. Being your own boss. Pride of ownership. Retention of profit. No special taxes.

• Cons – Unlimited liability ~ define (?)

– Limited financial resources. – Difficulty in management. – Overwhelming time commitment. – Few fringe benefits. – Limited growth. – Limited time span.

Partnerships •

Three main elements – – –

General partners –

Common ownership. Shared profit/loss. Right to participate in managing of the business operations. Have unlimited liability and are active in managing the company.

Limited Partners –

Have limited liability and do not participate in management of the company.

Liability •

Unlimited liability –

Sole proprietors and general partners must pay all debts and damages caused by their company. Personal possessions may have to be sold to pay these costs.

Limited liability –

Corporate owners (stock holders) and limited partners are only responsible for the amount they invest. Personal property is not at risk.

• Pros – Greater availability of financial resources.

– Shared management & pooled knowledge. – Longer survival chance.

• Cons – Unlimited liability.

– Division of profits. – Disagreements among partners. – Difficulty of termination.

Corporations •

A corporation is a state chartered entity with authority to act and have liability separate from its owners. Reason for people incorporating? – –

Special tax advantages. Limited liability.

• Pros – Greater amount of money for investment.

– Limited liability. – Size. – Perpetual life. – Ease of ownership change. – Ease of drawing talented employees.

• Cons – High initial cost.

– Large amount of paperwork. – Difficulty of terminations. – Size. – Double taxation. – Conflict with board of directors.

S Corporations. •

A unique government creation that looks like a corporation but is taxed like sole proprietorships/partnerships. (single Tax for shareholders and business). Conditions to be eligible – – –

Fewer than 75 stock holders Stockholders must be individuals or estates & U.S. citizens or permanent residents. Company cannot have more than 25% of income derived from passive sources (rents, royalties, interest etc).

Limited liability Companies •

A company that is similar to the S corporation but without the special eligibility requirements. Pros – – – – –

Limited liability. Choice of taxation. Flexible ownership rules. Flexible distribution of profit and loss. Operating flexibility.

• Cons – No stock.

– Limited life span. – Fewer incentives. – Taxes. – Paperwork.

• Comparison of types of business ownership. – Chapter 5 , Book I, pg.155

Mergers & Acquisitions •

Merger –

Acquisition –

One company's purchase of the property and obligations of another company.

Vertical Merger – –

The result of two firms forming a company.

The joining of two companies involved in different stages of related businesses. Examples?

Horizontal Merger – –

The joining of two firms in the same industry. Examples?

• Conglomerate merger – The joining of firms in completely unrelated


• Leveraged buyout (LBO) – An attempt by employees, management, or a group

of investors to purchase an organisation. – Done primarily through borrowing.

Franchise •

An arrangement to buy the rights to use the business name and sell its products or services in a given territory. Pros – – – –

Nationally recognised name and reputation. A proven management system. Promotional assistance. Pride of ownership.

• Cons – High franchise fees.

– Managerial regulation. – Shared profits. – Transfer of adverse effects if other franchisees fail.

Co-operatives • • • •

Organisations are organisations that are owned by the members/customers themselves. Controlled by the people who use it – producers, consumers or workers with similar needs who pool their resources for mutual gain. Some people form co-operatives to give members more economic power than they would have as individuals. Small businesses often form co-operatives to gain purchasing, marketing or product development strength.

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