Business a changing world 7e by ferrell chap005

Forms of Business OwnershipBusinesses owned and operated by one individual; the most common form of business organization in the United States Sole Proprietorship... Forms of Business Ow

Business in a Changing World

Chapter 5

Options for Organizing Business

Zingerman’s Deli-

Innovation, quality, & growth

Thanks to the Internet, haggling has never been easier, especially in the area of online apparel

sales.

Forms of Business Ownership

•Sole proprietorship

•Partnership

•Corporation

Comparing the Forms of Business Ownership

Source: U.S Bureau of the Census, Statistical Abstract of the U.S 2003,

Various Forms of Business Ownership

Forms of Business Ownership

Forms of Business Ownership

Businesses owned and operated by one

individual; the most common form of business

organization in the United States

Sole Proprietorship

Forms of Business Ownership

Forms of Business Ownership

Sole Proprietorship Facts

• 15-20 million in the U.S.

• 80% of all businesses

• Men 2x more likely than women to start own

business

Forms of Business Ownership

•Ease and cost of formation

•Secrecy

•Distribution and use of profits

•Flexibility and control of the business

•Government regulation

•Taxation

Advantages of a Sole Proprietorship

Forms of Business Ownership

Forms of Business Ownership

A form of business organization defined by the

Uniform Partnership Act as “an association of two

or more persons who carry on as co-owners of a

business for profit”

Partnership

Forms of Business Ownership

•General partnership

•Limited partnership

Types of Partnerships

Forms of Business Ownership

A partnership that involves a complete sharing

in both the management and the liability of the

business

General partnership

Forms of Business Ownership

A business organization that has at least one

general partner, who assumes unlimited liability,

and at least one limited partner whose liability is

Limited partnership

Articles of Partnership

Legal documents that set forth the basic

agreement between partners.

Articles of Partnership

1 Name, purpose, location

2 Duration of the agreement

3 Authority and responsibility of each partner

4 Character of partners (i.e., general or limited,

active or silent)

5 Amount of contribution from each partner

6 Division of profits or losses

7 Salaries of each partner

12 Required and prohibited actions

13 Absence and disability

14 Restrictive covenants

15 Buying and selling agreements

Partnerships Advantages & Disadvantages

Advantages

•Ease of organization

•Capital & credit

•Knowledge & skills

Keys to Success in Business Partnerships

1 Keep profit sharing and ownership at 50-50

2 Partners should have different & complementary skill sets

3 Honest is critical

4 Maintain face-to-face communications

5 Transparency – sharing information

6 Awareness of funding constraints and limited resources

7 To be successful, you need experience

8 Family is priority; limit associated problems

9 Do not become too infatuated with “the idea” think

implementation

10 Couple optimism with realism in sales and growth

expectations

Forms of Business Ownership

Legal entities created by the state whose assets

and liabilities are separate from its owners

Corporations

Forms of Business Ownership

Typically owned by many individuals and/or

organizations who own shares of the business –

stock (shareholders or stockholders)

Corporations

Stock – shares of a corporation that may be bought or

sold

Dividends – profits of a corporation that are distributed

Stock & Dividends

A Corporation is created (incorporated) under

the laws of the state in which it incorporates

The individuals creating the corporation are

called incorporators.

Creating a Corporation

Legal documents filed with basic information

about the business with the appropriate state

office (often the secretary of state)

Articles of Incorporation

Articles of Incorporation

Common Elements

1.Name & address of corporation 2.Objectives of the corporation 3.Classes of stock (common, preferred, voting, nonvoting) 4.Number of shares of each class of stock

5.Financial capital required at time of incorporation 6.Provisions for transferring shares of stock

7.Regulation of internal corporate affairs 8.Address of business office

9.Names and addresses of the initial board of directors 10.Names and addresses of the incorporators

Private corporation – a corporation owned

by just one or a few people who are closely

involved in managing the business

Types of Corporations

Public Corporation– a corporation whose

stock anyone may buy, sell, or trade

Types of Corporations

Initial Public Offering (IPO) – A private

corporation who wishes to go “public” to raise

additional capital and expand The IPO is

selling a corporation’s stock on public markets

for the first time.

Types of Corporations

Quasi-public corporation – Corporation

owned and operated by the federal, state,

or local government

(NASA, U.S Postal Service)

Types of Corporations

The Largest U.S Corporations

Fortune’s 2007 rankings of America’s largest corporations

Rank Company ($millions) Revenues

Non-profit corporation – focuses on

providing a service rather than earning a

profit but are not owned by a government

entity (American Red Cross)

Types of Corporations

Board of Directors – a group of individuals

elected by the stockholders to oversee the

general operation of the corporation who

set the corporation’s long-range objectives

Board of Directors

Inside Directors – individuals who serve on the board

and are employed by the corporation (usually executives

of the corporation).

Outside Directors – individuals who serve on the board

who are not directly affiliated with the corporation

(usually Executives of other corporations).

Board of Directors

Preferred stock – a special type of stock whose owners,

though not generally having a say in running the company,

have a claim to profits before other stockholders do.

Common Stock – stock whose owners have voting rights in the

corporation, yet do not receive preferential treatment

regarding dividends.

Stock Ownership

information – Employee-owner separation

Other Types of Business Ownership

•Joint Ventures

•S Corporations (S-Corp)

•Limited Liability Companies (LLC’s)

•Cooperatives (Co-op’s)

Other Types of Business Ownership

Joint Venture a partnership established

for a specific project or for a limited time

(Audi & Volkswagen joint venture)

Other Types of Business Ownership

S-Corporation (S-Corp) – corporation taxed as

though it were a partnership with restrictions on

shareholders Very popular with entrepreneurs

Other Types of Business Ownership

Limited Liability Company (LLC)– form of

ownership that provides limited liability and

taxation like a partnership but places fewer

restrictions on members (Segway)

Other Types of Business Ownership

Cooperative (Co-Op)– an organization composed

of individuals or small businesses that have

banded together to reap the benefits of

belonging to a larger organization

Trends in Business Ownership

•Mergers

•Acquisitions

Other Types of Business Ownership

Merger – the combination of two companies (usually

corporations) to form a new company

Acquisition – the purchase of one company by another,

usually by buying its stock and/or assuming its debt.

Types of Business Ownership

Major Mergers and Acquisitions Worldwide

Transaction in millions of U.S dollars

Other Types of Business Ownership

Leveraged buyout (LBO) – a purchase in which a

group of investors borrows money from banks and

other institutions to acquire a company (or a division

of one) using the assets of the purchased company

to guarantee repayment of the loan