Building the Foundation: Forms of Business Ownership

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Excellence in Business, 3e

Chapter 5 - 1

Business Ownership
Sole proprietorship Partnership Corporation

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Chapter 5 - 2

Sole Proprietorship
Advantages

Disadvantages

Ease of establishment Self-satisfaction Privacy Tax advantages

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Unlimited liability Personal pressure Difficult to get funding Limited life

Chapter 5 - 3

Excellence in Business, 3e

Business Partnerships
General partnerships Equal partners Share ownership Unlimited liability Limited partnerships Unequal partners Passive investors Limited liability
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Advantages of Partnerships
Easy to establish Tax advantages Strength in numbers Diversity of skills Increased capital Extended life
Excellence in Business, 3e Chapter 5 - 5

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Disadvantages of Partnerships
Unlimited liability Debts Law suits Interpersonal problems Managing partner Unproductive partners
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Partnership Agreement
Division of profits Decision-making authority Expected contributions Dispute resolution

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Chapter 5 - 7

Corporations
Enter into contracts Own and sell property Sue and be sued Enjoy limited liability

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Chapter 5 - 8

Ownership of Corporations
Shareholders Common stock Preferred stock

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Excellence in Business, 3e

Chapter 5 - 9

Who Owns a Corporation?

Public Many stockholders Publicly traded Private Few stockholders Not publicly traded
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Advantages of Going Public

Ready supply of capital Increased liquidity Enhanced visibility Independent market value Increased flexibility
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Disadvantages of Going Public

High cost SEC filing requirements Reduced ownership control Demands of public exposure Pressure for quarterly results
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Corporations
Advantages

Disadvantages

Access to capital Limited liability Increased liquidity Unlimited life span

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Excess paperwork Burdensome costs Double taxation Disclosure requirements

Chapter 5 - 13

Excellence in Business, 3e

Types of Corporations
Subchapter S corporation Limited liability company Subsidiary corporation

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Chapter 5 - 14

Corporate Governance
Common Shareholders Board of Directors Corporate Officers Employees of the Company

Individuals Companies Non-profits Pensions Mutual Funds

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Dividends Corporate Affairs Strategic Plans Select Officers Finances

Excellence in Business, 3e

Operations Chief Executive Chief Financial Chief Operations Finance Marketing Personnel Engineering
Chapter 5 - 15

Reform: Board-Related Issues

Composition Education Liability Recruiting

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Chapter 5 - 16

Business Combinations
Mergers Consolidations Acquisitions Leveraged buyouts

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Excellence in Business, 3e

Chapter 5 - 17

Types of Business Mergers

Vertical Horizontal Conglomerate Market extension Product extension

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Chapter 5 - 18

Mergers, Consolidations, and Acquisitions

Advantages
Economies of Scale Efficiencies Synergies
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Disadvantages
High-Risk Corporate Debt Management Distractions Culture Clashes

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Chapter 5 - 19

Trends in Mergers and Acquisitions

Year 1970 1975 1980 1985 1990 1995 2000 2003
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Number 5,152 2,297 1,889 3,001 2,074 3,510 11,123 8,232

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Value (in billions) $16 $12 $44 $180 $108 $356 $1,269 $530
Chapter 5 - 20

Defenses Against Mergers and Acquisitions

Types Tender offer Proxy fight Defenses Poison pill Golden parachute Shark repellent White knight
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Strategic Alliances and Joint Ventures

Gain credibility Expand markets Access technology Diversity offerings Share best practices

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Excellence in Business, 3e

Chapter 5 - 22