PART TWO:

STARTING & GROWING

A SUCCESSFUL
BUSINESS
Chapter Five Forms of Ownership

Chapter Learning Objectives

5-2

Basic Forms of Business Ownership

Franchises & Special Forms of Ownership
Mergers & Acquisitions

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Basic Forms of Ownership

5-3

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Hall

Sole Proprietorships
5-4

Benefits

You can start up the business with ease

You can make all your own decisions

You get to keep all the profits

Your taxes are relatively simple

You can close the business with ease

Drawbacks

You have unlimited financial liability

You have limited financial resources & few fringe benefits

You have limited management resources

You will be investing a lot of time in the company

Many businesses end when the owner dies or retires

Copyright 2013 Pearson Education, Inc. Publishing as Prentice
Hall

Partnerships
5-5

Four Types

Advantages

General
Limited
Master Limited
Limited Liability

Ease of start up
Increased financial
resources
Increased management
resources
Taxes are simple

Drawbacks

Personality or
partnership conflicts
Unlimited liability
Hard to end or pass
along partnerships

Copyright 2013 Pearson Education, Inc. Publishing as Prentice

Hall

Corporations
5-6

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Hall

Corporations
5-7

Advantages

Little or no liability
Possible tax breaks
Increased financial resources
More managerial expertise
Ease of selling

Drawbacks

Lots of start-up paperwork and costs, some on-going

Can be taxed twice
Need to publicly disclose financial information
Tough to end the corporation
Copyright 2013 Pearson Education, Inc. Publishing as Prentice
Hall

Cooperatives
5-8

Limits the power of each shareholder

Less about profit, more about providing a
service
Over 460,000 in the U.S. today
Includes some Fortune 500 companies,
like Ace Hardware and Sunkist
Shareholders elect their own board of
directors
Copyright 2013 Pearson Education, Inc. Publishing as Prentice
Hall

Franchises
5-9

A franchise is an
arrangement in
which a business
owner allows
others the right to
use its name and
sell its goods or
services within a
specific
geographical area.
Copyright 2013 Pearson Education, Inc. Publishing as Prentice
Hall

Franchises Benefits & Drawbacks

5-10

Benefits of Franchising

Own your own business

Start your new enterprise with some name recognition
Follow someone elses proven formula for doing business
Receive marketing support
Receive management and financial support

Drawbacks

Large initial investment

Need to share sales with franchisor
Close management of franchisor
Potential conflicts with franchisor
Inflated expectations of return on investment
Copyright 2013 Pearson Education, Inc. Publishing as Prentice
Hall

Mergers and Acquisitions

5-11

How to Grow

Internal expansion
External expansion
Merger
Acquisition

Why Mergers & Acquisitions Occur

Shortcut to growth
Management talent
Saving money
Tax benefits
Copyright 2013 Pearson Education, Inc. Publishing as Prentice
Hall

Mergers and Acquisitions

5-12

Types of strategic mergers

Horizontal: same industry, same activity

Vertical: same industry, different activities
Conglomerate: different industries, different activities

Unfriendly mergers

Hostile takeovers
Tender offer & Proxy fight
White Knights & Poison pills
Borrow & Buy Strategies
Leveraged buyout
Employee buyout
Copyright 2013 Pearson Education, Inc. Publishing as Prentice
Hall

Learning Objectives Summary

5-13

Basic Forms of Business Ownership

Franchisees
Mergers & Acquisitions

Copyright 2013 Pearson Education, Inc. Publishing as Prentice

Hall

5-14

Copyright 2013 Pearson Education, Inc. Publishing as Prentice

Hall