©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ...
Upcoming SlideShare
Loading in …5
×

Chapter6

322 views
259 views

Published on

Published in: Business, Travel
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
322
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Chapter6

  1. 1. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.6©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  2. 2. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.6©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.BusinessFormation:Choosing The FormThat Fits2LO1 What are the characteristics of the fourbasic forms of business ownership?LO2 What are the advantages anddisadvantages of a sole proprietorship?LO3 What are the pros and cons ofpartnerships?LO4 Why have corporations become thedominant form of business ownership?LO5 Why are limited liability companiesbecoming an increasingly popular form ofownership?LO6 What are the advantages anddisadvantages of franchising?
  3. 3. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Business Ownership Options:The Big FourSole Proprietorship – the business is owned bya single individualPartnership – two or more people serve as co-owners of the businessCorporation – the business is a separate legalentityLimited Liability Company – a hybrid withcharacteristics of both a corporation and3
  4. 4. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Net Income by Form ofOwnership4
  5. 5. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Corporate Profit and Revenue• Corporate form of ownership reports 66% ofprofits; representing only 18.3% of all entities• Companies like Walmart, Exxon, Apple andGeneral Electric have annual sales revenues inthe billions (hundreds of billions)• But, 24% of all corporations report revenueless than $25,0005Source: U.S. Census Bureau. The 2011Statistical Abstract of the United States Tables 743 and 744:http://www.census.gov/compendia/statab/2011/tables/11s0744.pdf, accessed January 23, 2011.
  6. 6. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Advantages and Disadvantages ofSole Proprietorships6Disadvantages: Limited FinancialResources Unlimited Liability Limited ability to attractand maintain talentedemployees Heavy workload andresponsibilities Lack of PermanenceAdvantages: Ease of Formation Retention of Control Pride of Ownership Retention of Profits Possible Tax Advantages©DavidGilder/Shutterstock.com
  7. 7. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.General Partnerships:Two Heads Can Be Better ThanOne7Advantages: Pooled Financial Resources Shared Responsibilities Ease of Formation Tax AdvantagesDisadvantages: Unlimited Liability Disagreements Lack of Continuity Difficulty inwithdrawing fromagreement
  8. 8. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Limited Partnerships8Limited Partnership –includes at least onegeneral partner and atleast one limited partnerLimited Partnership –includes at least onegeneral partner and atleast one limited partnerLimited Liability Partnership –All partners are activelyinvolved but they have someform of limited liability. Theamount of liability differsper state.Limited Liability Partnership –All partners are activelyinvolved but they have someform of limited liability. Theamount of liability differsper state.Limited partners have limited liability.©Jose Luis Pelaez Inc/Blend Images/Jupiterimages
  9. 9. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The Name Game9©Oliver Suckling/Shutterstock.comSource: Naming Your Business, Business Owner’s Toolkit website, http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P01_4800; Choosing the Right Name for My Corporation or Limited Liability Company, SCORE website,http://www.score.org/leg_choosing_name.html; Business Name Registration (Doing Business As), Business.gov website, http://www.business.gov/register/business-name/dba.html• Choosing a name depends on the type of business• Most sole proprietorships and general partnershipsoperate under their names• Must confirm name (or similar) is not being used• Many states required a DBA (doing business as) be filed• Corporations must be filed with the state and use specialwording Corporation, incorporated, company, limited or anabbreviation The words bank or cooperative cannot be used unlessapproved by a regulatory agency
  10. 10. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Corporations: An Artificial Person• Most common type of corporation is a “C”corporation• A corporation is a legal entity, separate fromits owners• Requirements vary by state, many states are“corporation-friendly”• Corporations are owned by stockholders• Articles of incorporations must be filed andcorporate bylaws adopted10
  11. 11. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Stock Ownership in MajorCorporations11
  12. 12. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Corporations:The Role of Board of Directors12• Elected by stockholders to oversee theoperation of their company and protecttheir interests• Oversee the operation of corporationand protect investors’ interest• Establish mission and set objectives• Rarely get involved in day-to-daymanagement• Responsible for monitoring theperformance of the corporate officers© Timm Schamberger/AFP/Getty Images
  13. 13. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Form of Business Aims forSocial Responsibility• Maryland created new business form: benefitcorporation• Like a C Corporation but includes provisionsfor social/environmental goals• They are not nonprofits, they are legallycovered to focus on non-financial goals• Priority to employees, customers,environmentalists 13Source: “Maryland Signs Benefit Corporation Law,” by Tasha Petty, Little Green Submarine website, http://www.littlegreensubmarine.com/maryland-signs-benefit-corporation-law/; “Maryland First State in Union to Pass Benefit Corporation Legislation,”CSR Newswire website, http://www.csrwire.com/press/press_release/29332-Maryland-First-State-in-Union-to-Pass-Benefit-Corporation-Legislation.©TheStudioDog/Photodisc/GettyImages
  14. 14. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Advantages and Disadvantages ofCorporations14Disadvantages:• Expense/complexity offormation and operation• Double Taxation• Paperwork and Regulation• Complications whenoperating in more thanone state• Conflicts of InterestAdvantages:• Limited Liability• Permanence• Easy to Transfer Ownership• Ability to Raise Capital• Specialized Management
  15. 15. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Other Types of Corporations:Same but Different15TYPETYPE KEY ADVANTAGEKEY ADVANTAGE LIMITATIONSLIMITATIONSS Corp. •IRS does not tax earnings separately•Stockholders have limited liability•No more than 100 stockholders•Stockholders must be U.S. citizens orpermanent residentsStatutoryCloseCorp.•Not require to have a board or holdannual meetings•Owners can participate in managementwhile maintaining limited liability•Limited number of stockholders•Stockholders must offer shares toowner first before selling publicly•Not all states allow this corporationtypeNonprofitCorp.•Earnings are exempt from federal andstate income taxes•Members/directors have limited liability•Contributions made by individuals are tax-deductible•May have dues paying members butno stockholders•Can’t distribute dividends•Can’t make political donations•Must keep accurate records todocument tax-exemption
  16. 16. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Stockholders Get “Say on Pay”• Board of Directors’ job is to protect thevoice of the stockholders• The Recession of 2008/2009 brought thatoversight into question regardingCEO Pay• CEOs were enjoying high salariesand perks while laying off workers• Congress passed the Dodd-Frank Actwhich gives stockholders “some” voice inexecutive compensation 16©Arcady/ Shutterstock.comSource: “New Law Has Effect on Pay for Executives” by David Nicklaus, St. Louis Post Dispatch, page B1, January 7, 2007; Dodd-Franks say on pay could impact executive pay by Ronald D. Orol, Marketwatch Website: http://www.marketwatch.com/story/new-say-on-pay-law-could-temper-ceo-pay-2010-08-26; Dodd-Frank: What it Means for Comp and Governance by Daniel J. Ryterband, Bloomberg BusinessWeek website: http://www.businessweek.com/managing/content/jul2010/ca20100716_567635.htm.
  17. 17. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Corporate Restructuring:Mergers & Acquisitions17Large corporations constantlylook for ways to grow andachieve competitiveadvantage.Mergers – two companiesagree to a combination ofequalsAcquisitions – when onefirm buys another©Tom Merton/OJO Images/Jupiterimages
  18. 18. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Murray’s CheeseVideo HereVideo Here18
  19. 19. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Gather Around the Water Cooler:Let’s Talk•• Why would a retail giant like Krogerpursue a partnership with a small NewYork cheese shop?• What are the benefits of thepartnership to Murray’s?• What challenges does the partnershipcreate for Murray’s?• Why would a retail giant like Krogerpursue a partnership with a small NewYork cheese shop?• What are the benefits of thepartnership to Murray’s?• What challenges does the partnershipcreate for Murray’s?19©iStockphoto.com/DNY59
  20. 20. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Types of Mergers & Acquisitions20
  21. 21. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Divestitures: When Less is MoreDivestitures allow the firm to streamline theiroperations and focus•Spin-off – setting up the division or part ofthe business as a separate companySell stock to existing stockholders•Carve-out – setting up a separate businessfrom an operationSell stock to outside investors21
  22. 22. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The Limited Liability Company:The New Kid on the Block22Advantages:• Limited Liability• Tax Pass-Through• Simplified Management andOperation• Flexible OwnershipDisadvantages:• Complexity of Formation• Franchise Taxes• Foreign Status in other States• Limited to Select Industries• State Law Differences
  23. 23. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Which Would You Choose?• Which business form would be best for each of thefollowing businesses types? T-Shirt/Screen Printing Restaurant Beauty Salon Landscaping Home/Office Cleaning• What if the business expanded, would you changethe form?• Would you consider a franchise for any of thesebusinesses? What business form would you choose for a franchise?23
  24. 24. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Franchising: ProvenMethods for a Price• The franchisee uses the brand name,trademark and practices of the franchisor• Growth in women franchises• Minority participation has increased under newinitiatives• A well-established method for operating abusiness 24Source: Fit for Franchising, by Taylor Mallory, Pink Magazine June/July 2007, pinkmagazine.com website: http://www.pinkmagazine.com/franchise/women/2007/burzynski.html; Franchising Attracts More Women, Minorities by Julie Bennett, Startup Journal, accessed through Entrepreneur.com website:http://www.entrepreneur.com/franchises/franchisezone/startupjournal/article61324.html; Female Franchisors Few and Far Between by Julie M. Young, e-magnify.com website: https://www.e-magnify.com/resources_articlearchiveresults.asp?categoryID=18; Fit to Be a Franchisee: Many Businesswomen Choose Franchises that Connect With Personal Interests by Nancy Lacewell,June 7, 2006 Business First of Louisville website: http://www.bizjournals.com/louisville/stories/2006/05/22/story2.html.. Boosting Diversity in Franchising by Joan Szabo, December 5, 2006, Franchise Update website: http://www.franchise-update.com/article/188/. Bridging the Gap Between the Minority Community and the Franchising Industry, Minority Franchising website:http://www.minorityfranchising.com/, accessed January 20, 2011; MinorityFran, International Franchise Association website: http://www.franchise.org/files/MinorityFran%20Broch%20by%20page.pdf, accessed January 20, 2011.©TheStudioDog/Photodisc/GettyImages
  25. 25. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Franchising in Foreign Markets© Karen Cowled/Alamy• Franchising in foreign markets have shown greatopportunities for growth• Markets are less intense andless saturated McDonald’s 12,693 Subway 7,235 Curves 2,868• McDonald’s has slightly more franchises in foreigncountries than the U.S. 25Source: Entrepreneur.com website pages for individual franchisors: http://www.entrepreneur.com/franchises/mcdonalds/282570-0.html; http://www.entrepreneur.com/franchises/subway/282839-0.html; http://www.entrepreneur.com/franchises/curves/282265-0.html, accessed January 22, 2011.
  26. 26. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Advantages and Disadvantagesof Franchising26Disadvantages:CostsLack of ControlNegative Halo EffectGrowth ChallengesRestriction on SalePoor ExecutionAdvantages:Less RiskTraining and SupportBrand RecognitionAccess to Funding
  27. 27. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Franchising Costs27
  28. 28. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Some Franchisees Are Quite HappyWhen They Don’t Earn Profit28 Many customers like doingbusiness with nonprofitfranchisees. Nonprofit franchising is agood way for companies tobe socially responsible andbuild goodwill. Nonprofits can boost theirfundraising efforts.Ben & Jerry franchises itsPartnerShops to nonprofitcorporations.Source: “The Ben & Jerry’s Law: Principles Before Profit,” by John Tozzi, Bloomberg Business Week, April 26, 2010, pp. 65-66. Ben & Jerry’s website, http://www.benjerry.com/scoop_shops/partnershops/, accessed August 2, 2009; Nonprofit Owned Franchises:A Strategic Business Approach, prepared by Community Wealth Ventures and IFA Educational Foundation, March 2004© David Lee/Alamy
  29. 29. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Entering Into A Franchise Agreement• Know all the facts before signing the dotted line: Terms and Conditions Fees and Other Payments Training and Support Specific Operational Requirements Conflict Resolution Assigned Territory• Franchisors must provide a Franchise Disclosure Document(FDD)• The Federal Trade Commission (FTC) require: The FDD must be written in plain English The franchisor must be given 14 days to review the FDD The Franchisee should have a lawyer review the document29
  30. 30. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Reality TV: We Mean BusinessVideo HereVideo Here30
  31. 31. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Gather Around the Water Cooler:Let’s Talk•31©iStockphoto.com/DNY59• What form of ownership characterizes BerryElegance?• What advantages might Todd Jones and AmyStipa enjoy with respect to their businesspartnership in the firm, Berry Elegance?• What disadvantages might Todd Jones and AmyStipa enjoy with respect to their businesspartnership in the firm, Berry Elegance?
  32. 32. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.6©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Looking Back• What are the characteristics of the four basic forms of businessownership?• What are the advantages and disadvantages of a soleproprietorship?• What are the pros and cons of partnerships?• Why have corporations become the dominant form of businessownership?• Why are limited liability companies becoming an increasinglypopular form of ownership? 32

×