IntroductiontoBusiness-PPT-Ch04.pptx

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Introduction to Business
Chapter 4 FORMS OF BUSINESS OWNERSHIP

Learning Outcomes
• What are the advantages and disadvantages of the sole proprietorship form of business organization?
• What are the advantages of operating as a partnership, and what downside risks should partners
consider?
• How does the corporate structure provide advantages and disadvantages to a company, and what are
the major types of corporations?
• What other options for business organization does a company have in addition to sole proprietorships,
partnerships, and corporations?
• What makes franchising an appropriate form of organization for some types of business, and why does
it continue to grow in importance?
• Why are mergers and acquisitions important to a company’s overall growth?
• What current trends will affect the business organizations of the future?

Your Company
Forms of Business Ownership
Sole
proprietorship:
Single owner who
manages the
company
Partnership:
Voluntary
agreement
between two
or more co-
owners of a
business for
profit
Corporation
Business is
considered a
legal entity
that is separate
and distinct
from its
owners
Limited
liability
company
(LLC)
Offers
limited
liability to
owners and
flexible tax
treatment

Table 4.1 Comparison of Forms of Business
Organization

Going it alone: sole proprietorships
• What are the advantages and disadvantages
of the Sole Proprietor form of
ownership? View the video What Is A Sole
Proprietorship?
• Can you list the main advantages to “going it
alone”?
• What about the major disadvantages?
• Hint: There is one very significant
disadvantage when it comes to liability of a
sole proprietor.

The most common form of business organization is
the:
A. general partnership
B. corporation
C. sole proprietorship
D. cooperative
E. limited partnership
What type of business organization generates the
most total sales?
A. General partnership
B. Corporation
C. Sole proprietorship
D. Cooperative
E. Partnership
Of all forms of business ownership, corporations
account for the largest share of both:
A. number of firms and sales
B. sales and profits
C. income and employees
D. number of firms and employees
E. bankruptcies and employees
Jules Sylvester had always loved reptiles. When
he was asked by a movie producer if he could
locate some anaconda snakes for a movie, a
business was born. Sylvester is the proud owner
and operator of Reptile Rentals. The California-
based business, which he started with no financial
help from anyone, is often called on to provide
"creepy, crawly" moments in the movies. Jules
Sylvester is an example of a:
A. sole partnership
B. sole proprietorship
C. S corporation
D. limited partnership
E. general proprietorship

Which type of business organization experiences
the least governmental regulation?
A. Joint venture
B. Private corporation
C. Limited partnership
D. Public corporation
E. Sole proprietorship
The form of business ownership that has the most
difficulty in raising capital is the:
B. limited partnership
C. cooperative
D. corporation
E. sole proprietorship
When Linda McAnem began Stirya, a New York-
based computer services company, she ran it as a
sole proprietorship. As a sole proprietor, McAnem:
A. found it easy to raise capital
B. had no trouble finding qualified employees
C. found the business to be easy and inexpensive
to form
D. had limited liability
E. was able to take advantage of various tax
deductions
Paul Hyatt owns and operates DeepClean, a
Florida-based company that cleans up mold and
mildew in homes and businesses. As the sole
proprietor of the business, he has unlimited
liability, which means:
A. he has unlimited access to funds
B. he is fully liable for all business debts
C. he usually has to put in an unlimited number of
hours
D. he must have liability insurance
E. he is free from government regulation

Tonya Thomas is tired of working for other people.
She wants to start her own administrative services
businesses and control her own work schedule.
She wants to have sole responsibility for all
business decisions. Thomas should form a(n):
A. limited cooperative
B. limited partnership
D. joint venture
E. S corporation
Sole proprietorships:
A. are double taxed
B. have unlimited liability
C. are more difficult to dissolve than partnerships
D. find is easy to raise needed capital
E. are more closely regulated by the government
than other forms of business
Suzanne Pogell wanted to learn to sail, but she could
find no one to teach her because men were the ones
who sailed, and women were their crew. She finally
did convince someone to teach her to sail, and after
mastering sailing, she started an all-woman sailing
school called Womanship as a sole proprietorship.
When she dies, the:
A. business dies with her
B. business continues with the employees running it
C. government takes over and sells the assets
D. business can be continued by any blood relative
E. business must shut down until after her will is
probated

1. What are the advantages
and disadvantages of the
sole proprietorship form of
business organization?
• CONCEPT CHECK
• What is a sole proprietorship?
• Why is this a popular form of
business organization?
• What are the drawbacks to
being a sole proprietor?

Partnerships:
Sharing the load
video

Partnerships:
Sharing the load
Partnership General Partnership Limited Partnership
Association of two or
more persons who
agree to operate a
business together
for profit
• Share in
management &
profits
• Co-own assets
• Act on behalf of
firm
• Unlimited
Liability
General Partners
Unlimited Liability
Limited Partners
Liability is limited to amount of
investment

Pete Yankin and Ken Lowery consider themselves to be
experts on hunting in the mountains in North Carolina.
As a result, the two men established a company that
markets hunting expeditions. Yankin and Lowery share
responsibilities for booking the trips, gathering supplies,
and guiding groups of five to seven hunters into locations
where they can hunt for deer and bear. Since the two
will share any profit equally, this would be an example of
a(n):
A. S corporation
B. cooperative
D. partnership
E. double proprietorship
Partnership agreements generally specify all
of following EXCEPT:
A. contributions of each partner
B. management responsibilities
C. provisions for senior partnership interests
D. methods of taxation of each partner
E. steps in dissolving the entity
The growing popularity of bread machines has
become a new business opportunity for Shelly
Clemins and Jan Schoenbarr. The women make and
sell bread machine covers and fabric gift bags to hold
the bread loaves made in the machines. The women
share the responsibilities of running the business
(called Bread & Butter) as well as its profits equally.
Bread & Butter would be an example of a(n):
B. general cooperative
C. limited cooperative
D. S-partnership
E. sole partnership

Bob Nichol and Martha Bohner own and operate
a small company that bakes and sells Thunder
Muffins, gigantic muffins full of blueberries,
blackberries, or raspberries. They sell the
muffins at a local farm that is open to the public
on weekends. Since they operate the business as
a partnership, they should:
A. borrow as much as possible
B. hire an outside consultant
C. hire a manager to operate the business
D. seek government assistance
E. agree to share the business’s profits and losses
Which of the following statements about a general
partnership is true?
A. A general partnership is an entity separate from its
owners.
B. A general partnership is the most popular form of
business ownership.
C. The partnership agreement must be in writing to be
legal.
D. General partnerships are usually "double-taxed."
E. Partners in a general partnership co-own the company’s
assets.
Which of the following statements about the
partnership as a form of business ownership is
true?
A. Termination of the partnership is simple.
B. Liability for the partners is limited.
C. Disagreements between partners are rare.
D. Formation of the partnership is simple.
E. Stockholders in partnerships have voting rights.
Karl Metzger plans to invest $5,000 in a partnership with his
brother to produce and sell handcrafted violins, zithers, and
other string instruments. Metzger does not plan to work in
the business and wants no more liability than his
investment. He should be a:
A. stockholder
B. temporary partner
C. general partner
D. limited partner
E. joint partner

Thom Georges wants to open a store where he sells
nothing but antique architectural features that he can
salvage from old houses being torn down to make
way for progress. He has an eye for the kind of doors,
windows, mantels, and so forth that decorators want,
but he does not have all the funding he needs to get
started. He has invited his parents to invest $40,000
in the enterprise. He has told them that if they do
invest, they would have liabilities in the firm equal to
but no greater than their investment. Georges is
trying to get them to form a _____ with him.
A. closely-held corporation
B. cooperative
C. general partnership
D. joint venture
E. limited partnership
Which of the following statements about the taxation of
partnerships is true?
A. Both the partnership and the individuals are taxed for
any profits earned.
B. Partnerships file tax returns but pass profits and losses
on to partners who report them on their tax returns.
C. Partnerships use corporate tax rates in filing returns.
D. Partnerships are limited in taxes depending on number
of partners.
E. None of the above about the taxation of partnerships is
true.
Ease of formation, flexibility, and diversity of management
are advantages of the _____ form of business ownership.
A. partnership
B. joint venture
C. cooperative
D. conglomerate
E. corporation

2. What are the advantages of operating as a
partnership, and what downside risks should
partners consider?
• CONCEPT CHECK
1. How does a partnership differ from a sole
proprietorship?
2. Describe the four main types of partnerships
and explain the difference between a
limited partner and a general partner.
3. What are the main advantages and
disadvantages of a partnership?

LARGEST
1. Walmart
2. Exxon Mobil
3. Berkshire Hathaway
click to see what companies
they own
4. Apple
5. United Health Group
Source: Fortune 500
America’s
Public
Corporations

Offers limited liability to all its stockholders
 Issues common stock as the basic
ownership interest
 Stockholders can be institutional investors
• Institutional investor: Organization that
pools contributions from investors, clients,
or depositors
Corporations

Elected by stockholders to
represent their interests
Oversee the operation of their
company and protect their
interests
Appoint a chief executive
officer (CEO) and other
corporate officers to manage
the company on a daily basis
Board of Directors

Table 4.3 Articles of Incorporation

Exhibit 4.4
Organizational
Structure of
Corporations

Table 4.4
Advantages and
Disadvantages of
Major Types of
Business
Organization

Table 4.4 Advantages
and Disadvantages of
Major Types of
Business Organization,
continued

C-Corporation
• The most common corporate form for large businesses
(i.e., Federal Express, Microsoft)
• Can create status that may assist in getting loans
• Shareholders are owners of the corporation – 75 or more
• Required to have an elected Board of Directors to make
decisions for the company
• Structured to accommodate employee benefits; i.e.,
pensions,
retirement plans, and profit sharing

Disadvantages of Corporations
Corporations face numerous disadvantages:
• Double taxation of profits
• Cost and complexity of formation
• More government restrictions

Specialized
Forms of
Organizations
The limited liability company
• Pay personal income taxes on
business profits
• Avoids double taxation
• Provides limited liability
• Less formal requirements than
corporation
Acts as a corporation

Types of Hybrid
Corporations
1. S corporations
organized like a corporation, but avoids double
taxation of profits by routing income and losses
through stockholders
2. Limited liability companies (LLC)
offers same limited liability as a corporation, but
may be taxed as either a partnership or
corporation

Specialized
Forms of
Organizations
• The S corporation – 75 or
fewer employees
• Taxed as a
partnership
• Provides lower taxes
• Limited liability
• Profits are part of
individual tax return
• Transfer of ownership

Subchapter S
Corporation
• Designed for owners of smaller companies
who want the liability protection of a
corporation, but want to avoid double
taxation
• Pass-through Taxation: Profits are taxed once at
shareholder’s personal tax rate
• Shareholders liable to amount invested
• In smaller private corporations, the founders
generally hold all–or a majority–of the stock.

S – Corporations
• Disadvantages
• Regulations may vary from state-to-state
which impact taxation and liability
• Costly to set up and follow corporate rules
• All shareholders must be U.S. citizens
• Personal finances separate from
corporation finances
• Increased banking, accounting, legal costs

Specialized
Forms of
Organizations
The limited liability company
Acts as a corporation
• Pay personal income taxes on
business profits
• Avoids double taxation
• Provides limited liability
• Less formal requirements than
corporation

Pros
 Protection of personal
assets
 Avoid double-taxation
of profits
 Flexible management
& organization
 Good for foreign
investors
Some Pros and Cons of LLC’s
Cons
• Often required to have a limited
life (< 30 years)
• Not corporations, so can not
issue stock
Source: The Company Corporation,
www.incorporate.com

Private vs Publicly Held Corporations
• Privately Held
• Ownership is restricted to
small
group of investors.
• Stock is not traded publicly.
• L. L. Bean, Polo, Ralph
Lauren, Publix.
• Publicly Held
• Larger corporations.
• Stock is traded publicly.
• Act of initially issuing stock:
“going public.”

Corporations: Limiting the Liability
• What are the advantages and disadvantages of the
Corporation form of ownership? View the short video
What Is A C-Corp? from Quickbooks USA and consider
taking notes while you are watching it. Also view the
longer video from Finance Kid which compares the C-
Corporation to the S-Corporation, another form of
incorporation which is popular with smaller business
enterprises.

A corporation:
A. is a taxable entity
B. is subject to the laws of the state in which it was formed
C. can own property
D. can sue and be sued
E. is accurately described by all of the above
When Linda McAnem began Stirya, a New York-based
computer services company, she ran it as a sole
proprietorship. As the business grew, she realized that
she did not want to be personally liable for the business's
debts and wanted her business accounts to be separate
from her personal accounts. Therefore, she should have:
A. incorporated Stirya
B. found limited partners
C. created a general proprietorship
D. created an S proprietorship
E. franchised the business
A corporation:
A. does not have a life separate from its owners
B. cannot sue or be sued
C. does not have a size limitation
D. ends when the owner of the corporation charter dies
E. is one of the easy types of businesses to form
The first step to incorporating a company is to:
A. select the company’s name
B. write the articles of incorporation
C. buy necessary licenses and pay required taxes
D. hold an organizational meeting
E. create a board of directors

Who owns a corporation?
A. its employees
B. its board of directors
C. its president
D. its board of directors and major stockholders
E. everyone who owns a share of stock in the corporation
Aaron Medford has invested $600 in the corporate stock
of a manufacturer of offshore oil drilling equipment. If
the company goes bankrupt, the most Medford could
lose would be:
A. half of his investment
B. the par value of his stock
C. $600
D. $600 plus foreclosure costs
E. nothing--the company must reimburse him his
investment
A firm's stockholders have the right to do all of the
following EXCEPT:
A. share in company profits, in the form of dividends
B. elect the board of directors
C. attend annual meetings
D. get discounts on the company's product or service
E. sell or transfer their ownership
Which of the following provides the legal and
managerial guidelines for operating the firm?
A. articles of incorporation
B. bylaws
C. constitution
D. corporate structure
E. annual report

Why do most large companies have outside directors on
their boards?
A. to meet federal government requirements
B. to create globalization efforts
C. to provide independent benchmarks
D. to provide technology leadership
E. to bring a fresh view to all of the corporation’s activities
Rebecca Siddoway own and operate Country Candies.
Siddoway specializes in making rich, creamy toffees that
she packages in attractive gift boxes and sells through the
mail. What would be the advantage to Siddoway if she
decides to incorporate her business?
A. Corporations have fewer government restrictions and
regulations.
B. Corporations have guaranteed loans for expansion.
C. Corporations pay lower and fewer taxes.
D. Corporations have an enhanced ability to attract
financing.
E. Customers and suppliers would treat her with greater
respect if she operated her business as a corporation
instead of a sole proprietorship.
Jack Smith and four other people own Persimmon Hill
Farm, an agric-entertainment farm which provides corn
mazes, bonfires, hay rides, and food treats to paying
visitors. All of the owners have limited financial risk.
Persimmon Hill Farm is a(n):
A. strategic alliance
B. general partnership
C. limited partnership
D. corporation
E. multiple proprietorship
The fact that a corporation has limited liability means:
A. corporations can earn a limited amount
B. some of the owners are limited in earnings
C. owners' liabilities are limited to the amount invested
D. the life of the corporation is limited
E. the corporation's ability to expand is limited

A corporation's earnings are taxed as corporate earnings and
as dividends to the stockholders. This is known as:
A. double taxation
B. double indemnity
C. double jeopardy
D. primary and secondary taxation
E. tax duplication
The C Corporation is another term for:
A. the conventional form of corporation
B. limited partnerships
C. multiple proprietorships
D. general partnerships
E. limited liability companies
Which of the following describes a disadvantage
associated with a corporation?
A. double taxation
B. cost of formation
C. government regulations
D. complexity of formation
E. all of the above
Double taxation in a corporation means:
A. the corporation must pay taxes twice a year
B. earnings of the corporation and dividends of the
shareholders both are taxed
C. corporations can double their earnings without
higher taxes
D. corporations must pay both state and federal taxes
E. none of the above

An S corporation is generally set up to:
A. take advantage of limited liability
B. reduce tax burdens
C. easy entry into an industry
D. implement an expansion strategy
E. attract capital
To avoid double taxation, a new entrepreneur may elect
to organize as a(n):
A. cooperative
B. multiple proprietorship
C. S corporation
D. conventional corporation
E. C corporation
An S corporation:
A. is taxed like a conventional corporation
B. does not have stockholders
C. does not make the owners of the corporation
personally liable for its debts
D. is only a legal format for companies that have at least
1,000 stockholders
E. does not have a board of directors
A _____ offers the same liability protection as a
corporation but may be taxed as either a partnership or
a corporation.
A. limited liability company
B. C corporation
C. cooperative
D. joint venture
E. franchise

A _____ offers the same liability protection as a corporation
but may be taxed as either a partnership or a corporation.
A. limited liability company
B. C corporation
C. cooperative
D. joint venture
E. franchise
Which of the following statements about limited liability
companies (LLCs) is true?
A. LLCs are not corporations.
B. LLCs are like S corporations in that they appeal to small
businesses.
C. LLCs offer their owners the option of being taxed as
either a partnership or a corporation.
D. LLCs are legal in all states in the U.S.
E. All of the above statements about LLCs are true.

3. How does the corporate structure
provide advantages and disadvantages
to a company, and what are the
major types of corporations?
• CONCEPT CHECK
1. What is a corporation? Describe how
corporations are formed and structured.
2. Summarize the advantages and disadvantages
of corporations. Which features contribute to
the dominance of corporations in the business
world?
3. Why do S corporations and limited liability
companies (LLCs) appeal to small businesses?

Cooperatives
• Formed by people with similar
interests, such as customers and
suppliers
 lower costs
 increased economic power
 share in profits
• Members/owners pay annual fees
• Common in:
• agriculture
• hardware/lumber
• grocery

Joint Venture:
2 or more companies form an
alliance to pursue a specific
project, usually for a specific
time period

Corporations Limiting the
liability
1. Can you list the main advantages of incorporation? What
about the major disadvantages? Hint: There is one very
significant advantage when it comes to liability with a
corporation over both the sole proprietor and partnership
forms of business organization, but there’s one key financial
disadvantage, too.
2. What disadvantages of a traditional C-Corp does the S-Corp
help overcome? Are there any other pluses or minuses you
noted about either form of incorporation?

_____ are organizations formed by individuals or
businesses with similar interests to achieve greater
economies of scale and economic power through
collective ownership.
A. Limited partnerships
B. Cooperatives
C. Joint ventures
D. Franchises
E. Vertical mergers
A group of cotton growers in North Georgia and
North Alabama pooled their resources to build a
cotton gin and storage area for the ginned cotton.
They marketed their cotton to textile mills under
one label. This collective ownership organization is
a:
A. franchise
B. joint venture
C. common market partnership
D. cooperative
E. C corporation
Which of the following statements about cooperatives is
true?
A. Cooperatives increase their members buying power.
B. Cooperatives have a limited life span.
C. Cooperatives have the same liabilities as partnerships.
D. Cooperatives cannot legally compete with taxable
entities.
E. None of the above statements about cooperatives is
true.
A _____ is when two or more companies form a
special entity to undertake a specific project,
usually for a specific period of time.
B. limited-time partnership
C. joint venture
D. cooperative
E. C corporation

The development of new drugs is very expensive. For this
reason Genentech, a large biotechnical company, has
entered into a _____ with Swiss-owned Roche to develop a
vaccine for tuberculosis. When the vaccine is developed or
when the two biotechnical companies determine the
vaccine cannot be developed using their current
methodology, this relationship will dissolve.
C. joint venture
D. cooperative
E. C corporation
Hard Rock Cafe International and Sol Melia Hotels
and Resorts have allied to develop a multimillion-
dollar hotel. This relationship is a _____ because
their alliance will end as soon as the hotel is
completed.
C. joint venture
D. cooperative
E. C corporation

4. What other
options for
business
organization does
a company have in
addition to sole
proprietorships,
partnerships, and
corporations?
•CONCEPT CHECK
•Describe the two types of
cooperatives and the
advantages of each.
•What are the benefits of joint
ventures?

Why is franchising growing in importance?
• Business owner does not have to start from scratch
• Buys a business concept with a proven product and
operating methods
• Franchisor provides:
• Management training and assistance
• Use of a recognized brand name, product, and operating concept
• Financial assistance

Franchising:
Business organization in
which a franchisor
supplies the product
concept to the franchisee,
who sells the goods or
services

Franchises
Advantages
• increased opportunity to expand
(franchisor)
• recognized name, product, and
operating concept (franchisee)
• management training and
assistance (franchisee)
• financial assistance (franchisee)
Disadvantages
• loss of control (franchisor)
• costs of franchising
• restricted operating freedom
(franchisee)

Table 4.5 Top 10 Franchises, continued

Table 4.6 Tips for Purchasing a Franchise

Franchising: A Popular Trend
• View this candid video posted by
Tariq Johnson, who owns two
franchise locations, and offers an
honest conversation about whether
a potential franchisee should buy a
franchise or not. After listening to
his story, you should be able to
understand several key concepts
about franchising.

Franchising: A Popular Trend
1. Why franchise ownership may be appealing.
2. What are the range of investments to get and keep a
franchise going.
3. Is it preferable to obtain an existing franchise location,
or a brand new one?
4. Some important personal characteristics that can help
a franchise owner to be successful (or not).

The purchaser of a franchise is called the:
A. contractor
B. sole proprietor
C. franchisee
D. franchisor
E. direct buyer
The headquarters, seller, and supplier of the service or
method of operation of a franchise is called the:
A. contractee
B. direct seller
C. franchisee
D. franchisor
E. provisioner
The franchise agreement:
A. must be approved by the Securities and Exchange
Commission (SEC)
B. guarantees that the franchisee will make a profit
C. is the contract that details the terms of the
franchise
D. guarantees that the franchisor will make a profit
E. removes any liability from the franchisor if the
franchisee does not make a profit
The franchisor generally does NOT provide the
franchisee with:
A. use of company name and logo
B. assistance in site selection
C. wholesale prices on supplies
D. help in employee selection
E. management training

Kayla Langton is considering the purchase of a Bonus
Building Care franchise. Langton is likely to get
assistance from the commercial cleaning franchisor in
which of the following areas?
A. employee training
B. accounting procedures
C. permission to use company logo in advertising
D. site selection
E. all of these
Clarence Danvers is buying a Cinnabon franchise at the
airport in Tulsa. Danvers knows that he will get all of
the following benefits EXCEPT:
A. a proven track record
B. a set operating procedures
C. assistance in personal income tax preparation
D. standard goods and services
E. national advertising
Which of the following is a disadvantage for the fast-
food franchisee?
A. on-going management training programs
B. a peer group for support
C. royalty fees
D. short-term credit for buying supplies
E. recognized name and product
Jayson Tully is contemplating the purchase of a Popeye's
Chicken franchise. Tully has made a list of the
disadvantages that he assumes he will face as a new
business owner. Which of the following is actually an
advantage?
A. assistance in building plans
B. conformity to operating procedures
C. royalty fees
D. defined territory
E. up-front franchise fee

A disadvantage of franchising to the franchisee is:
A. assistance in site location
B. ongoing management training program
C. restricted operating freedom
D. national name recognition
E. standardized operating procedures
Restricted operating freedom in franchising means that
the franchisee must conform to:
A. franchise product standards
B. facilities design
C. operating rules
D. a specific, defined territory
E. all of the above
Franchisors in foreign countries must be aware of:
A. currency exchange
B. local culture
C. language differences
D. political risks
E. all of the above

5. What makes franchising an
appropriate form of organization for
some types of business, and why
does it
continue to grow in importance?
• CONCEPT CHECK
1. Describe franchising and the main parties to
the transaction.
2. Summarize the major advantages and
disadvantages of franchising.
3. Why has franchising proved so popular?

Why would a company use mergers and acquisitions to
grow?
• Companies use mergers and acquisitions for strategic reasons such as
• Growth or diversification of product lines
• Increased market share
• Economies of scale
• Financial restructuring to increase company value to stockholders

Growth Through
Mergers & Acquisitions
Merger:
The combination of 2 or more firms to form a new
company, which often takes a new corporate
identity
Acquisition:
The purchase of a corporation by another
corporation or investment group

Benefits of Mergers
Reduced:
costs
overlap in operations
competition
Increased:
purchasing power
market share

Types of Mergers
1. Horizontal mergers
• same industry, same stage of production
2. Vertical mergers
• same industry, different stages of production

Types of Mergers
3. Conglomerate mergers
• different industries
4. Leveraged buyouts
• corporate takeovers with borrowed money

Mergers and Acquisitions
• Watch this video and then
quiz yourself about your
knowledge of the three types
of mergers explained in the
video: Conglomerate, Vertical
and Horizontal.

Mergers and Acquisitions
1. Can you briefly describe the characteristics of each type of
merger and acquisition?
2. Details were also provided in this video about the way
government regulators use industry concentration data
known as the Herfindahl–Hirschman Index (HHI) to decide
whether or not the “marriage” between two companies is
likely to be approved or not by the Department of Justice
(DOJ).
3. Can you also explain how the HHI is computed?

The combination of two companies that join to form
one company is called a:
A. joint venture
B. merger
C. conglomerate
D. cartel
E. voluntary union
IBM purchased MRO Software Inc. for $740 million. MRO
was a niche provider of software and services to help
customers including nuclear power plants and oil
companies. IBM, plans to fold MRO into its software unit.
This is an example of a(n):
A. joint venture
B. merger
C. conglomerate
D. voluntary union
E. acquisition
Ottens Flavors, Philadelphia, announced its
combination with MK Flavors & Co., Mexico City. The
Mexican operation will offer the U.S.-based company
an increased market presence in Central and South
America. The new company will be renamed MK
Ottens Flavors. MK Ottens Flavor was created
through a(n):
A. joint venture
B. merger
C. conglomerate
D. cartel
E. voluntary union
North American Van Lines and Allied Van Lines combined in
a _____ merger that will create the world’s largest moving
company. Prior to the merger, North American was the
leading company in moving high-end merchandise such as
computer and hospital equipment, while Allied specialized
in households.
A. conglomerate
B. combination
C. horizontal
D. vertical
E. functional

The merger of McKesson, the leading U.S. drug
wholesaler, and HBOC, a producer of health-care
inventory software, is an example of a(n) _____
merger.
A. acquired
B. combination
C. horizontal
D. functional
E. vertical
A _____ merger brings together companies in unrelated
businesses to reduce risk.
A. conglomerate
B. combination
C. horizontal
D. vertical
E. cooperative
There are over 1,100 Corner Stores that market
candy. When Valero Energy Corp. purchased the
chain of retail stores, it was an example of a _____
merger.
A. conglomerate
B. combination
C. horizontal
D. vertical
E. cooperative
Why would a company choose to engage in a conglomerate
merger instead of a vertical or horizontal merger?
A. A conglomerate merger is done to reduce risk.
B. Double taxation does not occur when the merger is with
a company outside the normal business environment of the
acquiring company.
C. The conglomerate merger results in reduced liability
while the other two types of mergers do not.
D. It is easier to dissolve a conglomerate merger than the
other types of mergers.
E. Government regulation of conglomerate mergers is
minimal

6. Why are mergers and
acquisitions important to a
company’s overall growth?
• CONCEPT CHECK
1. Differentiate between a merger and an
acquisition.
2. What are the most common motives for
corporate mergers and acquisitions?
3. Describe the different types of corporate
mergers.

Trends Affecting the Businesses of the
Future
“Baby Boomers”
and
“Millennials”
Drive Franchise
Trends
Boomers
Rewrite the
Rules of
Retirement
• Mergers and
Foreign
Investment
Boom

Which of the following demographic groups is having the
greatest impact on the growth of the franchising industry?
A. teenagers
B. Generation X
C. pre-teens
D. baby boomers
E. Generation Y
How does the current boom in mergers and acquisitions differ from
ones in earlier years?
A. The trend is to reduce operations outside of one's national
boundaries.
B. Laws that reduce legal and financial liabilities as a result of business
failures have been minimized.
C. The people involved in most of the mergers and acquisitions are small
business owners.
D. The international legislation governing mergers and acquisitions is
been codified.
E. There is a greater number of U.S. and foreign companies making
cross-border acquisitions.

7. What current trends will affect
the business organizations of the
future?
• CONCEPT CHECK
1. What are some of the demographic trends
currently impacting American business?
2. As a prospective business owner, what could
you do to capitalize on these trends?
3. What other economic trends are influencing
today’s business organizations?
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changes must be noted. Any images credited to other sources are similarly available for reproduction, but must be attributed to their sources.

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