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Chap005
- 1. * * Chapter Five How to Form a Business Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
- 3. FORMS of BUSINESS OWNERSHIP * * Basic Forms of Business Ownership LG1 5-
Editor's Notes
- See Learning Goal 1: Compare the advantages and disadvantages of sole proprietorships.
- See Learning Goal 1: Compare the advantages and disadvantages of sole proprietorships. Although corporations make up only 20 percent of the total number of businesses, they make 81 percent of the total receipts. Sole proprietorships are the most common form (72 percent), but they earn only 6 percent of the receipts.
- See Learning Goal 1: Compare the advantages and disadvantages of sole proprietorships. This slide helps students understand why sole proprietorships account for the largest number of businesses in the United States.
- See Learning Goal 1: Compare the advantages and disadvantages of sole proprietorships. Since the main advantage of sole proprietorships is the ease by which they can be started this slide gives students the reason why this form of ownership only accounts for such a small percentage of overall total revenue. Special emphasis should be given to the disadvantage of unlimited liability (personal assets at risk), and to the time commitment (24 hours, 7 days per week, and 365 days per year).
- See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. Each type of partnership has advantages and disadvantages. In a general partnership resources are pooled and liability is spread among all partners. However in this type of partnership there is the possibility for disagreement and/or personality conflicts. A limited partnership is made up of a mixture of general partners and limited partners. Limited partners cannot actively take part in business dealings.
- See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. There are two less common forms of partnerships outlined in this slide: master limited partnership and the limited liability partnership. The master limited partnership is unique because it combines the tax benefits of a more traditional partnership and the liquidity of a publicly traded security. One example of a master limited partnership is Kinder Morgan Energy Partners which is engaged in energy storage and operates 26,000 miles of pipelines.
- See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. The limited partner is not able to exercise any management control over the partnership but maintains limited liability. A limited partner’s liability is limited to the amount invested in the partnership.
- See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. Partnerships have some distinct advantages. The key advantage is that partnerships have access to more resources such as financial, management and knowledge.
- See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. Like the sole proprietorship, a partnership has some serious disadvantages such as unlimited liability and division of profits. One disadvantage that students might not consider is disagreement among partners.
- See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. Successful partnerships start with a shared vision. In order to develop a successful partnership all partners must be honest with each other and bring a variety of different skills to the partnership. Suggestions to discuss with students regarding partnerships: Partnership agreements must be in writing! Each individual’s responsibilities to the company must be in writing and included as part of the contract. Make certain that provisions are in place if one or more partners want to terminate the agreement. (Information outlining the terms and conditions of terminating any agreement, should be outlined in the original contract.)
- See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies.
- See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Identify that the major advantage of corporate ownership is the limited liability protection (personal assets are protected). Interesting facts regarding incorporating a business: the cost for a business to Incorporate ranges from about $50 to over $300, plus states fees. Over half of Fortune 500 companies choose to incorporate in Delaware because the state’s laws makes the process easier than it is in other states.
- See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Double taxation is a major disadvantage of corporations. A corporation is taxed on income earned and then shareholders are taxed on any dividends the company may pay.
- See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. An S corporation looks like a corporation but is taxed like a sole proprietorship or partnership. The primary advantage of an S corporation is that it avoids the double taxation of a C corporation. Approximately 3 million US companies operate as an S corporation.
- See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Originally to qualify as an S Corporation the number of shareholders was limited to 75; this has now been amended to no more than 100.
- See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Advantages and disadvantages of LLCs are listed in this slide. The biggest advantages that should be pointed out with LLCs are limited liability and flexibility.
- See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Primary disadvantages from entrepreneurs perspectives would be limited life span and paperwork.
- See Learning Goal 4: Describe three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private.
- See Learning Goal 4: Describe three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private. There are three types of mergers. Horizontal mergers take place in the same industry, i.e., one competitor merging with another. An example of this would be Daimler Mercedes Benz merging with Chrysler to create DaimlerChrysler in the 1990s. Vertical merger takes place between companies in a value chain, for example a supplier and a distributor merging. Conglomerate merger has no relationship between companies, both Tyco and General Electric operate as conglomerates.
- See Learning Goal 4: Describe three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private.
- See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
- See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. Franchising has a lower failure rate because the franchisee has support from the franchisor. This support can range from marketing to financial.
- See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
- See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. Benefits of a Home-Based Franchise Home-based businesses are growing at an enormous rate. This slide helps clarify some of the reasons why. Share with the class some tips on getting started: Decide on business idea Set goals for the business How many hours do you want to work? How many employees do you want? How much money will you need to get started? Visit www.e-myth.com for more online information regarding startups.
- See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
- See Learning Goal 6: Explain the role of cooperatives.