© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 1

Selecting the Proper Selecting the Proper Form of Business Form of Business

Ownership and Exploring Ownership and Exploring Business CombinationsBusiness Combinations

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 2

Owning a BusinessOwning a Business

• Sole proprietorship

• Partnership

• Corporation

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 3

Popularity of Business Popularity of Business Ownership FormsOwnership Forms

• Sole proprietorships 73%

• Corporations 20%

• Partnerships 7%

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 4

Sole ProprietorshipSole Proprietorship

AdvantagesAdvantages

Ease of establishment

Self-satisfaction

Privacy

Tax advantages

DisadvantagesDisadvantages

Unlimited liability

Personal pressure

Difficult to get funding

Limited life

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 5

Business PartnershipsBusiness Partnerships

• General partnerships

• Limited partnerships

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 6

Advantages of Advantages of PartnershipsPartnerships

• Easy to establish

• Tax advantages

• Strength in numbers

• Diversity of skills

• Increased capital

• Extended life

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 7

Disadvantages of Disadvantages of PartnershipsPartnerships

• Unlimited liability

– Debts

– Law suits

• Interpersonal problems

– Managing partner

– Unproductive partners

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 8

Partnership AgreementPartnership Agreement

• Division of profits

• Decision-making authority

• Expected contributions

• Dispute resolution

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 9

CorporationsCorporations

• Enter into contracts

• Own and sell property

• Sue and be sued

• Enjoy limited liability

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 10

Ownership of Ownership of CorporationsCorporations

• Shareholders

– Common stock

– Preferred stock

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 11

Who Owns a Who Owns a Corporation?Corporation?

• Public

– Many stockholders

– Publicly traded

• Private

– Few stockholders

– Not publicly traded

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 12

CorporationsCorporations

AdvantagesAdvantages

Access to capital

Limited liability

Increased liquidity

Unlimited life span

DisadvantagesDisadvantages

Excess paperwork

Burdensome costs

Double taxation

Disclosure requirements

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 13

Types of CorporationsTypes of Corporations

• Subchapter S corporation

• Limited liability company

• Subsidiary corporation

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 14

Corporate GovernanceCorporate Governance

CommonShareholders

•Individuals

•Companies

•Non-profits

•Pensions

•Mutual Funds

Boardof Directors

•Dividends

•Corporate Affairs

•Strategic Plans

•Select Officers

•Finances

CorporateOfficers

•Chief Executive

•Chief Financial

•Chief Operations

Employees ofthe Company

•Operations

•Finance

•Marketing

•Personnel

•Engineering

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 15

Business CombinationsBusiness Combinations

• Mergers

• Consolidations

• Acquisitions

• Leveraged buyouts

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 16

Mergers, Mergers, Consolidations, and Consolidations, and

AcquisitionsAcquisitionsAdvantagesAdvantages DisadvantagesDisadvantages

Economies of ScaleEconomies of Scale

EfficienciesEfficiencies

SynergiesSynergies

High-Risk Corporate DebtHigh-Risk Corporate Debt

Management DistractionsManagement Distractions

Culture ClashesCulture Clashes

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 17

Hostile TakeoversHostile Takeovers

• Types– Tender offer– Proxy fight

• Defenses– Poison pill– Golden parachute– Shark repellent– White knight

© Prentice Hall, 2004 Business In Action 2e Chapter 5 - 18

Alternative Business Alternative Business FormsForms

Strategic AllianceStrategic Alliance Joint VentureJoint Venture

Expand Market ShareExpand Market Share

Access TechnologyAccess Technology

Diversity OfferingsDiversity Offerings

Share Best PracticesShare Best Practices

Attain Specific GoalsAttain Specific Goals

Share StrengthsShare Strengths

Spread CostSpread Cost

Minimize RiskMinimize Risk