lecture 05 [email protected]. business ownership types.... sole proprietorship. – a business...
TRANSCRIPT
Business Ownership Types....
• Sole Proprietorship.– A business that is owned and usually
managed by one person.
• Partnership.– A legal form of business with two or
more owners.
• Corporation.– A legal entity with authority to act and
have liability separate from its owners.
• Corporations make up 20% of the total number of businesses.– They generate 81% of the total revenue.
• Sole proprietorships make up 72% of the total number of businesses.– Generate 6% of the revenue.
Sole Proprietorships
• Pros– Ease of starting and ending.– Being your own boss.– Pride of ownership.– Retention of profit.– No special taxes.
• Cons– Unlimited liability ~ define (?)– Limited financial resources.– Difficulty in management.– Overwhelming time commitment.– Few fringe benefits.– Limited growth.– Limited time span.
Partnerships
• Three main elements– Common ownership.– Shared profit/loss.– Right to participate in managing of the
business operations.
• General partners – Have unlimited liability and are active in
managing the company.
• Limited Partners– Have limited liability and do not participate
in management of the company.
Liability
• Unlimited liability– Sole proprietors and general partners
must pay all debts and damages caused by their company. Personal possessions may have to be sold to pay these costs.
• Limited liability– Corporate owners (stock holders) and
limited partners are only responsible for the amount they invest. Personal property is not at risk.
• Pros– Greater availability of financial resources.– Shared management & pooled knowledge.– Longer survival chance.
• Cons– Unlimited liability.– Division of profits.– Disagreements among partners.– Difficulty of termination.
Corporations
• A corporation is a state chartered entity with authority to act and have liability separate from its owners.
• Reason for people incorporating?– Special tax advantages.– Limited liability.
• Pros– Greater amount of money for investment.– Limited liability.– Size.– Perpetual life.– Ease of ownership change.– Ease of drawing talented employees.
• Cons– High initial cost.– Large amount of paperwork.– Difficulty of terminations.– Size.– Double taxation.– Conflict with board of directors.
S Corporations.
• A unique government creation that looks like a corporation but is taxed like sole proprietorships/partnerships. (single Tax for shareholders and business).
• Conditions to be eligible– Fewer than 75 stock holders– Stockholders must be individuals or estates
& U.S. citizens or permanent residents.– Company cannot have more than 25% of
income derived from passive sources (rents, royalties, interest etc).
Limited liability Companies
• A company that is similar to the S corporation but without the special eligibility requirements.
• Pros– Limited liability.– Choice of taxation.– Flexible ownership rules.– Flexible distribution of profit and loss.– Operating flexibility.
• Cons– No stock.– Limited life span.– Fewer incentives.– Taxes.– Paperwork.
• Comparison of types of business ownership.– Chapter 5 , Book I, pg.155
Mergers & Acquisitions
• Merger– The result of two firms forming a company.
• Acquisition– One company's purchase of the property and
obligations of another company.
• Vertical Merger– The joining of two companies involved in different
stages of related businesses.– Examples?
• Horizontal Merger– The joining of two firms in the same industry.– Examples?
• Conglomerate merger– The joining of firms in completely unrelated
industries.
• Leveraged buyout (LBO)– An attempt by employees, management, or
a group of investors to purchase an organisation.
– Done primarily through borrowing.
Franchise
• An arrangement to buy the rights to use the business name and sell its products or services in a given territory.
• Pros– Nationally recognised name and
reputation.– A proven management system.– Promotional assistance.– Pride of ownership.
• Cons– High franchise fees.– Managerial regulation.– Shared profits.– Transfer of adverse effects if other
franchisees fail.
Co-operatives
• Organisations are organisations that are owned by the members/customers themselves.
• Controlled by the people who use it – producers, consumers or workers with similar needs who pool their resources for mutual gain.
• Some people form co-operatives to give members more economic power than they would have as individuals.
• Small businesses often form co-operatives to gain purchasing, marketing or product development strength.