5-1 Business in a Changing World Chapter Options for Organizing Business McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc All rights 5-3 Zingerman’s DeliInnovation, quality, & growth Thanks to the Internet, haggling has never been easier, especially in the area of online apparel sales 5-4 Forms of Business Ownership •Sole proprietorship •Partnership •Corporation 5-5 Comparing the Forms of Business Ownership Source: U.S Bureau of the Census, Statistical Abstract of the U.S 2003, (Washington, D.C.: U.S Government Printing Office, 2004), p 459 5-6 Forms of Business Ownership Various Forms of Business Ownership 75-7 Forms of Business Ownership Sole Proprietorship Businesses owned and operated by one individual; the most common form of business organization in the United States 5-8 Forms of Business Ownership Sole Proprietorship •Many restaurants •Hair salons •Flower shops •Dog kennels •Independent grocery stores 5-9 Forms of Business Ownership Sole Proprietorship Facts • 15-20 million in the U.S • 80% of all businesses • Men 2x more likely than women to start own business 10 5-10 Corporations Types of Corporations Non-profit corporation – focuses on providing a service rather than earning a profit but are not owned by a government entity (American Red Cross) 5-34 Corporations Elements of a Corporation •Board of directors •Preferred stock •Common stock 5-35 Corporations Board of Directors Board of Directors – a group of individuals elected by the stockholders to oversee the general operation of the corporation who set the corporation’s long-range objectives 5-36 Corporations Board of Directors Inside Directors – individuals who serve on the board and are employed by the corporation (usually executives of the corporation) Outside Directors – individuals who serve on the board who are not directly affiliated with the corporation (usually Executives of other corporations) 5-37 Corporations Stock Ownership Preferred stock – a special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders Common Stock – stock whose owners have voting rights in the corporation, yet not receive preferential treatment regarding dividends 5-38 Corporations • Advantages: – Limited liability – Transfer of ownership – Perpetual life – External sources of funds – Expansion potential • Disadvantages: – Double taxation – Forming a corporation – Disclosure of information – Employee-owner separation 39 5-39 Other Types of Business Ownership •Joint Ventures •S Corporations (S-Corp) •Limited Liability Companies (LLC’s) •Cooperatives (Co-op’s) 5-40 Other Types of Business Ownership Joint Venture a partnership established for a specific project or for a limited time (Audi & Volkswagen joint venture) 5-41 Other Types of Business Ownership S-Corporation (S-Corp) – corporation taxed as though it were a partnership with restrictions on shareholders Very popular with entrepreneurs 5-42 Other Types of Business Ownership Limited Liability Company (LLC)– form of ownership that provides limited liability and taxation like a partnership but places fewer restrictions on members (Segway) 5-43 Other Types of Business Ownership Cooperative (Co-Op)– an organization composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization 5-44 Trends in Business Ownership •Mergers •Acquisitions 5-45 Other Types of Business Ownership Merger – the combination of two companies (usually corporations) to form a new company Acquisition – the purchase of one company by another, usually by buying its stock and/or assuming its debt 5-46 Types of Business Ownership Major Mergers and Acquisitions Worldwide Transaction in millions of U.S dollars Acquirer Target Transaction Value Rank Year 2000 AOL Time Warner 2000 Glaxo Welcome SmithKline Beecham PLc $75,961 2004 Royal Dutch Petroleum Shell Transport & Trading $74,559 2006 AT&T BellSouth Corp $72,671 2001 Comcast AT&T Broadband $72,041 $164,747 47 5-47 Other Types of Business Ownership Leveraged buyout (LBO) – a purchase in which a group of investors borrows money from banks and other institutions to acquire a company (or a division of one) using the assets of the purchased company to guarantee repayment of the loan 5-48 ... 14.Restrictive covenants 15.Buying and selling agreements 5-19 Partnerships Advantages & Disadvantages Advantages •Ease of organization •Capital & credit •Knowledge & skills •Decision making •Regulatory controls... A partnership that involves a complete sharing in both the management and the liability of the business 5-15 Forms of Business Ownership Limited partnership A business organization that has at... •Lack of continuity •Lack of Qualified Employees •Taxation 5-12 Forms of Business Ownership Partnership A form of business organization defined by the Uniform Partnership Act as “an association