Lecture Business: A changing world - Chapter 5: Options for organizing business

This chapter examines three primary forms of business ownership sole proprietorship, partnership, and corporation and weighs the advantages and disadvantages of each. These forms are the most often used whether the business is a traditional bricks and mortar company, an online-only one, or a combination of both. We also take a look at S corporations, limited liability companies, and cooperatives and discuss some trends in business ownership.

Chapter Five Options for Organizing Business     © 2003 McGraw­Hill Ryerson Limited Sole Proprietorship 5-1 A business owned  and operated by one  individual â2003McGrawưHillRyersonLimited AdvantagesandDisadvantages ofSoleProprietorship Advantages Easeandcostofformation Secrecy • Distribution and use of  profits • Control of the business • Government regulation • Taxation • Closing the business 5-2     © 2003 McGraw­Hill Ryerson Limited Disadvantages • Unlimited liability • Limited sources of funds • Limited skills • Lack of continuity • Lack of qualified  employees • Taxation Partnership An association of two  or more persons who  carry on as co­owners  of a business for  profit 5-3     © 2003 McGraw­Hill Ryerson Limited The Difference between  General and Limited Partners 5-4   General partner A person who assumes  full co­ownership of a  business Limited partner A person who  contributescapitaltoa businessbutisnot activeinmanagingit â2003McGrawưHillRyersonLimited Advantagesand DisadvantagesofPartnerships Advantages Easeoforganization • Availability of capital  and credit • Combined knowledge  and skills • Decision making • Regulatory controls 5-5 â2003McGrawưHillRyersonLimited Disadvantages Unlimitedliability Businessresponsibility Life of the partnership • Distributions of profits • Limited sources of  funds • Taxation Corporation A legal entity created by the state, whose assets  and liabilities are separate from its owners 5-6 Board of Directors     © 2003 McGraw­Hill Ryerson Limited Shareholders Types of Corporations 5-7a   Private Corporation owned by only one person or a few  people closely involved in its management Public Corporation whose stock anyone may buy,  sell, or trade Subsidiary Corporation in which the majority of the stock  is owned by another corporation known as the  parent company   © 2003 McGraw­Hill Ryerson Limited Types of Corporations 5-7b Holding Crown  Corporation that controls one or more  companies through ownership of their  common stock   Corporations owned and operated by a  federal, provincial, or local government Non­profit   Corporation that focuses on providing  service rather than earning a profit   © 2003 McGraw­Hill Ryerson Limited Advantages and Disadvantages  of Corporations Advantages • Limited liability • Transfer of ownership • Perpetual life • External sources of  funds • Expansion potential 5-8     © 2003 McGraw­Hill Ryerson Limited Disadvantages • Double taxation • Forming a corporation • Disclosure of  information • Employee­owner  separation 5-9 Microsoft  enables business  of all sizes to  grow     © 2003 McGraw­Hill Ryerson Limited Merger, Acquisition, and LBO 5-10a 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     © 2003 McGraw­Hill Ryerson Limited Merger, Acquisition, and LBO 5-10b   Leveraged Buyout (LBO) A purchase in which a group of investors  borrow money from banks and other  institutions to acquire a company (or division  of one) using the assets of the purchased  company to guarantee repayment of the loan   © 2003 McGraw­Hill Ryerson Limited Mergers in Various Industries 5-11 Financial Services Communications Percent Of All Mergers And Acquisitions By Value Oil & Gas Electric, Gas, & Sanitary Services Broadcasting Computer Software, Supplies, & Services Automotive Products & Accessories Leisure & Entertainment 1995 1998     © 2003 McGraw­Hill Ryerson Limited 10 Percent 15 20 25 Source: “The Urge to Merge,” Business Week, March 22, 1999, p. 8 Solve the Dilemma 5-12 a b c   What are some of the advantages and  disadvantages of Thomas Bryan forming a  corporation? What are the advantages and disadvantages of  their forming a partnership? Which organizational form do you think would  be best for Thomas and Bryan’s company and  why?   © 2003 McGraw­Hill Ryerson Limited Explore Your Career Options 5-13 Are salary and advancement opportunities  the most important considerations is  evaluating a job offer?     © 2003 McGraw­Hill Ryerson Limited Additional Discussion  Questions and Exercises What is meant by “double taxation” for corporate income? 5-14 What is the difference between crown corporations and  nonprofit corporations? In a leveraged buyout (LBO), what assets or collateral do  the  investors use to guarantee repayment of the loan to  pay  back the banks or other institutions from which they  borrowed money?     © 2003 McGraw­Hill Ryerson Limited Chapter 5 Quiz 5-15a A corporation doing business in the country in which it is chartered is know as a a nonprofit corporation b a domestic corporation c a foreign corporation.  d a crown corporation Which one of the following is considered an advantage of the sole  proprietorship form of organization? a ease of business dissolution b unlimited liability c limited sources of funds d limited life of the business     © 2003 McGraw­Hill Ryerson Limited Chapter 5 Quiz 5-15b At one time, the Ford family owned all of the stock in the Ford Motor  Company. Such family ownership of a corporation is typical of a  a public corporation b crown corporation c private corporation.  d nonprofit corporation Owners of a common stock a have a claim to any profits before any stockholders do b carry a cumulative claim to dividends c have no say in running the company d elect the board of directors     © 2003 McGraw­Hill Ryerson Limited Multiple Choice Questions  about the Video 5-16   What was a consequence of keeping Pattison private a) The business developed only in Canada b) The business’s expansion was unlimited c) Pattison felt he maintained control of the companies’ growth and  sales d) None of the above e) All of the above Pattison’s focus on sales is a) Effective in turning around companies b) Hurts morale c) Too one dimensional d) Risky e) Hurtful to the long run viability of the companies   © 2003 McGraw­Hill Ryerson Limited ... Solve the Dilemma 5-1 2 a b c   What are some of the advantages and  disadvantages of Thomas Bryan forming a corporation? What are the advantages and disadvantages of  their forming a partnership? Which organizational form do you think would ... active in managing it   © 2003 McGraw­Hill Ryerson Limited Advantages and  Disadvantages of Partnerships Advantages • Ease of organization • Availability of capital  and credit • Combined knowledge  and skills...Sole Proprietorship 5-1 A business owned  and operated by one  individual     © 2003 McGraw­Hill Ryerson Limited Advantages and Disadvantages of Sole Proprietorship Advantages • Ease and cost of formation •