* * Chapter Five How to Form a Business Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

* * Basic Forms of Business Ownership LG1 FORMS of BUSINESS OWNERSHIP 5-2

* * Advantages of Sole Proprietorships Ease of starting and ending the business Being your own boss Pride of ownership Leaving a legacy Retention of company profit No special taxes MAJOR BENEFITS of SOLE PROPRIETORSHIP LG1 5-3

* * Disadvantages of Sole Proprietorships Unlimited Liability -- Any debts or damages incurred by the business are your debts, even if it means selling your home, car or anything else. Limited financial resources Management difficulties Overwhelming time commitment Few fringe benefits Limited growth Limited life span DISADVANTAGES of SOLE PROPRIETORSHIPS LG1 5-4

* * Partnerships General Partnership -- All owners share in operating the business and in assuming liability for the business’s debts. Limited Partnership -- A partnership with one or more general partners and one or more limited partners. MAJOR TYPES of PARTNERSHIPS LG2 5-5

* * Advantages & Disadvantages of Partnerships More financial resources Shared management and pooled skills and knowledge Longer survival No special taxes =Partnership_Business ADVANTAGES of PARTNERSHIPS LG2 5-6

* * Advantages & Disadvantages of Partnerships Unlimited liability Division of profits Difficult to terminate Disagreements among partners DISADVANTAGES of PARTNERSHIPS LG2 5-7

* * Corporations Conventional (C) Corporation -- A state- chartered legal entity with authority to act and have liability separate from its owners (its stockholders). CONVENTIONAL CORPORATIONS LG3 5-8

5-9 ‘C’ Corporation ‘C’ Corporation Limited liability Limited liability More money for More money for investment investment Size Size Perpetual life Perpetual life Ease of ownership Ease of ownership change change Ease of drawing Ease of drawing talented employees talented employees Separation of Separation of ownership/mgmt. ownership/mgmt. Extensive paperwork Extensive paperwork Double taxation Double taxation Two tax returns Two tax returns Size Size Termination difficult Termination difficult Conflict with Conflict with Stockholder & Board Stockholder & Board Initial cost Initial cost AdvantagesDisadvantages

Definition of 'Corporate Charter' A written document filed with a U.S. state by the founders of a corporation detailing the major components of a company such as its objectives, its structure and its planned operations. If the charter is approved by the state government, the company becomes a legal corporation. Also referred to as "charter" and "articles of incorporation". The details of a charter will vary based on specific regulations and the size of the company. However, at the most basic level, the charter will include the corporation's name, its purpose, the number of shares that are authorized to be issued and the names of the parties involved in the formation. This is generally the first document in the life of a corporation.

* * Corporate Expansion: Mergers and Acquisitions Vertical Merger -- Joins two firms in different stages of related business. Horizontal Merger -- Joins two firms in the same industry and allows them to diversify or expand their products. Conglomerate Merger -- Unites firms in completely unrelated industries in order to diversify business operations and investments. Leveraged Buyout -- is an attempt by employees, management or a group of investors to buy out the stockholders in a company, primarily by borrowing the necessary funds. TYPES of MERGERS (pran, rfl) LG4 5-11

DEFINITION of 'Leveraged Buyout - LBO' The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

HCA Agrees to $21.3 Bln Buyout by Bain, KKR, Merrill (Update7) By Brett Cole and Lisa Rapaport - July 24, :13 EDT July 24 (Bloomberg) -- HCA Inc., the largest U.S. hospital chain, agreed to a $21.3 billion buyout offer from Bain Capital LLC, Kohlberg Kravis Roberts & Co., Merrill Lynch & Co. and HCA co-founder Thomas F. Frist Jr. Including the buyers' assumption of $11.7 billion in debt, the total value of the sale will be $33 billion, the company said today in a statement. That would top the $31.3 billion that KKR paid in 1989 for RJR Nabisco Inc. in the biggest buyout ever. Stockholders will receive $51 for each HCA share, 6.5 percent more than the July 21 closing price.

Pixar is an American computer animation film studio

* * Franchises Franchise Agreement -- An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory. FRANCHISING LG5 5-19

Transcom Foods Limited (TFL) started its journey in 2003 as a franchisee of Pizza Hut, the first International Chain Restaurant in Bangladesh, and went on to sign the contract to become the franchisee of Kentucky Fried Chicken (KFC) in the year 2006.

* * Advantages & Disadvantages of Franchises Management and marketing assistance Personal ownership Nationally recognized name Financial advice and assistance Lower failure rate ADVANTAGES of FRANCHISING LG5 5-21

* * Advantages & Disadvantages of Franchises Large start-up costs Shared profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors DISADVANTAGES of FRANCHISING LG5 5-22

Most Owner/Operators enter the System by purchasing an existing restaurant, either from McDonald’s or from a McDonald's Owner/Operator. A small number of new operators enter the System by purchasing a new restaurant. The financial requirements vary depending on the method of acquisition. Financial Requirements/Down Payment An initial down payment is required when you purchase a new restaurant (40% of the total cost) or an existing restaurant (25% of the total cost). The down payment must come from non-borrowed personal resources, which include cash on hand; securities, bonds, and debentures; vested profit sharing (net of taxes); and business or real estate equity, exclusive of your personal residence. Since the total cost varies from restaurant to restaurant, the minimum amount for a down payment will vary. Generally, we require a minimum of $750,000 of non-borrowed personal resources to consider you for a franchise. Individuals with additional funds may be better prepared for additional or multi-restaurant opportunities. Financing We require that the buyer pay a minimum of 25% cash as a down payment toward the purchase of a restaurant. The remaining balance of the purchase price may be financed for a period of no more than seven years. While McDonald’s does not offer financing, McDonald’s Owner/Operators enjoy the benefits of our established relationships with many national lending institutions. We believe our Owner/Operators enjoy the lowest lending rates in the industry. Ongoing Fees During the term of the franchise, you pay McDonald’s the following fees: Service fee: a monthly fee based upon the restaurant’s sales performance (currently a service fee of 4.0% of monthly sales). Rent: a monthly base rent or percentage rent that is a percentage of monthly sales. Acquiring a Franchise

* * Cooperatives Cooperatives -- Businesses owned and controlled by the people who use it – producers, consumers, or workers with similar needs who pool their resources for mutual gain. Members democratically control the business by electing a board of directors that hires professional management. COOPERATIVES LG6 5-24

CO-OPERATIVES Description Co-operative is a business organization owned and operated by a group of individuals for their mutual benefit. A cooperative can also be defined as "an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through jointly owned and democratically controlled enterprise" A cooperative may also be defined as a business owned and controlled equally by the people who use its services or by the people who work there. Various aspects regarding cooperative enterprise are the focus of study in the field of cooperative economics. To uplift the status of the poor people living in the rural areas, the government of Bangladesh set up the Rural Development and Cooperative Division ( RDCD ) under the Ministry of Local Government, Rural Development and Cooperatives. This Division is responsible for policy formulation, planning, monitoring and administration of rural development and cooperative initiatives of the country.

Bangladesh Milk Producers' Co-operative Union Ltd. popularly known by its brand name MilkVita, was established by the Bangladesh Government in 1973, immediately after the liberation war, based upon the recommendation by UNDP/FAO and DANIDA in the pattern of AMUL, India. It was initiated as a development project of the Government titled "Co-operative Dairy Complex" with the objective of ensuring fair price for the poor, landless and marginal milk producing farmers of the rural Bangladesh and on the other hand to provide the city dwellers with a regular supply of fresh and hygienic milk and milk products at a reasonable price. The scheme had the proposal of establishing dairy plants in the milk surplus areas already identified as Pabna, Tangail, Manikganj and Faridpur. Find more in: