1. Nickels
Cover
Nickels
McHugh

2. Choosing a Form of Business Ownership
Chapter 5
Choosing a Form of Business Ownership
5-2

3. World’s Largest Corporations
Wal-Mart Stores $246,525
Royal Dutch/Shell 235,598
Exxon/Mobil 204,506
General Motors 186,763
BP ,721
Ford Motor 163,420
DaimlerChrysler 156,838
2002 Revenue (Millions)
Source: Zacks Reports & Fortune

4. Basic Forms of Ownership
Number
Sales
Sole Proprietorship
Partnership
Corporation
72% 6% 8%
13%
20%
81%

5. Sole Proprietorship Advantages Disadvantages Ease of start/end
Be your own boss
Pride of ownership
Leave Legacy
Retain profit
No special taxes
Unlimited liability
Limited financial resources
Difficulty in mgmt.
Time commitment
Few fringe benefits
Limited growth
Limited life span

6. Types of Partnerships General Limited GP Passive Investor Passive

7. New Forms of Partnerships
Master Limited Partnership
Traded Publicly
Taxed As A Partnership
Limited Liability Partnership

8. Partnership Advantages Disadvantages More financial resources
Shared mgmt.
Longer survival
No Special Taxes
Unlimited liability
Division of profits
Disagreements among partners
Difficult to terminate

9. Types of Corporations Regular ‘C’ S Corporation
Limited Liability Companies

10. America’s Oldest Companies
J. E. Rhoads & Sons Conveyer Belts
Covenant Life Ins Insurance
Philadelphia Insurance
Contributorship
Dexter Adhesives & Coatings
D. Landreth Seed Seeds
Bank of New York Banking

11. Corporations Private- Not Traded on Any Stock Exchange
Public- Shares Are Traded on 1 or More Stock Exchanges
Non-Profit- Performs Public Service, Has Special Tax Considerations To Encourage Formation

12. Corporation Advantages Disadvantages More money for investment
Limited liability
Separation of ownership/mgmt.
Ease of ownership change
Perpetual life
Size
Initial cost
Paperwork
Two tax returns
Termination difficult
Stockholder & Board Conflict
Double taxation

13. Largest U.S. Companies Wal-Mart Stores $246,525 Exxon/Mobil 204,506
Revenue 2002
(In Millions)
Wal-Mart Stores $246,525
Exxon/Mobil ,506
General Motors ,763
Ford Motor ,420
General Electric ,698
IBM ,186
Source: Web100 & Fortune

14. How Owners Affect Management

15. S Corporations No more than 75 shareholders Individual or Estates
U.S. citizens or residents
1 class of stock
<25% of income can be passive
Slower-growing companies
Benefits change with new tax rules

16. Limited Liability Companies
Advantages
Disadvantages
Limited Liability
Tax Choice
Flexible Ownership Rules
Flexible Profit & Loss Distribution
Operating Flexibility
No Stock
Limited Life Span
Fewer Incentives
Taxes
Paperwork

17. Why Mergers Don’t Work Companies Overpay to Acquire Another Firm
Acquiring Company Overestimates Cost Savings and Synergies
After Merger, Managers Disagree About Integrating Operations
After Merger, Cost Cutting Obsession Hurts Business Costing Top Employees & Customers

18. GM’s Ownership In:
Source: USA TODAY

19. Types of Mergers
Horizontal
Vertical
Conglomerate

20. Individual + Loan = Purchase of Company
Leveraged Buyout
Individual Loan = Purchase of Company
Purchase Loan
Company = Collateral

21. Franchise System
Franchise Agreement
Franchisor
Franchisee

22. Branded Product/Service
Franchise Contract
Franchisor, Inc.
Branded Product/Service
Performance
Monitoring
$$$$$
Franchisee

23. Franchisor Assigns Territory Provides Training/Support
May Provide Financial Aid/Advice
Offers Merchandise/ Supplies at Competitive Price
Provides Training/Support
Business Expansion Using O.P.M.

24. Franchisee Pays Up-Front Costs Makes Monthly Payment to Franchisor
Runs Business by Franchisor’s Rules/Procedures
Buys Materials from Franchisor/ Approved Supplier

25. Fastest Growing Franchises (2002)
Company
Since
Type
# Stores
Curves
1995
Women’s Only Fitness
3,778
Subway
1974
Submarine Sandwich
14,800
7-Eleven
1964
24-Hr. Convenience
3,761
Taco Bell
Mexican Fast Food
5,417
Jani-King
Commercial Cleaning
7,843
Source: Entrepreneur, 2003

26. Franchises Advantages Disadvantages Management & marketing assistance
Personal ownership
Recognized name
Financial advice & assistance
Lower failure rate
High start-up costs
Shared Profit
Management regulation
Coattail effects
Restrictions on selling
Fraudulent franchisors

27. Cost of Fast-Food Franchise
Company
Initial Fee
Royalty
Burger King
$50,000
8.5%
McDonald’s
$45,000 8%
Wendy’s
$25,000
Domino’s
None
Subway
$10,000
11.5%
Krispy Kreme
$40,000
5.5%

28. How to Avoid a Franchise Lemon
Research officers & their business experience
Get summary of any bankruptcy & litigation
Estimate all costs to set up franchise
Review franchise contract & three most recent financial statements

29. Benefits of a Home-Based Franchise.
Flexible work hours
Quality lifestyle
Doing the work of your choice
Opportunity to expand using technology
Self-motivation

30. Franchising & E-Commerce
Technology- Faster Customer Service
Access to International Markets

31. Cooperatives Farm Cooperative Owned & Controlled by People Who Use It
Pool of Resources
Economic Power