Professional Documents
Culture Documents
Chapter Five
*
How to Form a Business
McGraw-Hill/Irwin
BRIAN SCUDAMORE
1-800-GOT-JUNK?
*
Profile
Bought a used truck and started Rubbish Boys, later changed the name to 1-800-GOT-JUNK?. $130 million in annual earnings from locations across North America and Australia.
5-2
*
MAJOR FORMS of OWNERSHIP
LG1
5-3
LG1
5-4
*Advantages of
Sole Proprietorships LG1
Leaving a legacy
Retention of company profit
No special taxes
5-5
*Disadvantages
of Sole Proprietorships LG1
*
PROGRESS ASSESSMENT
Progress Assessment
*
Most people who start businesses in the United States are sole proprietors. What are the advantages and disadvantages of sole proprietorships?
5-7
*
MAJOR TYPES of PARTNERSHIPS Partnerships
General Partnership -- All owners share in
LG2
operating the business and in assuming liability for the businesss debts.
5-8
*
OTHER FORMS of PARTNERSHIPS
Partnerships LG2
5-9
*
TYPES OF PARTNERS
Partnerships LG2
Limited Partner -- An owner who invests money in the business but enjoys limited liability. Limited Liability means that liability for the debts of the
business is limited to the amount the limited partner puts into the company; personal assets are not at risk.
5-10
ADVANTAGES of PARTNERSHIPS
More financial resources
LG2
5-11
DISADVANTAGES of PARTNERSHIPS
Unlimited liability Division of profits Difficult to terminate
LG2
5-12
*
PICK YOUR PARTNER WISELY
(Spotlight on Small Business)
There is no such thing as a perfect partner but ask these questions when you try to find your best match:
Do you share the same goals? Do you share the same vision for the company? What skills does he/she have? Are yours the same? What can he/she bring to the business? What type of decision maker is he/she? Do you trust each other? How does he/she problem solve?
5-13
*
PROGRESS ASSESSMENT
Progress Assessment
*
Whats the difference between a limited partner and a general partner? What are some of the advantages and disadvantages of partnerships?
5-14
CONVENTIONAL CORPORATIONS
Conventional (C) Corporation -- A statechartered legal entity with authority to act and have liability separate from its owners (its stockholders).
*
Corporations LG3
5-15
*
ADVANTAGES of CORPORATIONS
Limited liability
Ability to raise more money for investment Size Perpetual life Ease of ownership change Ease of attracting talented employees Separation of ownership from management
Advantages of Corporations LG3
5-16
*
Advantages of Corporations LG3
5-17
*
The BIG BOYS of BUSINESS
Americas Largest Corporations
Advantages of Corporations LG3
1.
Exxon Mobil
6.
7. 8. 9.
General Motors
Ford AT&T Hewlett-Packard
2.
3. 4. 5.
Wal-Mart
Chevron ConocoPhillips General Electric
5-18
*
PRIVACY PLEASE
The Ten Largest Private Corporations in the U.S.
Company Cargill Koch Industries Chrysler GMAC Financial Services PricewaterhouseCoopers Mars Bechtel HCA Ernst & Young Publix Supermarkets
Source: Forbes, www.forbes.com, November 2008.
State MN KS MI MI NY VA CA TN NY FL
Industry Farming Chemicals Automobiles Financial Business Services Food Construction Hospitals Business Services Grocery
5-19
*
DISADVANTAGES of CORPORATIONS
Initial cost
Disadvantages of Corporations LG3
Extensive paperwork
Double taxation Two tax returns Size Difficulty of termination Possible conflict with stockholders and board of directors
*
WHO CAN INCORPORATE?
Individuals Can Incorporate
LG3
Anyone - truckers, doctors, plumbers, athletes and small business owners can incorporate.
Normally, stock is not issued when individuals incorporate so the advantages and disadvantages are not exactly the same as for large corporations.
*
OLDIES BUT GOODIES
Americas Oldest Corporations
Individuals Can Incorporate
LG3
Company J.E. Rhoads & Sons Covenant Life Insurance Philadelphia Insurance Dexter D. Landreth Seed Bank of New York
Type of Company Conveyer Belts Insurance Insurance Contributorship Adhesives & Coatings Seeds Banking
5-22
*
S CORPORATIONS
S Corporations LG3
S corporations have shareholders, directors and employees, plus the benefit of limited liability.
Profits are taxed only as the personal income of the shareholder.
5-23
*
S Corporations LG3
Have no more than 100 shareholders. Have shareholders that are individuals or estates and are citizens or permanent residents of the U.S. Have only one class of stock. Derive no more than 25% of income from passive sources.
If an S corporation loses its S status, it may not operate under it again for at least 5 years.
5-24
*
LIMITED LIABILITY COMPANIES
Limited Liability Companies
LG3
Advantages of LLCs:
Limited liability Choice of taxation Flexible ownership rules Flexible distribution of profit and losses Operating flexibility
5-25
*
DISADVANTAGES of LLCs
Limited Liability Companies
LG3
Fewer incentives
Taxes Paperwork
5-26
* *
Since June 2008, Vermont allows a new kind of LLC that exist only online. Registration documents can be filed online, meetings can be held through online communication, and relationships can be established electronically. Virtual companies allow online contributors with different skills, availability and interest to interact and be successful.
5-27
*
PROGRESS ASSESSMENT
Progress Assessment
What are the major advantages and disadvantages of incorporating a business? Whats the role of owners (stockholders) in the corporate hierarchy? If you buy stock in a corporation and someone gets injured by one of the corporations products, can you be sued? Why or why not? Why are so many new businesses choosing a limited liability company (LLC) form of ownership?
5-28
*
MERGERS and AQUISITIONS
LG4
5-29
*
TYPES of MERGERS
LG4
5-30
*
LEVERAGED BUYOUTS
LG4
LBOs have ranged in size from $50 million to $31 billion and have involved everything from small businesses to giant corporations. In 2007, foreign investors poured $414 billion into U.S. companies.
5-31
*
FRANCHISING
Franchises LG5
More than 900,000 franchised businesses operate in the U.S., employing approximately 10 million people.
5-32
ADVANTAGES of FRANCHISING
*Advantages &
Disadvantages of Franchises LG5
Management and marketing assistance Personal ownership Nationally recognized name Financial advice and assistance Lower failure rate
5-33
DISADVANTAGES of FRANCHISING
Large start-up costs
Shared profit Management regulation Coattail effects Restrictions on selling
*Advantages &
Disadvantages of Franchises LG5
Fraudulent franchisors
5-34
*
WOMEN in FRANCHISING
Diversity in Franchising
LG5
Women own about half of U.S. companies yet receive less than 4% of venture capital.
For the past 20 years, firms owned by women have grown at twice the rate of all companies. More women are becoming franchisors. Auntie Annes, Decorating Den, Jazzercise and Two Men and a Truck are owned by women.
5-35
* *
The Nationals in D.C. have the first sports stadium to earn the U.S. Green Building Councils Leadership in Energy and Environmental Design (LEED) Rating. 95% of the stadiums steel was recycled and lowflow toilets save millions of gallons of water. New stadiums of the Mets and Twins also have earned LEED certifications.
5-36
*
HOME-BASED FRANCHISES
Advantages: Relief from commuting stress Extra family time Low overhead expenses
Main Disadvantage: Isolation
Home-Based Franchises
LG5
5-37
GLOBAL FRANCHISING
*Franchising in
International Markets LG5
Canada is the most popular target for U.S. based franchises; South Africa and the Philippines are becoming popular despite high cost. Franchising is successful when the product is convenient, high quality, great service is included and the franchisee adapts to the region. International franchising goes both ways some foreign franchises have come to the U.S.
5-38
WHAT to CHOOSE?
Picking Franchises that May Survive a Recession
*Franchising in
International Markets LG5
5-39
HIGH FLYERS
Ten High-Performing Franchises
*Franchising in
International Markets LG5
1. Arthur Murray Dance Studios 2. Banfield Pet Hospitals 3. Bojangles Famous Chicken n Biscuits 4. Dennys 5. Friendlys 6. The Melting Pot 7. Nathans Famous 8. Servpro 9. Stanley Steamer 10. Two Men and a Truck Source: Wall Street Journal, www.wsj.com, February 12, 2008.
5-40
*
COOPERATIVES
Cooperatives LG6
Worldwide, 750,000 cooperatives serve 730 million members 120 million in the U.S. Members democratically control the business by electing a board of directors that hires professional management.
5-41
*
PROGRESS ASSESSMENT
Progress Assessment
*
What are some of the factors to consider before buying a franchise? What opportunities are available for starting a global franchise? Whats a cooperative?
5-42