Chapter Objectives Selecting a Form of Business Ownership 9/30/2010
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9/30/2010 Selecting a Form of Business Ownership Chapter Objectives 1. 2. 3. 4. 5. 6. 7. 8. Identify questions in choosing a form of business ownership Describe sole proprietorship and advantages and disadvantages Identify types of partnerships and explain partnership agreement Describe advantages and disadvantages of partnership Explain corporate formation and operation Discuss advantages/disadvantages g / g of corporation p Examine special types of ownership Define mergers and acquisitions and explain motivation to merge/acquire 1 Factors to Consider in Selecting Legal Form 1) 2) 3) 4) 5)) 6) 7) 8) What willing to do? How much control? Share profits? Special Taxes? Skills Needed? Business continuance? Financing Needs? Liability exposure? Positive Characteristics of Sole Proprietorship 5Most common- 75% 5Easiest and cheapest 5Few government regulations 5Complete Control 5Get all earned income 5No special taxes Sole Proprietorship •“…a business owned by only l one person.”” Negative Characteristics of Sole Proprietorship 7Supply all talents 7Death = dissolution 7Own Resources = financing 7Unlimited liability 1 9/30/2010 Sole Proprietorship & Unlimited Liability General Partnership •“…a business owned jointly b two or more people.” by l ” Characteristics of General Partnership 56% of businesses 5Some large = Big 4 accounting firms 5Relatively easy & inexpensive 5Shared responsibility p y & talent 5Financing easier 5Continuity not issue 5No special taxes 7 More complex than sole proprietorship 7Disputes among partners 7Unlimited liability including for partner actions 7Shared decisions 7Share profits General Partnership & Unlimited Liability Partnership Agreement "Cash/Contribution of partners "Division of income/loss "Partner responsibilities "Conditions for sale "Conditions for dissolving "Conditions for settling disputes Limited Partnership ¾Permitted by law ¾Partners • General- runs business and responsible p for liability • Limited- limited involvement, losses = investment 2 9/30/2010 Corporation Limited Partnership Limited Limited Partner Partner •“…a legal entity separate f from the h parties i who h own it.” General Partner Limited Limited Partner Partner Characteristics of Corporation as Legal Entity 1) 2) 3) 4) 5) Types of U.S. Businesses Enter into binding contracts Buy/Sell property Sue/Be sued Responsible for all actions Taxed Board of Directors Characteristics of Shareholders Invest money (stock or shares) Ownership % = % of total shares Elects Board of Directors 1) 2) 3) 4) 5)) 6) 7) Outside group of people Responsible for governing Oversees major policies & decisions Sets goals Holds ld management accountable bl Hires/Evaluates CEO Approves dividends 3 9/30/2010 Corporation •Benefits 5Limited Liability 5Financial Resources 5Specialized management 5Continuity & Transferability •Drawbacks 7Goals of management & shareholders differ 7Costly to set up 7Regulation & Gov’t Oversight 7Double taxation Other Types of Business Ownership v S-Corp. Tax rules = partnership/sole proprietorship Limited liability protection Qualify • <100 stockholders • U.S. resident/citizen • 100% agreement on decision to form v Limited-Liability Corp. Members not personally liable Taxed once No ownership restrictions Merger V. Acquisition Merger- two companies combine to form new company A Acquisitioni ii purchase h off one company by another Closely Held Corporation •“…stock is held by only a few individuals...not allowed to sell i to the it h generall public.” bli ” Other Types of Business Ownership (cont’d) vCooperatives Owned/controlled by those using services Shares financial success with members vNot-For-Profit Corp. P Public bli service i b besides id fi financial i l gain i Exempt from taxes Contributions tax deductible Motives Behind Mergers & Acquisitions 1) Gain complementary products 2) Attain new markets or distribution channels 3) Realize economies of scale 4 9/30/2010 Hostile Takeover •“…a takeover resisted by the targeted company’s managementt and d it its b board d off directors.” 5
