Choosing a Form of Business Ownership

2. Three Basic Forms of Business Ownership Sole Proprietorships Partnerships Corporations

3. SOLE PROPRIETORSHIPS

4. SOLE PROPRIETORSHIP Owned, usually managed, by one person Most common

5. Sole Proprietorships 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. PARTNERSHIPS

7. PARTNERSHIP Two or more owners

8. Types of Partners (owners) General Partner Owner (partner) who has unlimited liability and is active in managing the firm Limited Partner Owner who invests money in business, has no management responsibility and has limited liability

9. Liability of Partners Unlimited Liability All assets (including personal) are at risk Limited Liability Losses only up to amount invested

10. Types of Partnerships

11. New Forms of Partnerships Master Limited Partnership Looks and acts like corporation Traded Publicly Taxed As A Partnership Limited Liability Partnership Limits partners� risk of asset loss to only their acts and omissions and acts and omissions of those under their supervision

12. Uniform Partnership Act Replace state laws relating to partnerships All states except Louisiana have adopted UPA

13. General Partnership Three key elements of any GP Common ownership Shared profits and losses Right to participate in managing operations

14. Limited Partnership Three key elements of any LP Common ownership Shared profits and losses Limited partners do not participate in managing operations

16. Partnership Agreement http://www.lawdepot.com/

17. PICK YOUR PARTNER WISELY

18. CORPORATIONS

19. What is a Corporation? State Chartered legal entity with authority to act and have liability separate from its owners Owners (stockholders) not liable for debts beyond their investment (limited liability) Allows sharing in ownership without working there

20. Types of Corporations Regular �C� �S� Corporation Limited Liability Company

21. �C� Corporations

22. �C� Corporations Private � Not Traded on Any Stock Exchange Public � Shares are Traded on one or More Stock Exchanges Not-for-Profit � Performs Public Service, Has Special Tax Considerations To Encourage Formation

27. �S� Corporations

28. �S� Corporations Looks like a corporation but taxed like sole proprietorships and partnerships Have shareholders, directors, and employees Have benefit of limited liability Profits are taxed as personal income of shareholders Avoid double taxation of C corporations

29. �S� Corporations No more than 100 shareholders Individual or Estates U.S. citizens or permanent residents 1 class of stock No more than 25% of income can be passive sources (rents, royalties, interest, etc.) Benefits change with new tax rules

30. Limited Liability Companies

31. Limited Liability Companies Similar to �S� corporation without special eligibility requirements May be taxed as partnership or corporation Uniform Limited Liability Company Act provides uniform legislation regarding limited liability companies

32. Limited Liability Companies Limited Liability Tax Choice Flexible Ownership Rules (person, partnership, corporation) Flexible Profit & Loss Distribution

33. Limited Liability Companies Ownership non-transferable Life Span � new change Taxes (self-employment) Paperwork

34. Incorporation http://www.lawdepot.com/

35. The Big Boys of BusinessAmerica�s Largest Corporations See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. World�s Largest Corporations This slide presents Fortune�s 2008 top 10 U.S. corporations. Ask the students: Several of the companies in the top ten deal with similar products/services. How are the products/services these companies sell similar? (Exxon Mobil, Chevron, ConocoPhillips are all oil majors and Valero Energy is a processor of oil.) See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. World�s Largest Corporations This slide presents Fortune�s 2008 top 10 U.S. corporations. Ask the students: Several of the companies in the top ten deal with similar products/services. How are the products/services these companies sell similar? (Exxon Mobil, Chevron, ConocoPhillips are all oil majors and Valero Energy is a processor of oil.)

36. Who Can Incorporate? See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies.

37. Forms of Business Ownership See Learning Goal 1: Compare the advantages and disadvantages of sole proprietorships. Although corporations make up only 20 percent of the total number of businesses, they make 81 percent of the total receipts. Sole proprietorships are the most common form (72 percent), but they earn only 6 percent of the receipts. See Learning Goal 1: Compare the advantages and disadvantages of sole proprietorships. Although corporations make up only 20 percent of the total number of businesses, they make 81 percent of the total receipts. Sole proprietorships are the most common form (72 percent), but they earn only 6 percent of the receipts.

38. Mergers and Acquisitions

39. Mergers and Acquisitions Merger � two firms forming one company Acquisition � one company purchasing assets and obligations of another company

40. Types of Mergers

41. 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

42. Leveraged Buyout

43. Leveraged Buyout

44. World�s Largest Corporations Citigroup General Electric American Intl Group Bank of America HSBC Group ExxonMobil Royal Dutch/Shell BP ING Group Toyota Motor UBS Wal-Mart Stores Royal Bank of Scotland JP Morgan Chase Berkshire Hathaway BNP Paribas IBM Total Verizon Communication Chevron Texaco Also available on a Transparency Acetate See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. World�s Largest Corporations This slide presents Forbes� 2005 top 20 global corporations. Ask the students: How many of these top 20 are U.S. corporations? (11 out of 20) Ask the students: What is the home country of the rest of them? (Two are from France, two from the Netherlands, one from Japan, one from Switzerland, and rest are from U.K.)Also available on a Transparency Acetate See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. World�s Largest Corporations This slide presents Forbes� 2005 top 20 global corporations. Ask the students: How many of these top 20 are U.S. corporations? (11 out of 20) Ask the students: What is the home country of the rest of them? (Two are from France, two from the Netherlands, one from Japan, one from Switzerland, and rest are from U.K.)

45. Privacy PleaseThe Ten Largest Private Corporations in the U.S. See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Largest Private Companies This slide presents America�s top 10 private companies in 2008. The list has changed recently with the Cerberus Capital purchase of Chrysler from Daimler and their purchase of GMAC Financial Services from General Motors. Ask the students to debate why a company may want to remain private? (Some of the reasons may be control, privacy, no external pressure, and preference.) See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Largest Private Companies This slide presents America�s top 10 private companies in 2008. The list has changed recently with the Cerberus Capital purchase of Chrysler from Daimler and their purchase of GMAC Financial Services from General Motors. Ask the students to debate why a company may want to remain private? (Some of the reasons may be control, privacy, no external pressure, and preference.)

46. America�s Oldest Companies J. E. Rhoads & Sons 1702 Conveyer Belts Covenant Life Ins. 1717 Insurance Philadelphia Contributorship 1752 Insurance Dexter 1767 Adhesives & Coatings D. Landreth Seed 1784 Seeds Bank of New York 1784 Banking

47. FRANCHISES

48. Franchise System Franchise Agreement Franchisor Franchisee

49. Franchise System Franchise Agreement An agreement between a firm (franchisor) and another party (franchisee) in which the firm provides the other party with the right to use the firm's name and to sell or rent its products.

50. Franchise Agreement

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

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

53. Franchises Management & marketing assistance Personal ownership Recognized name Financial advice & assistance Lower failure rate

54. Franchises High start-up costs Shared Profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors

55. WOMEN in FRANCHISING See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.

56. GLOBAL FRANCHISING See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.

57. WHAT to CHOOSE?Picking Franchises that May Survive a Recession See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. What to Choose? This is valuable information that must be examined by anyone wishing to purchase a franchise. The number-one reason why franchises fail is due to miscalculation of start-up costs and operating costs. Examine all costs carefully. It is important to understand that all franchise opportunities are not created equal. Suggest to the class that anyone interested in a franchise should also follow these additional guidelines: Have an attorney experienced in franchise contracts review the agreement. Hire a CPA to review all financial statements. This is commonly referred to as performing a �Due Diligence.� Interview other franchise owners. Have experience in the industry. See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. What to Choose? This is valuable information that must be examined by anyone wishing to purchase a franchise. The number-one reason why franchises fail is due to miscalculation of start-up costs and operating costs. Examine all costs carefully. It is important to understand that all franchise opportunities are not created equal. Suggest to the class that anyone interested in a franchise should also follow these additional guidelines: Have an attorney experienced in franchise contracts review the agreement. Hire a CPA to review all financial statements. This is commonly referred to as performing a �Due Diligence.� Interview other franchise owners. Have experience in the industry.

58. HIGH FLYERSTen High-Performing Franchises See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. High Flyers This slide lists ten high-performing franchises. As mentioned earlier not all franchises are created equal and require careful investigation before considering an investment. Web sites like www.franchise.com provide information such as the cost of thousands of franchise systems. Ask students: What makes an effective franchisor? (Answers will vary but should include name recognition, financial stability, innovative product and effective business management.) See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. High Flyers This slide lists ten high-performing franchises. As mentioned earlier not all franchises are created equal and require careful investigation before considering an investment. Web sites like www.franchise.com provide information such as the cost of thousands of franchise systems. Ask students: What makes an effective franchisor? (Answers will vary but should include name recognition, financial stability, innovative product and effective business management.)

59. Cost of Fast-Food Franchise

60. How to Avoid aFranchise 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

61. Franchise Information Franchise.com FranchiseLife.com FranchiseSolutions.com FranchiseAdvantage.com BizBuySell.com FranchiseAmerica.com Franchise-Zone.com International Franchise Association

62. CO-OPERATIVES

63. Co-Operatives See Learning Goal 6: Explain the role of cooperatives. See Learning Goal 6: Explain the role of cooperatives.

64. Co-Operatives Farm & Ranch Cooperatives Pool of Resources Economic Power