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CHAPTER FIVE. Forms of Business Ownership. World’s Largest Public Companies. General Electric U.S. Royal/Dutch Shell Britain/Holland Coca-Cola U.S. Nippon Tele. Japan Exxon U.S. Microsoft U.S. Company. Country. America’s Oldest Companies.
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CHAPTER FIVE Forms of Business Ownership
World’s Largest Public Companies General Electric U.S. Royal/Dutch Shell Britain/Holland Coca-Cola U.S. Nippon Tele. Japan Exxon U.S. Microsoft U.S. Company Country
America’s Oldest Companies J. E. Rhoads & Sons 1702 Conveyer Belts Covenant Life Ins. 1717 Insurance Philadelphia 1752 Insurance Contributorship Dexter 1767 Adhesives & Coatings D. Landreth Seed 1784 Seeds Bank of New York 1784 Banking
Largest U.S. Companies • Microsoft $602,432 • General Electric 507,216 • Cisco Systems 366,498 • Wal-Mart Stores 307,865 • Intel 275,008 Market Capitalization (In Millions) Source: Wall Street Journal
Basic Forms of Ownership • Sole Proprietorship • Partnership • Corporation Number Sales 74% 5% 8% 5% 18% 90%
Ease of start/end Be your own boss Pride of ownership Retain profit No special taxes Unlimited liability Limited financial resources Difficulty in mgmt. Time commitment Few fringe benefits Limited growth Limited life span Sole Proprietorship Advantages Disadvantages
Partnership Advantages Disadvantages • More financial resources • Shared mgmt. • Longer survival • Unlimited liability • Division of profits • Disagreements among partners • Difficult to terminate
Types of Partnerships General Limited GP Passive Investor Passive Investor GP GP GP GP Passive Investor
Uniform Partnership Act • Common Ownership • Shared Profits & Losses • Management Participation
Types of Corporations • Regular ‘C’ • Subchapter ‘S’ • Limited Liability Corporation
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 • Double taxation
No more than 75 shareholders Shareholders Individuals Estates U.S. citizens or residents 1 class of stock <25% of income can be passive Tax rate = +5% Slower-growing companies Benefits change with new tax rules S Corporations
Make-up of Corporate Boards Retired office of another firm 89% CEO at another company 87% Major company shareholder 73% Ex-government official 53% Academicians 50% Corporate boards average 11 Directors. Most Directors by percentage are:
External Corporate Growth • Merger/Acquisition • Horizontal • Vertical • Conglomerate • Leveraged Buyout (LBO)
Types of Mergers/Acquisitions A Horizontal B = AB Conglomerate Vertical
Leveraged Buyout Individual + Loan = Purchase of Company Purchase Loan Company = Collateral
Top U. S. Mergers Time Warner AOL $120 Bil World Com MCI $30 Bil Bell Atlantic NYNEX $26 Bil KKR RJR/Nabisco $25 Bil Disney CAP/Cities ABC $19 Bil Acquirer Target Value
Top Growth Franchises #New Stores in 1999 • Kumon Math & Reading Centers 4,586 • McDonald’s 3,288 • 7-Eleven Convenience Stores 1,023 • Jackson Hewitt Tax Service 884 • Taco Bell Corp. 841 • KFC Corp. 567 • Coverall Cleaning Concepts 548 • Yogen Fruz Worldwide 520 Source: Entrepreneur, March 2000
Management & marketing ass’t Personal ownership Recognized name Financial advice & ass’t Lower failure rate High start-up costs Shared Profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors Franchises Disadvantages Advantages
Franchise System • Franchiser • Franchisee • Franchise Agreement
Franchise Contract Franchisor, Inc. Branded Product/Service Performance Monitoring $$$$$ Franchisee
Assigns Territory Provides Financial Aid/Advice Offers Merchandise/ Supplies at Competitive Price Provides Training/Support Business Expansion Using O.P.M. Franchisor
Franchisee • Pays Up-Front Costs • Makes Monthly Payment to Franchisor • Runs Business by Franchisor’s Rules/Procedures • Buys Materials from Franchisor/ Approved Supplier
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
Benefits of aHome-Based Business • Flexible work hours • Quality lifestyle • Doing the work of your choice • Opportunity to expand using technology • Self-motivation .