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McGraw-Hill/Irwin Understanding Business, 8e. © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Nickels McHugh McHugh. *. *. Choosing a Form of Business Ownership. *. CHAPTER. 5. *. *. 1- 1. Ease of start/end Be your own boss Pride of ownership

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  1. McGraw-Hill/Irwin Understanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Nickels McHugh McHugh * * Choosing a Form of Business Ownership * CHAPTER 5 * * 1-1

  2. Ease of start/end Be your own boss Pride of ownership Leave a legacy Retain profit No special taxes Unlimited liability Limited financial resources Management difficulty Time commitment Few fringe benefits Limited growth Limited life span Sole Proprietorship Advantages Disadvantages

  3. Types of Partnerships General Limited GP Passive Investor Passive Investor GP GP GP GP Passive Investor

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

  5. Types of Corporations • Conventional ‘C’ • S Corporation • Limited Liability Companies

  6. Corporation Advantages Disadvantages • Extensive paperwork • Double taxation • Two tax returns • Size • Termination difficult • Conflict with • Stockholder & Board • Initial cost • Limited liability • More money for • investment • Size • Perpetual life • Ease of ownership • change • Ease of drawing • talented employees • Separation of • ownership/mgmt.

  7. Types of Mergers Horizontal Vertical Conglomerate No Relationship between companies

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

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

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

  11. 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 Franchises Advantages Disadvantages

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

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