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0. I WANT TO START A BUSINESS, HOW SHOULD I SET IT UP?

1. What are the strengths and weaknesses of a soleproprietorship?2. What are the advantages and disadvantages of apartnershipand a partnership agreement?3. How is a corporationformed, and how does it compare

with sole proprietorships and partnerships?4. What are the characteristics of not for profitcorporationsand cooperatives?5. What are the different types of mergersand acquisitions

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Forms of ownership! Sole Proprietorship

! An individual or married couple pursuing business fora profit. This does not involve incorporation.

Some data:

! At the beginning of 2012, the 51.77% of the totalamount of companies in Spain were soleproprietorship firms.

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Forms of ownership! Partnership

! Two or more people agree to contribute resources tostart and operate a business together

General PartnershipThe owners share

managementresponsibilities

Limited PartnershipGeneral partner

manages thebusiness

Limited partnersshare profit butlosses are limitedto the amount oftheir investment

LimitedLiability PartnershipLimits the liability

of one partner forthe negligence ofanother

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Forms of ownership! Corporation

! A legal entity that exists separately from its ownersThe 13.11% of total companies in Spain

! Limited Liability Corporation (LLC)! A combination of sole proprietorship, partnership,

and corporation! Protects owners against personal loss other than what is

invested in the company! Treated as a proprietorship or partnership for tax

purposes

At the beginning of 2012, about 1,123,574 were LLC inSpain (35,12% of the total amount of companies in Spain,INE).

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Advantages Disadvantages

Ease of formation Greater control and

flexibility No specific corporate

records to keep or file Potential financial/tax

benefit of combinedbusiness and personal

finances

! Unlimited liability! Potential difficulty in

borrowing money

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Advantages Disadvantages

! More owners contributecapital

!Greater ability to increasesales, market the business,and generate income

! Shared financialresponsibility

! Partners likely willing towork very hard

! Utilize complementary skills! Two heads are better than

one

! Need the rightpartner

! Must share controland profits

! Difference in opinionon companys direction

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Similarities Differences

! Inexpensive to set up! Unlimited liability! Financials flow through

individuals tax returns! No tax benefits! Legally dissolves upon

change or death ofowner or partner

! Profits increaseowners personal taxes

Number of peoplecontributing resources

Sharing of profits andliabilities

Ability to get financing

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! Capital contributions! Responsibilities of each partner! Decision-making process! Shares of profits or losses! Departure of partners! Addition of partners

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! General partnerships- Default arrangement- Simplest to form

! Limited partnership- General partners- Limited partners

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Advantages Disadvantages

Separated liability Extended life and

ownership transfer Raising capital Corporate benefits Tax benefits

! Must file an annualreport

! Must maintain minutesof key meetings

! Must follow corporatefinancial and tax rules

! Double taxation

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! An LLC combines corporate limited liabilitywith partnership tax advantages with feweradministrative requirements than

corporations! Often used by professional corporations

formed by accountants, attorneys, anddoctors

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! BITRONIC SL! AIRCRAFTTECH SL.! SK10 COMPOSITES AEROSPACIAL S.L.! COLYAER SL! TECNOLOGIAS AERONAUTICAS ESPECIALES

AERIS NAVITER SL! DISEO TECNICO AERONAUTICO SRL! AEROSERVICE VILADAIR SL! AVIA COMPOSITES SL

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! CONSTRUCCIONES AERONUTICAS SOCIEDADANNIMA (CASA

! EURO NAVAL SA! AEROTALLER SA! AVIATION PRODUCTS SA! COMPAIA ESPAOLA DE TECNICA AERONAUTICA,

SA! INVERSAIL SA

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! An incorporated business that does not seek a net profit! Utilizes revenue available after normal operating

expenses for the corporations declared social oreducational goals

- Revenues come primarily from fundraising anddonations

! Tax-exempt

EXAMPLE:Washington Aerospace Partnership (IT IS A NONPROFIT) it is the result of the collaboration of business, laborand government leaders to ensure aerospace excellence.

http://www.washington-aerospace.com/

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! A business that is owned and governed bymembers who use its products or services

! Provides services to people with commoninterests

! Members can be individuals or businesses! Members set policy and elect directors! Biggest advantage is group power

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What are the advantages and disadvantages of franchisingwithin the context ofentrepreneurship?

A franchiseis a method of doing business whereby the business (thefranchiser) sells a companys products or services under the companys name to

independent third-party operators (the franchisees).Franchises play an important part in our economy. Over 750,000 franchisedbusinesses are in operation, employing close to 10 million people with acombined annual payroll of nearly $230 billion.

More than half of all franchises are in the fast-food industry, and another 13percent are full-service restaurants.

Franchise opportunities exist in nearly every industry.

Franchising provides a great opportunity to do business internationally. By theend of 2005, China had 168,000 franchised stores, a 40-percent increasecompared with about 120,000 the year before.

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Pros Cons

Recognized brand name Proven system of operation Strength in numbers Initial training is part of the

deal Marketing support is

provided

Market research is oftenprovided

Lack of control Start-up costs Workload Competition Share problems occurring

elsewhere in the franchise

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! Merger- Two companies join to form one company-Friendly and mutually agreed upon

- Iberia and British Airways (IAG)- US Airways and American Airlines! Acquisition

- One company takes over another company

- Unfriendly acquisition! Hostile takeover! Tender offer! Proxy fight

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Generally,! To increase competitive

advantage! To gain synergySpecifically,! To become the dominant

force in the market! To reduce costs!

To add new product lines! To expand into newgeographic areas

! To gain innovations 2012 Pearson Education, Inc.

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! Nearly two-thirds dont achieve greater marketvalue

! Revenues and profits suffer because day-to-dayactivities are neglected while the companies arecombined

! Corporate cultures may clash! Communications may break down! New division of responsibilities can be vague! Divided loyalties, hidden agendas, or power

struggles within new management team may leadto conflict

! Employees may be nervous as jobs are usuallyeliminated! Employees whose jobs arent threatened may still

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1. What are the strengths and weaknesses of a soleproprietorship?2. What are the advantages and disadvantages of apartnershipand a partnership agreement?3. How is a corporationformed, and how does it compare

with sole proprietorships and partnerships?4. What are the major differences between a Ccorporation, an S corporation, and an LLC?5. What are the characteristics of not for profitcorporationsand cooperatives?6. What are the different types of mergersandacquisitionsand why do they occur?

2012 Pearson Education, Inc.

Publishing as Prentice Hall

6-2

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