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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 1

Building the Foundation:uilding the Foundation:Forms of Businessorms of BusinessOwnershipwnership

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 2

Business Ownershipusiness Ownership Sole proprietorship

Partnership

Corporation

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 3

Sole Proprietorship

Advantagesdvantages Ease of establishment

Self-satisfaction

Privacy

Tax advantages

Disadvantagesisadvantages Unlimited liability

Personal pressure

Difficult to get funding

Limited life

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 4

Business Partnershipsusiness Partnerships General partnerships

Equal partners

Share ownership Unlimited liability

Limited partnerships

Unequal partners Passive investors

Limited liability

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 5

Advantages of Partnershipsdvantages of Partnerships Easy to establish

Tax advantages

Strength in numbers

Diversity of skills

Increased capital Extended life

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 6

Disadvantages of Partnershipsisadvantages of Partnerships Unlimited liability

Debts

Law suits

Interpersonal problems

Managing partner Unproductive partners

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 7

Partnership Agreementartnership Agreement Division of profits

Decision-making authority

Expected contributions

Dispute resolution

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 8

Corporationsorporations Enter into contracts

Own and sell property

Sue and be sued

Enjoy limited liability

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 9

Ownership of Corporationswnership of Corporations Shareholders

Common stock

Preferred stock

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 10

Who Owns a Corporation?ho Owns a Corporation? Public

Many stockholders

Publicly traded

Private

Few stockholders Not publicly traded

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 11

Advantagesdvantagesof Going Publicf Going Public

Ready supply of capital

Increased liquidity

Enhanced visibility

Independent market value

Increased flexibility

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Disadvantagesisadvantagesof Going Publicf Going Public

High cost

SEC filing requirements

Reduced ownership control

Demands of public exposure

Pressure for quarterly results

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 13

CorporationsAdvantagesdvantages

Access to capital

Limited liability

Increased liquidity

Unlimited life span

Disadvantagesisadvantages Excess paperwork

Burdensome costs

Double taxation

Disclosure requirements

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 14

Types of Corporationsypes of Corporations Subchapter S corporation

Limited liability company

Subsidiary corporation

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 15

Corporate Governanceorporate GovernanceCommon

Shareholders

Individuals

Companies

Non-profits

Pensions

Mutual Funds

Board

of Directors

Dividends

Corporate Affairs

Strategic Plans

Select Officers

Finances

Corporate

Officers

Chief Executive

Chief Financial

Chief Operations

Employees of

the Company

Operations

Finance

Marketing

Personnel

Engineering

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 16

Reform: Board-Related Issueseform: Board-Related Issues Composition

Education

Liability

Recruiting

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 17

Business Combinationsusiness Combinations Mergers

Consolidations

Acquisitions

Leveraged buyouts

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Types of Business Mergersypes of Business Mergers Vertical

Horizontal

Conglomerate

Market extension

Product extension

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 19

Mergers, Consolidations, andAcquisitions

Advantagesdvantages DisadvantagesisadvantagesEconomies of ScaleEconomies of Scale

EfficienciesEfficiencies

SynergiesSynergies

High-Risk Corporate DebtHigh-Risk Corporate Debt

Management DistractionsManagement Distractions

Culture ClashesCulture Clashes

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 20

Trends in Mergers andrends in Mergers andAcquisitionscquisitionsYear Number Value (in billions)

1970

1975

1980

1985

1990

1995

2000

2003

5,152

2,297

1,889

3,001

2,074

3,510

11,123

8,232

$16

$12

$44

$180

$108

$356

$1,269

$530

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 21

Defenses Against Mergersefenses Against Mergersand Acquisitionsnd Acquisitions

Types

Tender offer

Proxy fight Defenses

Poison pill

Golden parachute Shark repellent

White knight

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Prentice Hall, 2007 Excellence in Business, 3e Chapter 5 - 22

Strategic Alliancestrategic Alliancesand Joint Venturesnd Joint Ventures

Gain credibility

Expand markets

Access technology

Diversity offerings

Share best practices