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1866 Henri Nestlé's searched for a healthy, economical alternative to breastfeeding for mothers who could not feed their infants at the best.
He called the new product Farine Lactee Henri Nestlé. Henri Nestlé also showed early understanding of the
power of branding. Anglo-Swiss Condensed Milk Company and Nestlé's
merged in 1905. By 2002, the company made two major acquisitions
leading the dairy industry in the world
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LEARNING OBJECTIVES Describe the advantages and disadvantages of sole
proprietorships. Explain the different types of partners and the importance of
partnership agreements. Describe the advantages and disadvantages of partnerships. Summarize how a corporation is formed. Describe the advantages and disadvantages of a corporation. Examine special types of corporations, including
S-corporations, limited-liability companies, government-owned corporations, and not-for-profit corporations. Cont……
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LEARNING OBJECTIVES –CONT……… Discuss the purpose of a cooperative, joint
venture, and syndicate. Explain how growth from within and growth
through mergers can enable a business to expand.
SOLE PROPRIETORSHIPS A business that is owned (and usually operated)
by one person The simplest form of business ownership and the
easiest to start Many large businesses began as a small struggling
sole proprietorships. E.g- Ford Motors, H.J.Heinz Company, and Proctor & Gamble Company
The most widespread form of business ownership and common in retailing, services, and agriculture
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SOLE PROPRIETORSHIPS
Sole proprietorships are most common in
retailing, agriculture, and the service
industries
ADVANTAGES AND DISADVANTAGES OF SOLE PROPRIETORSHIPS
ADVANTAGESEase of start-up (and
shut down)Pride of ownershipRetention of profitsFlexibility of being
your own bossNo special
taxes (personal income tax)
DISADVANTAGESUnlimited liability
A legal concept that holds a business owner personally responsible for all the debts of the business
Lack of continuity In the event of a death,
retirement, legally incompetent
Lack of money (limited ability to borrow)
Limited management skillsDifficulty in hiring
employees (room for advancement)
PARTNERSHIPS
A voluntary association of two or more persons to act as co-owners of business for profit
Less common form of ownership than sole proprietorship or corporation
No legal limit on the maximum number of partners; most have only two
Large accounting, law, and advertising partnerships have multiple partners
Partnerships are usually a pooling of special talents or the result of a sole proprietor taking on a partner
TYPES OF PARTNERS General partner
A person who assumes full or shared responsibility for operating a business
General partnership: a business co-owned by two or more general partners who are liable for everything the business does
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TYPES OF PARTNERS Limited partner
A person who contributes capital to a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership
Limited partnership: a business co-owned by one or more general partners who manage the business and limited partners who invest money in it
Master limited partnership (MLP): a business partnership that is owned and managed like a corporation but taxed like a partnership, could sell the units of ownership for investors (also called publicly traded partnership)
THE PARTNERSHIP AGREEMENT Articles of partnership
An agreement listing and explaining the terms of the partnership
Agreement should state Who will make final decisions What each partner’s duties will be How much each partner will invest How much profit or loss each partner receives or is
responsible for How the partnership can be dissolved
ADVANTAGES AND DISADVANTAGES OF PARTNERSHIPS
ADVANTAGES Ease of start-upAvailability of capital
and creditPersonal interestCombined business
skills and knowledgeRetention of profits No special taxes
DISADVANTAGESUnlimited liabilityLack of continuityManagement
disagreementsFrozen investment if
other partner(s) does not like to buy the shares
CORPORATIONS An artificial person created by law with most of
the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts
There are approximately 6 million corporations in the U.S.
They comprise about 20% of all businesses, but they account for 84.4 % of sales revenues(Pareto principle or law of the vital few)
CORPORATIONS (CONT’D) Corporate ownership
Stock The shares of ownership of a corporation
Stockholder or Shareholder A person who owns a corporation’s stock
Closed corporation A corporation whose stock is owned by relatively few
people and is not sold to the general public. E.g- Reader’s Digest Association was a closed corporation until 1990
Open corporation A corporation whose stock is bought and sold on security
exchanges and can be purchased by any individual
FORMING A CORPORATION
Incorporation The process of forming a corporation
Most experts recommend consulting a lawyer
FORMING A CORPORATION (CONT’D)
Where to incorporate Businesses can incorporate in any state they choose Some states offer fewer restrictions, lower taxes, and
other benefits to attract new firms Domestic corporation
A corporation in the state in which it is incorporated Foreign corporation
A corporation is that incorporated in one state and operates its business in a different state
Alien corporation A corporation chartered by a foreign government and
conducting business in the U.S.
FORMING A CORPORATION (CONT’D) Corporate charter
A contract (submitted as articles of incorporation) between the corporation and the state in which the state recognizes the formation of the artificial person that is the corporation
Charter includes Firm’s name and address Incorporators’ names and addresses Purpose of the corporation Maximum amount of stock and types of stock to be issued Rights and privileges of stockholders Length of time the corporation is to exist
FORMING A CORPORATION (CONT’D) Stockholders’ rights
Common stock Stock owned by individuals or firms who may vote on
corporate matters but whose claims on profit and assets are subordinate to the claims of others
Preferred stock Stock owned by individuals or firms who usually do not
have voting rights but whose claims on dividends are paid before those of common-stock holders
Dividend A distribution of earnings to the stockholders of a
corporation Proxy
A legal form listing issues to be decided at a stockholders’ meeting and enabling stockholders to transfer their voting rights to some other individual or individuals
FORMING A CORPORATION (CONT’D)
Organizational meeting The last step in forming a corporation
The incorporators and original stockholders meet to elect their first board of directors
Board members are directly responsible to stockholders for how they operate the firm
CORPORATE STRUCTURE Board of directors
The top governing body of a corporation, the members of which are elected by the stockholders
Responsible for setting corporate goals, developing strategic plans to meet those goals, and the firm’s overall operation
Outside directors: experienced managers or entrepreneurs from outside the corporation who have specific talents
Inside directors: top managers from within the corporation
CORPORATE STRUCTURE (CONT’D) Corporate officers
The chairman of the board, president, executive vice presidents, corporate secretary, treasurer, or any other top executive appointed by the board
Implement the chosen strategy and direct the work of the corporation, periodically reporting results to the board
HIERARCHY OF CORPORATE STRUCTURE
Stockholders exercise a great deal of influence
through their right to elect the board of
directors
ADVANTAGES AND DISADVANTAGES OF CORPORATIONS
ADVANTAGES Limited liability
Each owner’s financial liability is limited to the amount of money that he or she has paid for the corporation’s stock
Ease of raising capitalEase of transfer of
ownershipPerpetual lifeSpecialized management
DISADVANTAGESDifficulty and expense
of formationGovernment regulation
and increased paperwork
Double taxation (turnover tax and personal income tax)
Lack of secrecy
SPECIAL TYPES OF BUSINESS OWNERSHIP S-corporations
A corporation that is taxed as though it were a partnership (income is taxed only as the personal income of stockholders)
Advantages Avoids double taxation of a corporation Retains the corporation’s legal benefit of limited liability
S-corporation criteria No more than 100 stockholders allowed Stockholders must be individuals, estates, or exempt
organizations There can be only one class of outstanding stock The firm must be a domestic corporation There can be no nonresident-alien stockholders All stockholders must agree to the decision to form an S-
corporation E.g- ESCA Employee-Owned S-Corporations in USA
SPECIAL TYPES OF BUSINESS OWNERSHIP (CONT’D)
Limited-liability company (LLC) A form of business ownership that provides
limited-liability protection and is taxed like a partnership
Advantages Avoids double taxation of a corporation Retains the corporation’s legal benefit of limited
liability Difference between LLC and S-corporation
LLCs not restricted to 100 stockholders LLCs have fewer restrictions on who can be a
stockholder
SPECIAL TYPES OF BUSINESS OWNERSHIP (CONT’D)
Government-owned corporations A corporation owned and operated by a local, state, or
federal government Purpose
To ensure that a public service is available Examples
Tennessee Valley Authority (TVA), the National Aeronautics and Space Administration (NASA), and the Federal Deposit Insurance Corporation (FDIC)
SPECIAL TYPES OF BUSINESS OWNERSHIP (CONT’D)
Not-for-profit corporations Corporations organized to provide social,
educational, religious, or other services, rather than to earn a profit
Charities, museums, private schools, and colleges are organized as not-for-profits primarily to ensure limited liability
COOPERATIVES, JOINT VENTURES, SYNDICATES Cooperatives
Association of individuals or firms whose purpose is to perform some business function for its members
Members benefit from the efficiencies of the cooperatives’ activities, such as reducing unit costs by making bulk purchases and coordinating services such as transportation, processing, and marketing products
COOPERATIVES, JOINT VENTURES, SYNDICATES (CONT’D)
Joint ventures Agreements between two or more groups to form a business
entity in order to achieve a specific goal or to operate for a specific period of time (strategic advantage)
Example: Disney & Pixar Syndicates
Temporary associations of individuals or firms organized to perform a specific task that requires a large amount of capital
Most commonly used to underwrite large insurance policies, loans, and investments
E.g- Bank of America, JP Morgan Chase, and Goldman Sachs
CORPORATE GROWTH Growth from within
Introducing new products Entering new markets
Growth through mergers and acquisitions Merger: the purchase of one corporation by
another; essentially the same as an acquisition Hostile takeover: a situation in which the
management and board of directors of the firm targeted for acquisition disapprove of the merger
Tender offer: an offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares
Proxy fight: a technique used to gather enough stockholder votes to control the targeted company
CORPORATE GROWTH (CONT’D)
Current merger trends Takeover advocates say
Companies that are taken over are made more profitable and productive
Takeover opponents say Takeover threats force managers to spend time on
defense rather than vital business activities The only people who benefit from takeovers are
investment bankers, brokerage firms, and takeover artists
CORPORATE GROWTH (CONT’D) Current merger trends
Mergers during the first part of the 21st century will be the result of cash-rich companies looking to enhance their position in the marketplace
There will be more mergers involving companies or investors from other countries
Future mergers and acquisitions will be driven by solid business logic, desire to compete internationally, and information technology
There will be more leveraged buyouts (LBO) A purchase arrangement that allows a firm’s
managers and employees or a group of investors to purchase the company
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WHAT WE LEARNED Describe the advantages and disadvantages of sole
proprietorships. Explain the different types of partners and the importance of
partnership agreements. Describe the advantages and disadvantages of partnerships. Summarize how a corporation is formed. Describe the advantages and disadvantages of a corporation. Examine special types of corporations, including S-corporations,
limited-liability companies, government-owned corporations, and not-for-profit corporations. Cont……
53
WHAT WE LEARNED –CONT……… Discuss the purpose of a cooperative, joint
venture, and syndicate. Explain how growth from within and growth
through mergers can enable a business to expand.
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WEEKLY ASSIGNMENT- WEEK 04 If you were to start a business, which
ownership form would you choose? What factors might affect your choice? Discuss.