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Nickels Cover. Nickels McHugh McHugh. Chapter. Choosing a Form of Business Ownership. 5. 5- 2. World’s Largest Corporations. 2002 Revenue (Millions). Wal-Mart Stores $246,525 Royal Dutch/Shell 235,598 Exxon/Mobil 204,506 General Motors 186,763 BP 178,721

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Nickels

Cover

Nickels

McHugh

McHugh


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Chapter

Choosing a Form of Business Ownership

5

5-2


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World’s Largest Corporations

2002 Revenue (Millions)

  • Wal-Mart Stores $246,525

  • Royal Dutch/Shell 235,598

  • Exxon/Mobil 204,506

  • General Motors 186,763

  • BP 178,721

  • Ford Motor 163,420

  • DaimlerChrysler 156,838

Source: Zacks Reports & Fortune


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Basic Forms of Ownership

  • Sole Proprietorship

  • Partnership

  • Corporation

Number

Sales

72%

6%

8%

13%

20%

81%


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Ease of start/end

Be your own boss

Pride of ownership

Leave Legacy

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


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Types of Partnerships

General

Limited

GP

Passive

Investor

Passive

Investor

GP

GP

GP

GP

Passive

Investor


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New Forms of Partnerships

  • Master Limited Partnership

    • Traded Publicly

    • Taxed As A Partnership

  • Limited Liability Partnership


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Partnership

Advantages

Disadvantages

  • More financial resources

  • Shared mgmt.

  • Longer survival

  • No Special Taxes

  • Unlimited liability

  • Division of profits

  • Disagreements among partners

  • Difficult to terminate


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Types of Corporations

  • Regular ‘C’

  • S Corporation

  • Limited Liability Companies


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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


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Corporations

  • Private- Not Traded on Any Stock Exchange

  • Public- Shares Are Traded on 1 or More Stock Exchanges

  • Non-Profit- Performs Public Service, Has Special Tax Considerations To Encourage Formation


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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

  • Stockholder & Board Conflict

  • Double taxation


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Largest U.S. Companies

Revenue 2002

(In Millions)

  • Wal-Mart Stores $246,525

  • Exxon/Mobil 204,506

  • General Motors 186,763

  • Ford Motor 163,420

  • General Electric 131,698

  • IBM 81,186

Source: Web100 & Fortune



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No more than 75 shareholders

Individual or Estates

U.S. citizens or residents

1 class of stock

<25% of income can be passive

Slower-growing companies

Benefits change with new tax rules

S Corporations


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Limited Liability

Tax Choice

Flexible Ownership Rules

Flexible Profit & Loss Distribution

Operating Flexibility

No Stock

Limited Life Span

Fewer Incentives

Taxes

Paperwork

Limited Liability Companies

Advantages

Disadvantages


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Why Mergers Don’t Work

  • Companies Overpay to Acquire Another Firm

  • Acquiring Company Overestimates Cost Savings and Synergies

  • After Merger, Managers Disagree About Integrating Operations

  • After Merger, Cost Cutting Obsession Hurts Business Costing Top Employees & Customers


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GM’s Ownership In:

Source: USA TODAY


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Types of Mergers

Horizontal

Vertical

Conglomerate


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Leveraged Buyout

Individual + Loan = Purchase of Company

Purchase Loan

Company = Collateral


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Franchise System

  • Franchise Agreement

  • Franchisor

  • Franchisee


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Franchise Contract

Franchisor, Inc.

Branded Product/Service

Performance

Monitoring

$$$$$

Franchisee


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Assigns Territory

May Provide Financial Aid/Advice

Offers Merchandise/ Supplies at Competitive Price

Provides Training/Support

Business Expansion Using O.P.M.

Franchisor


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Franchisee

  • Pays Up-Front Costs

  • Makes Monthly Payment to Franchisor

  • Runs Business by Franchisor’s Rules/Procedures

  • Buys Materials from Franchisor/ Approved Supplier


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Fastest Growing Franchises (2002)

Source: Entrepreneur, 2003


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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



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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


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Benefits of aHome-Based Franchise

  • Flexible work hours

  • Quality lifestyle

  • Doing the work of your choice

  • Opportunity to expand using technology

  • Self-motivation

.


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Franchising & E-Commerce

  • Technology- Faster Customer Service

  • Access to International Markets


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Cooperatives

  • Farm Cooperative

  • Owned & Controlled by People Who Use It

  • Pool of Resources

  • Economic Power


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