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Nickels McHugh McHugh PowerPoint PPT Presentation


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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/Shell235,598 Exxon/Mobil204,506 General Motors186,763 BP178,721

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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/Shell235,598

  • Exxon/Mobil204,506

  • General Motors186,763

  • BP178,721

  • Ford Motor163,420

  • DaimlerChrysler156,838

Source: Zacks Reports & Fortune


Basic Forms of Ownership

  • Sole Proprietorship

  • Partnership

  • Corporation

Number

Sales

72%

6%

8%

13%

20%

81%


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


Types of Partnerships

General

Limited

GP

Passive

Investor

Passive

Investor

GP

GP

GP

GP

Passive

Investor


New Forms of Partnerships

  • Master Limited Partnership

    • Traded Publicly

    • Taxed As A Partnership

  • Limited Liability Partnership


Partnership

Advantages

Disadvantages

  • More financial resources

  • Shared mgmt.

  • Longer survival

  • No Special Taxes

  • Unlimited liability

  • Division of profits

  • Disagreements among partners

  • Difficult to terminate


Types of Corporations

  • Regular ‘C’

  • S Corporation

  • Limited Liability Companies


America’s Oldest Companies

J. E. Rhoads & Sons1702 Conveyer Belts

Covenant Life Ins. 1717 Insurance

Philadelphia1752 Insurance

Contributorship

Dexter1767 Adhesives & Coatings

D. Landreth Seed1784 Seeds

Bank of New York1784 Banking


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


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


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


How Owners Affect Management


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


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


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


GM’s Ownership In:

Source: USA TODAY


Types of Mergers

Horizontal

Vertical

Conglomerate


Leveraged Buyout

Individual + Loan= Purchase of Company

Purchase Loan

Company = Collateral


Franchise System

  • Franchise Agreement

  • Franchisor

  • Franchisee


Franchise Contract

Franchisor, Inc.

Branded Product/Service

Performance

Monitoring

$$$$$

Franchisee


Assigns Territory

May Provide Financial Aid/Advice

Offers Merchandise/ Supplies at Competitive Price

Provides Training/Support

Business Expansion Using O.P.M.

Franchisor


Franchisee

  • Pays Up-Front Costs

  • Makes Monthly Payment to Franchisor

  • Runs Business by Franchisor’s Rules/Procedures

  • Buys Materials from Franchisor/ Approved Supplier


Fastest Growing Franchises (2002)

Source: Entrepreneur, 2003


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


Cost of Fast-Food Franchise


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


Benefits of aHome-Based Franchise

  • Flexible work hours

  • Quality lifestyle

  • Doing the work of your choice

  • Opportunity to expand using technology

  • Self-motivation

.


Franchising & E-Commerce

  • Technology- Faster Customer Service

  • Access to International Markets


Cooperatives

  • Farm Cooperative

  • Owned & Controlled by People Who Use It

  • Pool of Resources

  • Economic Power


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