Forms of Business Ownership

1. Forms of Business Ownership Excellence in Business, 3e

2. Owning a Business The Three Most Common Forms Sole Proprietorship (Şahıs İşletmesi) Partnership (Ortaklık) Corporation (Şirket) Excellence in Business, Revised Edition

3. Sole Proprietorship Advantages Disadvantages • Ease of establishment • Self-satisfaction • Privacy • Tax advantages • Unlimited liability • Personal pressure • Difficult to get funding • Limited life Excellence in Business, 3e

4. Business Partnerships General Partnerships (Sınırsız Sorumlu Ortaklık) Limited Partnerships (Komandite Ortaklık) Equal Partners Unequal Partners Share Ownership Unlimited Liability Passive Investors Limited Liability Excellence in Business, Revised Edition

5. Partnership Advantages Easy to Establish Tax Advantages Strength in Numbers Diversity of Skills Increased Capital Extended Life Excellence in Business, 3e

6. Unlimited Liability Interpersonal Problems Debts Law Suits Managing Partner Unproductive Partners Partnership Disadvantages Excellence in Business, 3e

7. Partnership Agreement Division of Profits Dispute Resolution Decision-Making Authority Expected Contributions Excellence in Business, 3e

8. Enter Into Contracts Buy and Sell Property Sue and Be Sued Face Limited Liability Corporations Excellence in Business, 3e

9. Common Stock Preferred Stock Full Voting Rights Minimal Voting Rights Cash or Stock Dividends Cash or Stock Dividends Last Claim on Distributed Profits and Assets First Claim on Dividends and Assets Ownership of Corporations Shareholders Shareholders Shareholders Shareholders Shareholders Shareholders Excellence in Business, 3e

10. Public Corporation Private Corporation Many Shareholders Publicly Traded Few Shareholders Not Publicly Traded Public Versus Private Ownership Excellence in Business, 3e

11. Advantages of “Going Public” • Ready supply of capital • Increased liquidity • Enhanced visibility • Independent market value • Increased flexibility Excellence in Business, 3e

12. Disadvantages of “Going Public” • High cost • SEC filing requirements • Reduced ownership control • Demands of public exposure • Pressure for quarterly results Excellence in Business, 3e

13. Corporations Advantages Disadvantages • Access to capital • Limited liability • Increased liquidity • Unlimited life span • Excess paperwork • Burdensome costs • Double taxation • Disclosure requirements Excellence in Business, 3e

14. Subchapter S Corporation Limited Liability Company Subsidiary Corporation Types of Corporations Excellence in Business, 3e

15. Corporate Governance Elect Appoint Hire Common Shareholders Board of Directors Corporate Officers Employees of the Company • Individuals • Companies • Non-profits • Pensions • Mutual Funds • Dividends • Corporate Affairs • Strategic Plans • Select Officers • Finances • Chief Executive • Chief Financial • Chief Operations • Operations • Finance • Marketing • Personnel • Engineering Excellence in Business, 3e

16. Composition Education Liability Recruiting Reform: Board-Related Issues Excellence in Business, 3e

17. Business Combinations Mergers Consolidations Acquisitions Leveraged Buy-Outs Excellence in Business, 3e

18. in a merger one company buys another company, or parts of another company, and emerges as the controlling corporation. The controlling company assumes all the debts and contractual obligations of the company it acquires, which then ceases to exist. Excellence in Business, Revised Edition

19. A consolidation is similar to a merger except that an entirely new firm is created by two or more companies that pool their interests. In a consolidation, both firms terminate their previous legal existence and become part of the new firm. Excellence in Business, Revised Edition

20. A leveraged buyout (LBO) occurs when one or more individuals purchase a company’s publicly traded stock by using borrowed funds. The debt is expected to be repaid with funds generated by the company’s operations and, often, by the sale of some of its assets. Excellence in Business, Revised Edition

21. Another way that a company can acquire another firm is by purchasing that firm’s voting stock. This transaction is generally referred to as an acquisition and is completed when the shareholders of the acquired firm tender their stock for either cash or shares of stock in the acquiring company Excellence in Business, Revised Edition

22. Types of Business Mergers Vertical Horizontal Conglomerate Market Extension Product Extension Excellence in Business, 3e

23. Advantages Disadvantages Economies of Scale High-Risk Corporate Debt Efficiencies Management Distractions Synergies Culture Clashes Mergers and Acquisitions Excellence in Business, 3e

24. Trends in Mergers and Acquisitions Year Number Value (in billions) 1970 5,152 $16 1975 2,297 $12 1980 1,889 $44 1985 3,001 $180 1990 2,074 $108 1995 3,510 $356 2000 11,123 $1,269 2003 8,232 $530 Excellence in Business, 3e

25. Defenses AgainstMergers and Acquisitions Tender Offers Poison Pill Hostile Takeovers Shark Repellent Proxy Fights White Knight Excellence in Business, 3e

26. The poison pill. This plan, triggered by a takeover attempt, makes the company less valuable in some way to the potential raider; the idea is to discourage the takeover from actually happening. • A good example is a special sale of newly issued stock to current stockholders at prices below the market value of the company’s existing stock. Such action increases the number of shares the raider has to buy, making the takeover more expensive. Many shareholders believe that poison pills are bad for a company, because they can entrench weak management and discourage takeover attempts that would improve company value. Excellence in Business, Revised Edition

27. •The golden parachute. This method is designed to benefit a company’s top executives by guaranteeing them generous compensation packages if they ever leave or are forced out after a takeover. These packages often total millions of dollars for each executive and therefore make the takeover much more expensive for the acquiring company. Thus, a golden parachute has an effect similar to that of a poison pill. Excellence in Business, Revised Edition

28. •The shark repellent. This tactic is more direct; it is simply a requirement that stockholders representing a large majority of shares approve of any takeover attempt. Of course, such a plan is viable only if the management team has the support of the majority of shareholders. • •The white knight. This tactic uses a friendly buyer to take over the company before a raider can. White knights usually agree to leave the current management team in place and to let the company continue to operate in an independent fashion. Starwood Lodging Trust, a large hotel investment firm, used this tactic to block the hostile takeover attempt of ITT by Hilton Hotels. Excellence in Business, Revised Edition

29. Strategic Alliances and Joint Ventures Gain Credibility Expand Markets Access Technology Diversity Offerings Share Best Practices Excellence in Business, 3e

30. Strategic Alliance • A long-term partnership between companies to jointly develop, produce, or sell products, and we defined a joint venture as a special type of strategic alliance in which two or more firms jointly create a new business entity that is legally separate and distinct from its parents. Excellence in Business, Revised Edition

31. Joint venture • Joint ventures are similar to partnerships except that they are formed for a specific, limited purpose. America Online, Philips Electronics, and Direct TV formed a joint venture to develop and offer an interactive service that lets customers access the Internet via their TV sets. Excellence in Business, Revised Edition