Business Formation: Choosing the Form That Fits PDF

Add Image Here 6 Business Formation: Choosing the Form That Fits Kelly/Williams, BUSN...

Add Image Here 6 Business Formation: Choosing the Form That Fits Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1  Learning Objectives By the end of this chapter, you should be able to: 6-1 Describe the characteristics of the four basic forms of business ownership 6-2 Discuss the advantages and disadvantages of a sole proprietorship 6-3 Evaluate the pros and cons of the partnership as a form of business ownership 6-4 Explain why corporations have become the dominant form of business ownership 6-5 Explain why limited liability companies are becoming an increasingly popular form of business ownership 6-6 Evaluate the advantages and disadvantages of franchising Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2  6-1 Business Ownership Options: The Big Four Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3  Business Ownership Options: The Big Four Sole Proprietorship – the business is owned by a single individual Partnership – two or more people serve as co-owners of the business Corporation – the business is a separate legal entity Limited Liability Company – a hybrid with characteristics of both a corporation and partnership Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, 4 copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4 Exhibit 6.1 Total Number of Businesses by Form of Ownership Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5  6-2 Advantages and Disadvantages of Sole Proprietorships Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6  6-2 Advantages and Disadvantages of Sole Proprietorships Advantages Disadvantages Ease of formation Limited financial resources Retention of control Unlimited liability Pride of ownership Limited ability to attract and Retention of profits maintain talented employees Heavy workload and Possible tax advantage responsibilities Lack of permanence Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7  6-3 Partnerships: Can Two Heads (and Bankrolls) Be Better Than One? Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8  6-3 Partnerships (2 of 3) Partnership Advantages Partnership Disadvantages Ability to pool financial resources Unlimited liability Ability to share responsibilities Potential for disagreements and capitalize on Lack of continuity complementary skills Difficulty in withdrawing from a Ease of formation partnership Possible tax advantages Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9  6-4 Corporations: The Advantages and Disadvantages of Being an Artificial Person Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10  6-4 Corporations (1 of 2) Ownership of Corporations Ownership is represented by shares of stock − Stock for large corporations is usually publicly traded − Small businesses can have as few as one shareholder Stockholder*: An owner of a corporation The Role of the Board of Directors Board of directors: The individuals who are elected by stockholders of a corporation to represent their interests − Establishes the corporation’s mission and sets its broad objectives − Appoints officers, such as CEO and CFO, for day-to-day management of the corporation Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11  6-4 Corporations (2 of 2) Corporation Advantages Corporation Disadvantages Limited liability Expense and complexity of Permanence formation and operation Complications when operating in Ease of transfer of ownership multiple states Ability to raise financial capital Double taxation of earnings and Ability to make use of additional taxes specialized management More paperwork and regulation and less secrecy Possible conflicts of interest Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12  LO 4 Corporate Restructuring Acquisition: One firm buys another firm Merger: Two formerly independent business entities combine to form a new organization − Types - Horizontal merger, vertical merger, and conglomerate merger Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13  Types of Mergers and Acquisitions Type Definition Common objective Horizontal Combination of firms in the Increases size and merger same industry (Airlines or market power within the Pharmacies) industry Improves efficiency by eliminating duplication of facilities and personnel Vertical Combination of firms that are Provides tighter merger at different stages in the production integration of production of a good or service, creating a and increased control buyer-seller relationship (IKEA) over the supply of crucial inputs Conglomerate Combination of firms in unrelated Reduces risk by making Merger Industries (Clorox) the firm less vulnerable to adverse conditions in any single market Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied 14or duplicated, or posted to a publicly accessible website, in whole or in part. 14  6-6 Franchising: Proven Methods for a Price Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15  6-6 Franchising Franchise*: A licensing arrangement under which a franchisor allows franchisees to use its name, trademark, products, business methods, and other property in exchange for monetary payments and other considerations Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16  6-6 Franchising Franchising Advantages Franchising Disadvantages Less risk Costs Training and support Lack of control Brand recognition Negative halo effect Easier access to funding Growth challenges Restrictions on sale Poor execution Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17  KEY TERMS Sole proprietorship C corporation Partnership Stockholder General partnership Board of directors Corporation Acquisition Articles of incorporation Merger Limited liability company (LLC) Horizontal merger Franchise Vertical merger Franchisor Conglomerate merger Franchisee Franchise agreement Kelly/Williams, BUSN 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSN9 | CH6 18