Management Tools & Principles - Forms of Ownership - PDF

Management Tools & Principles Session 5 Forms of Ownership Professor TARSICIO MERINO IE Business School Mandatory!!! All electronic devices MUST be stored NOW Today’s subject: Economics 1. Godfather Companies News? Events? Accomplishments? 2. Recent articles and news about the economy? Chapte...

Management Tools & Principles Session 5 Forms of Ownership Professor TARSICIO MERINO IE Business School Mandatory!!! All electronic devices MUST be stored NOW Today’s subject: Economics 1. Godfather Companies News? Events? Accomplishments? 2. Recent articles and news about the economy? Chapter 5 Forms of Ownership Business in Action 8e, Global Edition Bovée/Thill Copyright © 2017 Pearson Education, Ltd. Learning Objectives: Ownership Models 1. Ownership Models: • • • Sole Proprietorship Partnership Corporation 2. Corporate governance. 3. Mergers and Acquisitions as growth strategy. 4. Strategic alliance and Joint Venture. Ownership Models Exhibit 5.1 Forms of Business Ownership Sole Proprietorships Sole proprietorship A business owned by a single person (may have employees) Unlimited liability A legal condition under which any damages or debts incurred by a business are the owner’s personal responsibility The equivalent in Spain would be “Empresario Individual” or “Trabajador Autónomo” Recent form: “Autónomo de Responsabilidad Limitada” – Protects your home from liabilities. Advantages of Sole Proprietorships • • • • • Simplicity – easy and cheap process of creation Single layer of taxation – Easy process Privacy – no need to report on the business Flexibility and control - You own the place! Fewer limitations on personal income – All the business makes (after ax) is yours! • Personal satisfaction – You are your boss! Disadvantages of Sole Proprietorships • • • • • • Financial liability Very demanding on the owner Limited managerial perspective Resource limitations No employee benefits for the owner Finite life span Partnerships Partnership An unincorporated company owned by two or more people There are 2 forms of partnership: • General Partnership • Limited Partnership The equivalent in Spain would be “Sociedad Civil” or “Comunidad de Bienes” General Partnerships General Partnership A partnership in which all partners have joint authority to make decisions for the firm and joint liability for the firm’s financial obligations Limited Partnership Limited Partnerships A partnership in which one or more persons act as general partners, run the business, and have the same unlimited liability as sole proprietors The remaining owners are limited partners who do not participate in running the business and who have limited liability (limited to their contribution) Partnerships Limited liability A legal condition in which the maximum amount each owner is liable for is equal to whatever amount each invested in the business Advantages of Partnerships • • • • • • Simplicity Single layer of taxation More resources than with sole proprietorship Cost sharing Broader skill and experience base Longevity Disadvantages of Partnerships • Unlimited liability • Potential for conflict • Expansion, succession, and termination issues The Partnership Agreement Partnership Agreement: Document that reflects investment percentages, profitsharing percentages, management responsibilities and other expectations of each owner, decision-making strategies, succession and exit strategies, criteria for admitting new partners, and dispute-resolution procedures. Corporations • Corporation A legal entity, distinct from any individual person, that has the power to own property and conduct business • Shareholders Investors who purchase shares of stock in a corporation The equivalent in Spain would be “Sociedad Anónima” and “Sociedad Limitada” Corporations Private Corporation A corporation in which all the stock is owned by only a few individuals or companies and is not made available for purchase by the public Public corporation A corporation in which stock is sold to anyone who has the means to buy it Advantages of Corporations • Ability to raise capital • Liquidity A measure of how easily and quickly an asset such as corporate stock can be converted into cash by selling it • Longevity • Limited liability Disadvantages of Corporations • • • • • • Cost and complexity Reporting requirements Managerial demands Possible loss of control Double taxation Short-term orientation of the stock market Special Types of Corporations Limited liability company (LLC) Structure that combines limited liability with the pass-through taxation benefits of a partnership Number of shareholders is not restricted, nor is members’ participation in management Group Exercise 1. Research (10 minutes): • Find examples of companies operating in each form of business: Sole proprietorship, partnership, corporation • Analyze the factors that might have influenced their legal form of business 2. Discussion (10 minutes): • Share research findings. • For what type of companies would you be using one form of ownership or the other? Corporate Governance Corporate Governance Corporate Governance Policies, procedures, relationships, and systems in place to oversee the successful and legal operation of the enterprise Also refers to the responsibilities and performance of the board of directors specifically Exhibit 5.3 Corporate Governance Shareholders Shareholder Investors who purchase shares of stock in a corporation. Not to be mistaken with a Stakeholder Shareholders Proxy A document that authorizes another person to vote on behalf of a shareholder in a corporation Shareholder activism Activities undertaken by shareholders to influence executive decision making in areas ranging from strategic planning to social responsibility Corporate Governance Board of Directors Representatives of the shareholders, with responsibility for the overall direction of the company and the selection of top executives The Chairman oversees the Board of Directors Corporate Officers The top executives who run a corporation (hired by the Board of Directors): • Chief executive officer (CEO) The highest-ranking officer of a corporation • Other C level: CFO, CTO, CHRO, CBDO, CMO… Joining Forces Exhibit 5.5 Options for Joining Forces Exhibit 5.5 Options for Joining Forces (cont.) Exhibit 5.5 Options for Joining Forces (cont.) Mergers and Acquisitions Merger Two companies combine and perform as a single entity Acquisition One company buys a controlling interest in the voting stock of another company Mergers and Acquisitions Hostile takeover Acquisition of another company against the wishes of management Leveraged Buyout (LBO) Acquisition of a company’s publicly traded stock, using funds that are primarily borrowed, using the acquired assets to pay back the loans used to acquire the company Advantages of Mergers and Acquisitions • Increase buying power as a result of their larger size (economies of scale) • Increase revenue by cross-selling products to each other’s customers • Increase market share by combining product lines • Gain access to expertise, systems, and teams (synergies) Sometimes is the best or only way to grow in a mature market Disadvantages of Mergers and Acquisitions • Executives have to agree how the merger will be done. • Managers need to agree who will be in charge. • Difficulties blending product lines, branding strategies, and advertising and sales efforts. • Difficulties blending cultures • Companies must often deal with layoffs Exhibit 5.4 Types of Mergers Strategic Alliances and Joint Ventures Strategic Alliance Long-term partnership between companies to jointly develop, produce, or sell products Joint venture A separate legal entity established by two or more companies to pursue shared business objectives Thank you!