Building the Foundation: Forms of Business Ownership © Prentice Hall, 2007 Excellence in Business, 3e

Excellence in Business, 3e Business Ownership Sole proprietorship Partnership Corporation © Prentice Hall, 2007 Excellence in Business, 3e

Excellence in Business, 3e Sole Proprietorship Advantages Disadvantages Ease of establishment Self-satisfaction Privacy Tax advantages Unlimited liability Personal pressure Difficult to get funding Limited life © Prentice Hall, 2007 Excellence in Business, 3e

Business Partnerships General partnerships Equal partners Share ownership Unlimited liability Limited partnerships Unequal partners Passive investors Limited liability © Prentice Hall, 2007 Excellence in Business, 3e

Advantages of Partnerships Easy to establish Tax advantages Strength in numbers Diversity of skills Increased capital Extended life © Prentice Hall, 2007 Excellence in Business, 3e

Disadvantages of Partnerships Unlimited liability Debts Law suits Interpersonal problems Managing partner Unproductive partners © Prentice Hall, 2007 Excellence in Business, 3e

Partnership Agreement Division of profits Decision-making authority Expected contributions Dispute resolution © Prentice Hall, 2007 Excellence in Business, 3e

Excellence in Business, 3e Corporations Enter into contracts Own and sell property Sue and be sued Enjoy limited liability © Prentice Hall, 2007 Excellence in Business, 3e

Ownership of Corporations Shareholders Common stock Preferred stock © Prentice Hall, 2007 Excellence in Business, 3e

Excellence in Business, 3e Who Owns a Corporation? Public Many stockholders Publicly traded Private Few stockholders Not publicly traded © Prentice Hall, 2007 Excellence in Business, 3e

Advantages of “Going Public” Ready supply of capital Increased liquidity Enhanced visibility Independent market value Increased flexibility As you'll read in Chapter 6, the primary reason for "going public" is to help finance the enterprise. In addition to providing a ready supply of capital, public ownership has other advantages and disadvantages. Among the advantages are increased liquidity, enhanced visibility, and the establishment of an independent market value for the company. Moreover, having a publicly traded stock gives companies flexibility to use such stock to acquire other firms. © Prentice Hall, 2007 Excellence in Business, 3e

Disadvantages of “Going Public” High cost SEC filing requirements Reduced ownership control Demands of public exposure Pressure for quarterly results Nevertheless, selling stock to the public also has distinct disadvantages: (1) The cost of going public is high (up to hundreds of thousands of dollars or more), (2) the filing requirements with the Securities and Exchange Commission (SEC) are burdensome, (3) ownership control is reduced, (4) management must be ready to handle the administrative and legal demands of heightened public exposure, and (5) the company is subjected to the stock market's incessant demand for quarterly results. © Prentice Hall, 2007 Excellence in Business, 3e

Excellence in Business, 3e Corporations Advantages Disadvantages Access to capital Limited liability Increased liquidity Unlimited life span Excess paperwork Burdensome costs Double taxation Disclosure requirements © Prentice Hall, 2007 Excellence in Business, 3e

Excellence in Business, 3e Types of Corporations Subchapter S corporation Limited liability company Subsidiary corporation © Prentice Hall, 2007 Excellence in Business, 3e

Excellence in Business, 3e Corporate Governance 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 © Prentice Hall, 2007 Excellence in Business, 3e

Reform: Board-Related Issues Composition Education Liability Recruiting © Prentice Hall, 2007 Excellence in Business, 3e

Business Combinations Mergers Consolidations Acquisitions Leveraged buyouts © Prentice Hall, 2007 Excellence in Business, 3e

Types of Business Mergers Vertical Horizontal Conglomerate Market extension Product extension © Prentice Hall, 2007 Excellence in Business, 3e

Mergers, Consolidations, and Acquisitions Advantages Disadvantages Economies of Scale Efficiencies Synergies High-Risk Corporate Debt Management Distractions Culture Clashes © Prentice Hall, 2007 Excellence in Business, 3e

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 © Prentice Hall, 2007 Excellence in Business, 3e

Defenses Against Mergers and Acquisitions Types Tender offer Proxy fight Defenses Poison pill Golden parachute Shark repellent White knight © Prentice Hall, 2007 Excellence in Business, 3e

Strategic Alliances and Joint Ventures Gain credibility Expand markets Access technology Diversity offerings Share best practices © Prentice Hall, 2007 Excellence in Business, 3e