* * Chapter Five How to Form a Business Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

* * Basic Forms of Business Ownership LG1 FORMS of BUSINESS OWNERSHIP 5-2

* * Advantages of Sole Proprietorships Ease of starting and ending the business Being your own boss Pride of ownership Leaving a legacy Retention of company profit No special taxes MAJOR BENEFITS of SOLE PROPRIETORSHIP LG1 5-3

* * Disadvantages of Sole Proprietorships Unlimited Liability -- Any debts or damages incurred by the business are your debts, even if it means selling your home, car or anything else. Limited financial resources Management difficulties Overwhelming time commitment Few fringe benefits Limited growth Limited life span DISADVANTAGES of SOLE PROPRIETORSHIPS LG1 5-4

* * Partnerships General Partnership -- All owners share in operating the business and in assuming liability for the business’s debts. Limited Partnership -- A partnership with one or more general partners and one or more limited partners. MAJOR TYPES of PARTNERSHIPS LG2 5-5

* * Advantages & Disadvantages of Partnerships More financial resources Shared management and pooled skills and knowledge Longer survival No special taxes ADVANTAGES of PARTNERSHIPS LG2 5-6

* * Advantages & Disadvantages of Partnerships Unlimited liability Division of profits Difficult to terminate Disagreements among partners DISADVANTAGES of PARTNERSHIPS LG2 5-7

* * Corporations Conventional (C) Corporation -- A state- chartered legal entity with authority to act and have liability separate from its owners (its stockholders). CONVENTIONAL CORPORATIONS LG3 5-8

* * Corporate Expansion: Mergers and Acquisitions Vertical Merger -- Joins two firms in different stages of related business. Horizontal Merger -- Joins two firms in the same industry and allows them to diversify or expand their products. Conglomerate Merger -- Unites firms in completely unrelated industries in order to diversify business operations and investments. TYPES of MERGERS LG4 5-9

* * Franchises Franchise Agreement -- An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory. More than 900,000 franchised businesses operate in the U.S., employing approximately 10 million people. FRANCHISING LG5 5-10

* * Advantages & Disadvantages of Franchises Management and marketing assistance Personal ownership Nationally recognized name Financial advice and assistance Lower failure rate ADVANTAGES of FRANCHISING LG5 5-11

* * Advantages & Disadvantages of Franchises Large start-up costs Shared profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors DISADVANTAGES of FRANCHISING LG5 5-12

* * Cooperatives Cooperatives -- Businesses owned and controlled by the people who use it – producers, consumers, or workers with similar needs who pool their resources for mutual gain. Worldwide, 750,000 cooperatives serve 730 million members – 120 million in the U.S. Members democratically control the business by electing a board of directors that hires professional management. COOPERATIVES LG6 5-13