1. * * *
How to Form a Business
CHAPTER 5
Nickels McHugh McHugh * *
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2. Basic Forms of Business Ownership
Sole Proprietorship: A business that is owned and usually managed by one person. Example: if someone starts a tea stall by himself only.
Partnership: A legal form of business with two or more owners. Example: Mr. Karim and his friend starts a business together where both of them have contributed.
Corporation: A legal entity with authority to act and have liability apart from its owners. Example: Microsoft.

3. Sole Proprietorships Advantages
Ease of starting and ending the business
Being your own boss
Pride of ownership
Retention of company profit
No special taxes

4. Sole Proprietorship Disadvantages
Unlimited liability
Limited financial resources available
Management difficulties
time commitment
Limited growth

5. Advantages of Partnerships
More financial resources
Shared management, skills and knowledge
Longer survival
No special taxes

6. Disadvantages of Partnerships
Unlimited liability
Division of profits
Disagreements among partners
Difficulty in termination

7. Advantages of Corporations
Limited liability
Ability to raise more money for investment
Size
Perpetual life
Ease of ownership change
Separation of ownership from management

8. Disadvantages of Corporations
Initial cost
Extensive paperwork
Double taxation
Size
Difficulty of termination

9. Corporate Expansion: Mergers and Acquisitions
Merger: The results of two firms forming one new company.
Acquisition: One company’s purchase of the property and obligations of another company.

10. 3 Types of Corporate Mergers
Vertical merger: The joining of two companies involved in different stages of related businesses.
Horizontal merger: The joining of two firms in the same industry.
Conglomerate merger: The joining of firms in completely unrelated industries.

11. Franchisee: A person who buys a franchise.
Franchise Agreement
An arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory.
Franchisor: A company that develops a product concept and sells others the rights to make and sell the products.
Franchisee: A person who buys a franchise.

12. Advantages of Franchises
Management and marketing assistance
Personal ownership
Nationally recognized name
Financial advice and assistance
Lower failure rate

13. Disadvantages of Franchises
Large start-up costs
Shared profit
Management regulation
Coattail effects
Restrictions on selling
Fraudulent franchisors