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Chapter 5
Introduction to Business
Learning Goals
1 What are the strengths and weaknesses of the sole proprietorship form of business organization? 2 What are the advantages of operating as a partnership, and what downside risks should partners consider? 3 How does the corporate structure provide advantages and disadvantages to a company, and what are the major types of corporations? 4 Does a company have other business organization options in addition to sole proprietorships, partnerships, and corporations?
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Learning Goals
5 What makes franchising an appropriate form of organization for some types of business, and why is it growing in importance?
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Operating control?
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Ownership?
Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved
Learning Goal 1
What are the strengths and weaknesses of the sole proprietorship form of business organization?
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SOLE PROPRIETORSHIPS
A business that is established, owned, operated, and often financed by one person.
Sole Proprietorship
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1 Advantages
SOLE PROPRIETORSHIPS
Disadvantages
Unlimited liability Difficulty in raising capital Limited managerial expertise Trouble finding qualified employees Personal time commitment Unstable business life Losses are owners responsibility
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Easy and inexpensive to form Profits go to the owner Direct control of the business Freedom from government regulations No special taxation Ease of dissolution
Learning Goal 2
What are the advantages of operating as a partnership, and what downside risks should partners consider?
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PARTNERSHIPS
An association of two or more individuals who agree to operate a business together for profit.
Partnership
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Advantages
PARTNERSHIPS
Disadvantages
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Ease of formation Availability of capital Diversity of skills and expertise Flexibility No special taxes Relative freedom from government control
Unlimited liability Potential for conflicts between partners Sharing of profits Difficulty exiting or dissolving
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Learning Goal 3
How does the corporate structure provide advantages and disadvantages to a company, and what are the major types of corporations?
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CORPORATIONS
A legal entity with an existence and life separate from its owners, who are not personally liable for the entitys debts.
Corporation
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Elect Directors
Hire
Officers
President
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VP
Treasurer
Secretary
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Advantages
CORPORATIONS
Disadvantages
Limited liability Ease of transferring ownership Unlimited life Tax deductions Ability to attract financing
Double taxation of profits Cost and complexity of formation More government restrictions
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Types of Corporations
C Corporation
Conventional or basic corporate form of organization
S Corporation
A hybrid entity that is organized like a corporation, but taxed like a partnership
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A hybrid organization that offers the same liability protection as a corporation but may be taxed as either a partnership or a corporation
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Learning Goal 4
Does a company have other business organization options in addition to sole proprietorships, partnerships, and corporations?
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Cooperatives
Legal entities formed by people with similar interests, to reduce costs and gain economic power.
Cooperatives
Seller Cooperatives
Buyer Cooperatives
Individual producers join together to compete more effectively with large producers A group of cooperative members who unite for combined purchasing power
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Learning Goal 5
What makes franchising an appropriate form of organization for some types of business, and why is it growing in importance?
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Franchising
A form of business organization based on a business arrangement between a franchisor, which supplies the product concept and the franchisee, who sells the goods or services of the franchisor in a certain geographic area.
Franchising
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Advantages
Franchises
Disadvantages
Loss of control Cost of franchising Restricted operating freedom
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Increased ability for franchisor to expand Recognized name, product, and operating concept Management training and assistance Financial assistance
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Learning Goal 6
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Merger
Acquisition
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Types of Mergers
Horizontal Merger Vertical Merger Conglomerate Merger Leveraged Buyout
Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved
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Selected Megamergers
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Learning Goal 7
How will current trends affect the business organizations of the future?
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Changing Demographics
Franchise Innovations
Mergers
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Franchise Innovations
Multiple-concept franchises Expanded product offerings Cross-branding
Franchise Differentiation
New ideas
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