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Copyright © 2009 Pearson Education Canada 5-1
Chapter 5Chapter 5 Selecting the Proper Form of Business Ownership
and Exploring Business
Combinations
Copyright © 2009 Pearson Education Canada 5-2
FORMS OF FORMS OF BUSINESSBUSINESS
OWNERSHIPOWNERSHIP
The Three The Three Most Common FormsMost Common Forms
PartnershipPartnership
Sole Sole proprietorshipproprietorship
CorporationCorporation
Copyright © 2009 Pearson Education Canada 5-3
Sole ProprietorshipSole Proprietorship
AdvantagesAdvantages
•Ease of establishment
•Self-satisfaction
•Privacy
•Owner keeps all the profits
•Tax advantages
DisadvantagesDisadvantages
•Unlimited liability
•Personal pressure
•Difficult to get funding
•Limited life
Copyright © 2009 Pearson Education Canada 5-4
Business Business PartnershipsPartnerships
General PartnershipsGeneral Partnerships Limited PartnershipsLimited Partnerships
UnlimitedUnlimitedliabilityliability
UnlimitedUnlimitedliabilityliability
Equal Equal partnerspartners
Equal Equal partnerspartners
ShareShareownershipownership
ShareShareownershipownership
LimitedLimitedliabilityliability
LimitedLimitedliabilityliability
UnequalUnequalpartnerspartners
UnequalUnequalpartnerspartners
PassivePassiveinvestorsinvestors
PassivePassiveinvestorsinvestors
Copyright © 2009 Pearson Education Canada 5-5
Easy to establishEasy to establishEasy to establishEasy to establish Tax advantagesTax advantagesTax advantagesTax advantages
Strength in numbersStrength in numbersStrength in numbersStrength in numbers Diversity of skillsDiversity of skillsDiversity of skillsDiversity of skills
Extended lifeExtended lifeExtended lifeExtended lifeIncreased capitalIncreased capitalIncreased capitalIncreased capital
Advantages of PartnershipsAdvantages of Partnerships
Copyright © 2009 Pearson Education Canada 5-6
Disadvantages Disadvantages of Partnershipsof Partnerships
Unlimitedliability
Unlimitedliability
Interpersonalproblems
Interpersonalproblems
Unproductivepartners
Unproductivepartners
Decision-making
complications
Decision-making
complicationsLaw suitsLaw suitsSharing profits
Sharing profits
Copyright © 2009 Pearson Education Canada 5-7
Partnership AgreementPartnership Agreement
Decision-makingauthority
Disputeresolution
Divisionof profits
Expectedcontributions
Copyright © 2009 Pearson Education Canada 5-8
Corporations
Enter intoEnter intocontractscontractsEnter intoEnter intocontractscontracts
Own andOwn andsell propertysell property
Own andOwn andsell propertysell property
Sue andSue andbe suedbe suedSue andSue andbe suedbe sued
Enjoy limitedEnjoy limitedliabilityliability
Enjoy limitedEnjoy limitedliabilityliability
Copyright © 2009 Pearson Education Canada 5-9
Ownership of CorporationsOwnership of Corporations
Shareholders Shareholders
Shareholders
Shareholders
Shareholders
Shareholders
Last claim on distributedprofits and sssets
Cash or stock dividends
Full voting rights
Common Stock
First claim on dividendsand assets
Cash or stock dividends
Minimal voting rights
Preferred Stock
Copyright © 2009 Pearson Education Canada 5-10
Who Owns Who Owns a Corporation?a Corporation?
PublicPublicOwnershipOwnership
PublicPublicOwnershipOwnership
PrivatePrivateOwnershipOwnership
PrivatePrivateOwnershipOwnership
Not publiclyNot publiclytradedtraded
Not publiclyNot publiclytradedtraded
FewFewshareholdersshareholders
FewFewshareholdersshareholders
PubliclyPubliclytradedtraded
PubliclyPubliclytradedtraded
ManyManyshareholdersshareholders
ManyManyshareholdersshareholders
Copyright © 2009 Pearson Education Canada 5-11
CorporationsCorporations
AdvantagesAdvantages
•Access to capital
•Limited liability
•Increased liquidity
•Unlimited life span
DisadvantagesDisadvantages
•Excess paperwork
•Double taxation
•Disclosure requirements
Copyright © 2009 Pearson Education Canada 5-12
Corporate GovernanceCorporate Governance
CommonShareholders
•Individuals
•Companies
•Non-profits
•Pensions
•Mutual Funds
Boardof Directors
•Dividends
•Corporate Affairs
•Strategic Plans
•Select Officers
•Finances
CorporateOfficers
•Chief Executive
•Chief Financial
•Chief Operations
Employees ofthe Company
•Operations
•Finance
•Marketing
•Personnel
•Engineering
Elect Appoint Hire
Copyright © 2009 Pearson Education Canada 5-13
Cooperatives: Another Cooperatives: Another ModelModel
• Organized and controlled by members who pool their resources to create benefits for themselves and their
clients.
Copyright © 2009 Pearson Education Canada 5-14
Cooperatives: Another Cooperatives: Another ModelModel
Advantages
• Bargaining power
• Democratic structure
• Surplus earnings
distribution
• Limited liability
Disadvantages
• Longer decision-making
processes
• Extensive record keeping
• Less incentive to invest in
additional capital
• Potential conflict among
members
Copyright © 2009 Pearson Education Canada 5-15
BusinessBusinessCombinationCombination
ss
MergersMergers
ConsolidationsConsolidations
AcquisitionsAcquisitions
LeveragedLeveragedBuyoutsBuyouts
Copyright © 2009 Pearson Education Canada 5-16
Mergers and Mergers and AcquisitionsAcquisitions
AdvantagesAdvantages DisadvantagesDisadvantages
Economies of scaleEconomies of scale
EfficienciesEfficiencies
SynergiesSynergies
High risk fromHigh risk fromdebtdebt
Management Management distractionsdistractions
Culture clashesCulture clashes
Copyright © 2009 Pearson Education Canada 5-17
Defenses AgainstDefenses AgainstHostile TakeoversHostile Takeovers
Tender OfferTender OfferTender OfferTender Offer Proxy FightProxy FightProxy FightProxy Fight
WhiteWhiteknightknightWhiteWhiteknightknight
SharkSharkrepellentrepellent
SharkSharkrepellentrepellent
GoldenGoldenparachuteparachute
GoldenGoldenparachuteparachute
PoisonPoisonpillpill
PoisonPoisonpillpill
Copyright © 2009 Pearson Education Canada 5-18
Alternative Business Alternative Business FormsForms
Strategic AllianceStrategic Alliance Joint VentureJoint Venture
Expand market shareExpand market share
Access technologyAccess technology
Diversity offeringsDiversity offerings
Share best practicesShare best practices
Attain specific goalsAttain specific goals
Share strengthsShare strengths
Spread costSpread cost
Minimize riskMinimize risk