BA 101 Chapter 4
Advantages of Partnerships
-Easy to organize -Availability of capital & credit -Combined knowledge and skills -Swift decision making -Government regulations are few
What are the 2 types of employee ownership structures?
-Equity benefit plan: offers employee a stake in the company without voting rights -Employee-controlled company: all are considered owners and may have varying degrees of voting rights
What are the 3 types of partnerships?
-General Partnership -Limited Partnership -Articles of Partnership
What are the 3 different types of mergers?
-Horizontal merger -Vertical merger -Conglomerate merger
-In 1996 Stanford students Sergey Brin and Larry Page partnered to form the search engine Google as part of a research project -The company was incorporated in 1998 and is now the world's top search engine
What is the difference between inside directors and outside directors?
-Inside directors are employees of the company -Outside directors are people unaffiliated with the company
Trends in Business Ownership
-Acquisition -Corporate raider -Poison pill -Shark repellent -White knight
What are the 3 types of corporations?
-Domestic -Foreign -Alien
Disadvantages of Corporations
-Double taxation -Expensive to form -Disclosure of information to the government and the public -Owners and managers are not always the same and can have different goals
Advantages of Sole Proprietorship
-Ease and cost of formation -Allow a high level of secrecy -Owner keeps all profits -Flexibility and control of the business -Government regulation is minimal -Taxes paid only once -Can be dissolved easily
Creating Corporations
-Incorporators create the corporation -Following state procedure of chartering the corporation -Incorporators file legal articles of incorporation with the state -State issues a legal corporate charter to the company -Owners establish bylaws and board of directors
What are the keys to success in business partnerships?
-Keep profit sharing and ownership at 50/50, or you have an employer/employee relationship -Partners should have different skill sets to complement one another -Honesty is critical -Must maintain face to face communication in addition to phone and e-mail -Maintain transparency, sharing more information over time -Be aware of funding constraints, and do not put yourself in a situation where neither you nor your partner can secure additional financial support -Experience -Whereas family should be a priority, be careful to minimize the number of associated problems -Don't become too infatuated with "the idea" as opposed to implementation -Couple optimism with realism in sales and growth expectations and/or planning
Why do sole proprietorships struggle to find talented employees?
-Large corporations like McDonald's have better profits and more job opportunities -Its difficult to match wages and benefits offered by large corporations -Little chance for advancement within sole proprietorship
Advantages of Corporations
-Limited liability -Ease of transfer of ownership -Perpetual life -Securing funding is easier than for other forms of business -Expansion potential
What is the 8th largest corporation in the world?
Volkswagen
Shark repellent
Management requires a large majority of stockholders to approve a takeover
Cooperatives or Co-ops
Organizations composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization, set-up not to make money as an entity but so members can become more profitable or save money
Consumer Cooperative REI
REI is organized as a consumer cooperative, and operates a bit differently because it is owned by consumers rather than farmers or small businesses
Acquisition
The purchase of one company by another, usually by buying its stock
Conglomerate merger
Firms in unrelated industries merge
Hostile Takeovers
-Occur when one individual or company attempts to buy a majority share in the company for the purpose of restructuring the management team and/or the board of directors -They are different from mergers and acquisitions because there is no mutual agreement for the transfer of company ownership -Many times, companies that are vulnerable to hostile takeovers will institute a "poison pill", which works to dilute the value of company stock making it less attractive for the individual or company to purchase a majority share of the company -The poison pill can also serve to decrease the stock value of the takeover company if they follow through with the takeover
Private Corporation
-Owned by just one or few people who are closely involved in managing the business -None of their stock is sold to the public -Private companies are not required to disclose financial information publicly
Partnerships & Taxes
-Partnerships don't pay taxes but do file a tax return providing information on profitability and distribution of profits -Partners report their share of the profits and pay taxes at the income tax rate for individuals
Dividends
-Profits of a corporation that are distributed in the form of cash payments to the stockholders
Initial Public Offering (IPO)
-Selling a corporation's stock on public markets for the first time -Done when a private corporation wishes to "go public" or to raise additional capital and expand
Disadvantages of Partnerships
-Unlimited liability -Responsible for each others' decisions -A new agreement is needed if the partnership changes -Difficult to sell a partnership interest -Distribution of profits may be uneven -Can't find external funding as easily as large corporations
Disadvantages of Sole Proprietorship
-Unlimited liability -Scarce external funding -Owners need diverse skills -Success is tied to the owner -Lack of qualified employees -Higher taxation
What are the 2 types of public corporations?
1.) Quasi-Public: owned and operated by the government, provides a service but often operates at a loss 2.) Nonprofit: focuses on providing a service rather than making a profit, not owned by the government
Corporate raider
A company or individual who wants to acquire or take over another company and first offers to buy some or all of its stock at a premium in a tender offer
Public Corporations
A corporation whose stock anyone may buy, sell or trade
Partnership
A form of business organization defined by the Uniform Partnership Act as "an association of two or more persons who carry on as co-owners of a business for profit" -Having more than one owner is one way to minimize the disadvantages of sole proprietorship and also maximizes its advantages -Typically larger than sole proprietorships but smaller than corporations -Partnerships can be a fruitful form of business as long as you follow some keys to success
Board of Directors
A group of individuals, elected by the stockholders to oversee the general operation of the corporation, who set the corporation's long-range objectives -The board is responsible for meeting objectives on schedule -Legally liable for mismanagement or misuse -An important duty is to hire corporate officers
Corporation
A legal entity, created by the state, whose assets and liabilities are separate from its owners -Has many of the rights, duties, and powers of a person (can own and transfer property, can enter into contracts, and can sue/be sued in court) -Account for the majority of all U.S. sales and income
White knight
A more acceptable firm that is willing to acquire a threatened company
Joint Venture
A partnership established for a specific project or for a limited time -Control can be divided equally, or one partner may control decision making -Used for ventures that call for large investments, such as development of new products
Leveraged Buyout (LBO)
A purchase in which a group of investors borrows money from banks and other institutions to acquire a company (or a division of one), using the assets of the purchased company to guarantee repayment of the loan
Preferred Stock
A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do, dividend payments on preferred stocks are usually a fixed percentage of the initial issuing price (set by board of directors)
Sole Proprietorship
Businesses owned and operated by one individual; the most common form of business organization in the United States. -Many focus on services rather than manufacturing -Typically employ fewer than 50 people -Comprise nearly three-quarters of all U.S. companies -Men are twice as likely as women to start their own business
Vertical merger
Companies operating at different but related levels of an industry merge
S Corporation
Corporation taxed as though it were a partnership with restrictions on shareholders -Eliminates double taxation and retains the limited liability benefit -Very popular with entrepreneurs, representing nearly half of all corporate filings
Employee-Owned Businesses
Employees who have ownership tend to have a higher sense of loyalty to the company because there is a mutual interest between the two
T/F: Corporations are typically owned by one individual or organization who own shares of the business?
False, corporations are typically owned by many individuals and organizations who own shares of the business
T/F Sole proprietorships have a lesser difficulty attracting talented employees?
False: they have a greater diffculty
Horizontal merger
Firms that make and sell similar products to the same customers merge
Limited Liability Company (LLC)
Form of ownership that provides limited liability and taxation like a partnership but places fewer restrictions on members, considered a blend of the best characteristics of corporations, partnerships and sole proprietorships
Limited Partnership
Has at least one general partner, who assumes unlimited liability, and at least one limited partner whose liability is limited to his/her investment in the business
Domestic Corporation
If conducting business in the state in which it is chartered
Alien Corporation
If conducting business outside the nation in which it is incorporated
Foreign Corporation
If conducting business outside the state in which it is charted
T/F: Partnerships are quasi-taxable organizations?
True they are quasi-taxable organizations meaning the partnership doesn't pay taxes
General Partnership
Involves a complete sharing in both the management and the liability of the business
Articles of Partnership
Legal documents that set forth the basic agreement between partners
Stock
Shares of the corporation that may be bought or sold, can also be gifted or inherited
Common Stock
Stock whose owners have voting rights in the corporation, yet do not receive preferential treatment regarding dividends -May vote by proxy, allows stockholders to assign their voting privilege to someone else -Have preemptive right , they can buy any new shares of stock the company issues
Mergers
The combination of two companies (usually corporations) to form a new company
Poison pill
The firm allows stockholders to buy more shares of a stock at lower prices than the current market value to head off a hostile takeover
Incorporators
The individuals that create the corporation