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Business 100

Business 100. Introduction to Business Dr. Kathy Broneck. Review. Ethics and Legalities Compliance-based vs. Integrity-based ethical codes Responsibilities. Preview. Types of business owners Mergers Franchises Cooperatives. 3 Types of Businesses. Sole Proprietorship Partnership

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Business 100

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  1. Business 100 Introduction to Business Dr. Kathy Broneck

  2. Review • Ethics and Legalities • Compliance-based vs. Integrity-based ethical codes • Responsibilities

  3. Preview • Types of business owners • Mergers • Franchises • Cooperatives

  4. 3 Types of Businesses • Sole Proprietorship • Partnership • Corporation

  5. Ease of start/end Be your own boss Pride of ownership Leave Legacy Retain profit No special taxes Unlimited liability Limited financial resources Difficulty in mgmt. Time commitment Few fringe benefits Limited growth Limited life span Sole Proprietorship Advantages Disadvantages

  6. Types of Partnerships General Limited GP is liable LPs just loose investment All are liable GP Limited Partner Limited Partner GP General Partner GP GP Limited Partner

  7. New Forms of Partnerships • Master Limited Partnership (MLPs) • Traded Publicly • Can have stocks • Acts like a corporation • Taxed As A Partnership • personal income • Increased availability of cash

  8. New Forms of Partnerships • Limited Liability Partnership (LLPs) • Limits losing own personal assets • Liability cannot exceed initial amount invested

  9. Partnership Advantages Disadvantages • More financial resources • Shared mgmt. • Longer survival • No Special Taxes • Unlimited liability • Division of profits • Disagreements among partners • Difficult to terminate

  10. Corporations • Private • Not Traded on Any Stock Exchange • Public • Shares Are Traded on 1 or More Stock Exchanges • Non-Profit • Performs Public Service • Has Special Tax Considerations To Encourage Formation

  11. Types of Corporations • Regular ‘C’ (Conventional Corporations) • S Corporation • Limited Liability Companies (LLC)

  12. Conventional (C) Corporations • State chartered • Acts as an independent entity • Liability is on company, not owners • Share ownership and profits • Stocks

  13. Corporation Advantages Disadvantages • More money for investment • Limited liability • Separation of ownership/mgmt. • Ease of ownership change • Perpetual life • Size • Initial cost • Paperwork • Two tax returns • Termination difficult • Stockholder & Board Conflict • Double taxation

  14. No more than 75 shareholders Individual or Estates U.S. citizens or residents 1 class of stock <25% of income can be passive Slower-growing companies Benefits change with new tax rules S Corporations

  15. Limited Liability Tax Choice Flexible Ownership Rules Flexible Profit & Loss Distribution Operating Flexibility No Stock Limited Life Span Fewer Incentives Taxes Paperwork Limited Liability Companies Advantages Disadvantages

  16. World’s Largest Corporations 2002 Revenue (Millions) • Wal-Mart Stores $246,525 • Royal Dutch/Shell 235,598 • Exxon/Mobil 204,506 • General Motors 186,763 • BP 178,721 • Ford Motor 163,420 • DaimlerChrysler 156,838 Source: Zacks Reports & Fortune

  17. Basic Forms of Ownership Number Sales • Sole Proprietorship • Partnership • Corporation 72% 6% 8% 13% 20% 81%

  18. How Owners Affect Management

  19. Types of Mergers Horizontal Vertical Conglomerate

  20. Leveraged Buyout Individual + Loan = Purchase of Company Purchase Loan Company = Collateral

  21. GM’s Ownership In: Source: USA TODAY

  22. Why Mergers Don’t Work • Companies Overpay to Acquire Another Firm • Acquiring Company Overestimates Cost Savings and Synergies • After Merger, Managers Disagree About Integrating Operations • After Merger, Cost Cutting Obsession Hurts Business Costing Top Employees & Customers

  23. Franchise System • Franchise Agreement • Franchisor • Franchisee

  24. Franchise Contract Franchisor, Inc. Branded Product/Service Performance Monitoring $$$$$ Franchisee

  25. Assigns Territory May Provide Financial Aid/Advice Offers Merchandise/ Supplies at Competitive Price Provides Training/Support Business Expansion Using O.P.M. Franchisor

  26. Franchisee • Pays Up-Front Costs • Makes Monthly Payment to Franchisor • Runs Business by Franchisor’s Rules/Procedures • Buys Materials from Franchisor/ Approved Supplier

  27. Fastest Growing Franchises (2002) Source: Entrepreneur, 2003

  28. Cost of Fast-Food Franchise

  29. Management & marketing assistance Personal ownership Recognized name Financial advice & assistance Lower failure rate High start-up costs Shared Profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors Franchises Advantages Disadvantages

  30. How to Avoid a Franchise Lemon • Research officers & their business experience • Get summary of any bankruptcy & litigation • Estimate all costs to set up franchise • Review franchise contract & three most recent financial statements

  31. Home-Based Franchise • Flexible work hours • Quality lifestyle • Doing the work of your choice • Opportunity to expand using technology • Self-motivation

  32. Franchising & E-Commerce • Technology • Faster Customer Service • Access to International Markets

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