Introduction to Business 1BUS-101

Instructor: Erlan Bakiev, Ph.D.

Forms of Business Ownership

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 2

Business OwnershipBusiness Ownership

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 3

Three Common FormsThree Common Forms

SoleProprietorships

SoleProprietorships PartnershipsPartnerships CorporationsCorporations

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 4

Ease of establishment

Self-satisfaction

Privacy

Tax advantages

Unlimited liability

Personal pressure

Difficult to get funding

Limited life

Sole ProprietorshipSole Proprietorship

Advantages Disadvantages

Business PartnershipsBusiness Partnerships

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 5

General PartnershipsGeneral Partnerships Limited PartnershipsLimited Partnerships

UnlimitedUnlimitedLiabilityLiability

UnlimitedUnlimitedLiabilityLiability

Equal Equal PartnersPartners

Equal Equal PartnersPartners

ShareShareOwnershipOwnership

ShareShareOwnershipOwnership

LimitedLimitedLiabilityLiability

LimitedLimitedLiabilityLiability

UnequalUnequalPartnersPartners

UnequalUnequalPartnersPartners

PassivePassiveInvestorsInvestors

PassivePassiveInvestorsInvestors

Business Partnerships Business Partnerships in Turkeyin Turkey

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 6

• Ordinary (Unregistered) Partnership• Registered Partnership• Limited Partnership• Partnership Partially Limited by Shares

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 7

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

Partnership AdvantagesPartnership Advantages

Partnership DisadvantagesPartnership Disadvantages

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 8

UnlimitedLiability

UnlimitedLiability

InterpersonalProblems

InterpersonalProblems

UnproductivePartners

UnproductivePartners

ManagingPartner

ManagingPartnerLaw SuitsLaw SuitsDebtsDebts

Partnership AgreementPartnership Agreement

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 9

Decision-MakingAuthority

DisputeResolution

Divisionof Profits

ExpectedContributions

CorporationsCorporations

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 10

Enter Into ContractsEnter Into Contracts

Buy and Sell PropertyBuy and Sell Property

Sue and Be SuedSue and Be Sued

Face Limited LiabilityFace Limited Liability

Ownership of CorporationsOwnership of Corporations

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 11

Shareholders Shareholders

Shareholders

Shareholders

Shareholders

Shareholders

Last Claim on DistributedProfits and Assets

Cash or Stock Dividends

Full Voting Rights

Common Stock

First Claim on Dividendsand Assets

Cash or Stock Dividends

Minimal Voting Rights

Preferred Stock

Public Versus Private Public Versus Private OwnershipOwnership

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 12

PublicPublicCorporationCorporation

PublicPublicCorporationCorporation

PrivatePrivateCorporationCorporation

PrivatePrivateCorporationCorporation

Not PubliclyNot PubliclyTradedTraded

Not PubliclyNot PubliclyTradedTraded

FewFewShareholdersShareholders

FewFewShareholdersShareholders

PubliclyPubliclyTradedTradedPubliclyPubliclyTradedTraded

ManyManyShareholdersShareholders

ManyManyShareholdersShareholders

Advantages Advantages of of ““Going PublicGoing Public””

Ready supply of capital

Increased liquidity

Enhanced visibility

Independent market value

Increased flexibility

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 13

Disadvantages Disadvantages of of ““Going PublicGoing Public””

High cost

SEC filing requirements

Reduced ownership control

Demands of public exposure

Pressure for quarterly results

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 14

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 15

CorporationsCorporations

Access to capital

Limited liability

Increased liquidity

Unlimited life span

Excess paperwork

Burdensome costs

Double taxation

Disclosure requirements

Advantages Disadvantages

Types of CorporationsTypes of Corporations

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 16

Subchapter SCorporation

Limited Liability Company

SubsidiaryCorporation

Corporate GovernanceCorporate Governance

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 17

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

Reform: Board-Related IssuesReform: Board-Related Issues

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 18

CompositionComposition

EducationEducation

LiabilityLiability

RecruitingRecruiting

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 19

Business CombinationsBusiness Combinations

MergersMergersMergersMergers Consolidations Consolidations Consolidations Consolidations

Leveraged Leveraged Buy-OutsBuy-Outs

Leveraged Leveraged Buy-OutsBuy-OutsAcquisitionsAcquisitionsAcquisitionsAcquisitions

Types of Business MergersTypes of Business Mergers

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 20

VerticalVertical

HorizontalHorizontal

ConglomerateConglomerate

Market ExtensionMarket Extension

Product ExtensionProduct Extension

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 21

Mergers and Mergers and AcquisitionsAcquisitions

AdvantagesAdvantagesAdvantagesAdvantages

Economies of ScaleEconomies of ScaleEconomies of ScaleEconomies of Scale

EfficienciesEfficienciesEfficienciesEfficiencies

SynergiesSynergiesSynergiesSynergies

DisadvantagesDisadvantagesDisadvantagesDisadvantages

High-Risk Corporate DebtHigh-Risk Corporate DebtHigh-Risk Corporate DebtHigh-Risk Corporate Debt

Management DistractionsManagement DistractionsManagement DistractionsManagement Distractions

Culture ClashesCulture ClashesCulture ClashesCulture Clashes

Trends in Mergers and Trends in Mergers and AcquisitionsAcquisitions

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 22

Year Number Value (in billions)

1970

1975

1980

1985

1990

1995

2000

2003

5,152

2,297

1,889

3,001

2,074

3,510

11,123

8,232

$16

$12

$44

$180

$108

$356

$1,269

$530

Defenses AgainstDefenses AgainstMergers and AcquisitionsMergers and Acquisitions

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 23

White KnightWhite KnightWhite KnightWhite Knight

Shark RepellentShark RepellentShark RepellentShark Repellent

Poison PillPoison PillPoison PillPoison Pill

Hostile Hostile TakeoversTakeoversHostile Hostile

TakeoversTakeovers

Tender OffersTender OffersTender OffersTender Offers

Proxy FightsProxy FightsProxy FightsProxy Fights

Strategic Alliances Strategic Alliances and Joint Venturesand Joint Ventures

© Prentice Hall, 2007 Excellence in Business, 3eChapter 5 - 24

Gain CredibilityGain Credibility

Expand MarketsExpand Markets

Access TechnologyAccess Technology

Diversity OfferingsDiversity Offerings

Share Best PracticesShare Best Practices