business organizations.ppt

8/10/2019 Business Organizations.ppt

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Section Focus:1. What are the different types of

business organizations ?2. Describe the characteristics of

sole proprietorships partnershipsand corporations .

3. Analyze the advantages and disadvantages ofbusiness organizations .

4. What is the difference betweenstocks [owner] and bonds [lender] ?

5. What are the advantages anddisadvantages of franchises ?

6. What makes Mc onalds the greatest franchise ever ?

[not the greatest hamburgers, just the greatest franchise]


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Total Business SalesSole Proprietorships

5% $434 billion[Ave. $60,000]

Partnerships11% $500 billion

[Ave. $250,000]Corporations [Ave. $3 M]

84% $8 trillion45 made over $20 bil.143 Made over $10 bil.Only 20 nations have GDPsgreater than Wal-Marts $379 bil.

22 Million businessesSole Proprietorships

72%-over 16 million

Partnerships8% - 1.5 million

Corporations

20% - 4 million

Business Organizations

Lets starta dancecompany.


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THE BUSINESS POPULATIONBusiness Shares of Domestic Output

Corporations20%

P artnerships8%

SoleProprietorships

72%

Partnerships 11%

Corporations84%

Percentage of Firms Percentage of Sales

Farmer

Sole Proprietorship 5%


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Business Failures

Over 500,000 small businesses are launched each year.One third of these start-ups fail within two years.


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They are the simplest to form because ofthe small amount of capital needed to start up.

Examples are beauticians, dentists, lawyers,dry-cleaning and lawn care and lemonade stands.

1. Sole proprietorships one individual in business for himself.They make up 72% of all businesses andtake in 5% of total profits.


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A. Easy to quit the business if theowner decides to do so. There are

no co-owners to consult.B. Owners receive the entire profit.

C. Easy to form no complicated legal documents orcomplicated tax forms, small amount of capital needed.

Personal satisfaction (psychological-being yourown boss) prestige and a sense of accomplishment.

D. Total control can make decisionsquickly, can hire and fire easily, canrespond quickly to trends.

2. Advantages of a Sole Proprietorship


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A. Unlimited liability (debt) - have to forfeit

their personal possessions as well as theirbusinesses. (auto, other business, house, savings)

B. Burden of sole responsibility musthave business sense.

C. Limited potential for growth collateral (anything of value to guarantee a loan [like giving upyour personal possessions) [Let s say you putyour home up for collateral but have to give it up]

D. Difficult to attract qualified employees can toffer fringe benefits. [Let s say you ask for more benefits]

E. Short life span depends on owner s healthand competence. If the owner dies , it is over.

3. Disadvantages of Sole proprietorships

I want medical benefits!


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4 Partnership - businessoperated by 2 or more people.

They are the least common with only 8% and take in only 11% of profits.

6 2. Limited some non-active partners join as aninvestment (and thus have limited liability-just theinvestment, not the property). He is a silent partner.

I gave $30,000 as a silent partner, soI dont have to do anything.

Two Forms of Partnerships5 1. General equal decision making & unlimited liability

among partners.

Let s say your silent partner puts up $30,000 to insure the loan.


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Specialization specific duties assigned todifferent partners.

A. Sharing of losses. Can borrow more and can sustainheavier losses.

B. Easy to form. Small amount of money to start & operate.C. Shared decision making more informed decisions.D. Personal satisfaction sense of accomplishment.

Advantages of Partnerships[Two heads are better than one.]

Two Heads better than One Head7


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Distribution of Partnerships Based on Annual Sales & Industry


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8. Disadvantages of Partnerships

A. Disagreements among partners conflicts delay decisions, lower employeemorale, & lessen efficiency. Each partner is responsible for the acts of all otherpartners. Must choose good partners.

B. Have to share the profits.

C. Unlimited liability can lose their

business and personal possessions.

D. Limited life sickness, conflicts,or death can end the partnership.

Take That!


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Demonstration of Unlimited Liability

Harold Nodoe , Gloria Poor and Jack Rich owned theTrio Dress Shoppe as a partnership. Under the terms of

Their partnership agreement, Nodoe and Poor wereentitled each to 40% of the profits , while the remaining20% went to Rich . Last month the firm collapsed . Afterselling off everything it owned, the company still owed

its creditors $10,000 . Since Nodoe and Poor had noassets of their own, the creditors recovered the total amount owed to them from Jack Rich s personal bank account .

Harold Nodoe Gloria Poor Jack Rich


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Largest Corporate Profits - 20071. Wal-Mart $379 B2. Exxon Mobil 3593. Chevron 204

4. Conoco 1875. General Motors 173 6. GE 1737. Ford 1728. Citigroup 146

9. Bank of America 11610. AIG 11011. HP 10412. J.P. Morgan 10013. Berkshire-Hath 9914. Verizon 9315. HP 9216. IBM 9917. Valero 9118. Home Depot 9019. McKesson 8820. Citigroup 82

Largest Employers1 . Wal-Mart 1.35 M associates

[1.6 million associates worldwide] 2. Sears Holding 400,0003. General Motors 386,0004. McD s 364,0005. UPS 359,0006. IBM 316,0007. GE 313,000

Wal-Mart has 4,179 total storesin the U.S.; 1,868 Wal-Mart stores,

1,586 Wal-Mart Super Centers, &725 Sam s Clubs in the U.S.

The GDPs for the Virgin Islandsis $1.8 billion; for Djibouti, it

is $582 million; and forAfghanistan, it is $21 billion.


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Wal-Mart example

Wal- Marts IPO was in 1972. 300,000 shareswere sold at $16.50 per share .

The stock has split 11 times (2 for 1 splits ) sincethen last split was in 1999.

If you purchased 100 shares of Wal-Mart on theday of the IPO you would have spent $1,650 .

Today you would have 204,000 shares of stock . Today current value of your shares would be

$11,044,560 (stock closed at $54.14 yesterday). Each quarter you would be receiving a check for

$136,680 (at current dividend of .67 ). Annualincome for dividends alone would be $546,720 !

C i


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Corporations a business organizationrecognized as a separate legal entity (existence).

10 Stockholders are the owners of a corporation who investby buying shares.Stock the certificate of ownership.

9 Corporations make up about 20% of business organizationsbut produce over 90% of total sales.

Corporations can operate like a sole proprietor. Inc. meansthe business is a corporation. [Treated by the courts as anartificial person. They can sue, be sued, enter into contracts,and pay taxes.

Two Types of Corporations

11 Publicly owned anyone can invest by buying shares,so unlimited # of owners. Includes most corporations.12 Closed is owned by a limited number of stockholders.

Ford Motor Company was family owned (closed) until 1956.They went public in 1956 & issued 10,200,000 shares of stock.

13 Wal-Mart leads all other corporations in sales at $371 billion.


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Corporate Trivia A corporation can be sued but the people who own the

corporation ( stockholders ) can not be sued . A corporation has potentially perpetual life . 1.) Nearly all large companies are corporations . 2.) Nearly all corporations are small companies . 3.) Therefore, a small minority of corporations constitute

nearly all the large companies . In other words, of 4 million corporations , about 2,000 are

large companies , and these 2,000 large corporations constitute the vast majority of the nations large companies .

Also, the 15% of corporations that do more than $1 millionin sales take in in 85% of the receipts of corporations .


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If a company had only 200 sharesand you bought a share, you would

own 1/200th

of the company.


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16 Corporate Bonds a certificate issued by a corporation in


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16 Corporate Bonds a certificate issued by a corporation inexchange for money borrowed from investors. There is awritten promise to repay the amount borrowed at a laterdate (an I.O.U. ) lending money for 10, 20, or 30 years.Bondholders are creditors , not owners.

17 Advantages of Corporations from a Stockholders ViewpointA 1. Limited liability limited to the amount invested. His

personal assets may not be seized to pay corporate debts.B 2. May earn a profit without working.

18 Advantages From the Corporation s Viewpoint A 1. Separation of ownership from management can hire

the best management available. Specialized talent can behired in all areas.

B 2. Easy to raise capital can issue stocks or sell bondsallowing the corporation to tap the savings of thousands.

C 3. Longevity they have a life independent of their owners.


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k


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Bull and Bear Markets

Then there is the kangaroo market.


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On this day, Sam Walton ,the richest man in the world,had a paper loss of $1.5 billion .

508 points

24 % dropin one day

10-19-87


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Date Decline % Decline10/19/87 508 points 24%

10/28/29 38 points 13%10/29/29 31 points 12%11/26/29 26 points 10%12/18/1899 6 points 8%

8/12/32 6 points 8%3/14/07 7 points 8%

10/26/87 156 points 8%7/21/33 8 points 8%

10/18/37 11 points 8%

2/01/17 7 points 7%10/27/97 554 points 7%

[$700 billion lost in one day]4/14/2000 661 points 6%

3/2000-2/2003 $7.7 trillion was lost[Market value was worth $17 trillion]

Advantages / Disadvantages of Sole Proprietorships


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Advantages / Disadvantages of Sole Proprietorships

Ease of Formation

Ease of Formation

Single Taxation

Single Taxation

Unlimited Liability

Lack of Continuity

Lack of Continuity

Advantages DisadvantagesUnlimited LiabilityFreedom

Low Start - up Costs DifficultyRaising Money

Reliance OnOne Person

OwnershipTransfer Difficult

Possibility ofConflict

Larger Talent Pool

Larger Money Pool

Advantages / Disadvantages of General PartnershipAdvantages Disadvantages


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Advantages / Disadvantages of Corporations

Stockholder Revolts

High Start-up cost

High Cost ofRegulation

Double Taxation

Advantages Disadvantages

Easier Access to Money

Greater likelihood ofprofessional Management

Continuity

Limited Liability

Types of Corporate Combinations


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A Horizontal Combinations (a grouping of competitors )a merger between corporations that make the same product.

This would be a merger of two or more banks , or railroads ,or airline companies , etc. Firms may merge to catch up withor eliminate their rivals. Chevron-Texaco bought Unical Oil.

Royal Caribbean Cruises acquired Celebrity Cruise Line anddoubled in size, & became the 2 nd largest cruise line behind Carnival .

Staples tried to acquire Office Depot but the governmentblocked it on the grounds that it would reduce competition .

Morgan-Chase-Bank One 58 B Cingular-AT&T Wireless 41 BCompaq-HP 23 B GTE-Bell Atlantic 71 BChevron-Texaco 43 B Daimler-Chrysler-Benz 41 BSprint-Nextel 35 B Bank of Am.-FleetBoston Finan. 47 B

ChryslerAmerican MotorsChrysler

Types of Corporate Combinations 20 1. What are the three ways corporate merger combinations can

take place? (A merger is when one company absorbs another)2. What is the current trend in corporate combinations?


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B V ti l C bi ti


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B Vertical Combinations merger of companies thatare involved in different phases of production of the sameproduct. [Purchasing one of your suppliers ]

Examples1. Automaker buys a tire factory2. Bridgestone Tire buying a rubber plantation3. Campbell Soup buying mushroom farms4. Funeral Home bought a cemetery and a floral shop5. Ford bought a steel mill to produce steel needed for autos

USX (Steel)

Steel Mills

Transportation

[shipping & RR cos]

Resources[ore, coal, & iron]

Shell Oil Co . owns1. Oil fields

2. Refineries, and3. Retail gasoline

stations


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Carnegie Steel : At the age of 30, Andrew Carnegiewisely decided to invest his wealth into steelshortly after the Bessemer Steel process came tolight. In the 1870s, he set up the first American steelmills in Pittsburg, PA. By 1889 , the Carnegie Steel Company wasestablished. He soon had enough money to buy thecompanies that performed each phase ofproduction (mines, pig iron furnaces, shippingcompanies, rail lines) This is known as verticalconsolidation This allowed Carnegie Steel to keep lowproduction costs and therefore low prices forconsumers. This was because of the phenomenon known aseconomies of scale

As production increases, costs are lowered Small companies could not compete becausethey did not own all phases of production.

C Conglomerate (Unrelated) Combination merger


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C Conglomerate (Unrelated) Combination merger between four or more companies producing unrelated products.None is responsible for the majority of sales.These mergers may include a number of subsidiaries acquiredcompanies that have not been required to abandon their corporate identity.

Tobacco Products

Distilled Spirits

American Brands, Inc.

About $3 trillion in mergers


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About $3 trillion in mergers each year worldwide & about $1.6 trillion in the U.S.Diversification is a good

reason for conglomeratemergers. You are notputting all of your eggs in one basket. Your over-all sales and profits will beprotected.

R.J. R eynolds- one of biggest1. Sea-land (containerized shipping)2. KFC (2 nd largest fast-food chain)3. Del Monte (fruit processor)

4. Heublein (distilled spirits)Pfizer makes Viagra & Lipitor .1. Chewing gum (Trident,Dentyne)2. Razors (Schick)3. Cough drops (Halls)

4. Breath mints (Clorets, Certs)5. Antacids (Rolaids)

The trends in mergers in the 90s was toward vertical and


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The trends in mergers in the 90s was toward vertical andhorizontal combinations .

The biggest cause of merger failures was mismatched corporations ,therefore, conglomerate mergers were the ones most likely to fail .

Advantages of Corporate Mergers1. Efficiency eliminates overlapping jobs, can share resource

and marketing skills. Mergers may lead to lower consumerprices making them better able to compete in world markets 2. Less expensive , compared to having to build new plants and

hire new employees.

3. Stockholders in the acquired corporations normally benefitby having stock go up in value by about 30% .

4. Increased size means they can borrow more money.


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1. Managers of merged corporations may not have

the necessary supervisory skills.

2. Added unemployment when some positions areeliminated. 12,500 were laid off in Fleet Boston-Bank of America merger saving $650M.When Cingular bought AT&T Wireless, 10,000were laid off.

3. Purchasing corporation s stock normally declines .

4. Higher prices and fewer choices for consumers.

5. Acquiring corporation normally goes into debt.

What Town is This?


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What Town is This?


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22 Franchise gives an individual an agreement to market acompany s product in return for a percentage ( royalty)

of the profits. Semi-independent business.

The company is the franchiser and the individual is the franchisee .

The 1 st franchise operation was started by Singer Company in 1851

to sell sewing machines. In the last 40 years, franchising has reallytaken off, led by Ray Kroc of McDonald s .

Today we have franchising for everything from hemorrhoid clinics[You bend, we mend] to auto clinics. A typical large city in theU.S. will have its share of Burger Kings, Foto-Mat, KFCs, Goodyear,Taco Bell, Pizza Hut, Dunkin Donuts, and others.

There are 3,000 franchises in 670 industries , with 600,000 outlets .The franchiser will train your personnel , take care of marketingand accounting . The franchisee receives a tried-and-tested businessmethod .

23 Advantages of Franchises


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gA 1. Benefits of a well known trade name , systemized

management , and national advertisement.B 2. Less than 5% fail each year (65% of all independently

owned businesses fail within the first 5 years).C 3. Chance to own your own business with minimum risk .

24 Disadvantages of FranchisesA 1. May be too many restrictions imposed so independence

is sacrificed.B 2. Takes a lot of money for start-up

3. May lose your investment if the company goes bankrupt.

Some franchises such as pizza , video rentals , frozen yogurt ,instant printing , & tanning parlors will not make it because they are either too competitive or too unhealthy .

Tanning beds are very dangerous . There are two major typesof ultraviolet radiation- UV-A [think of A=Aging ]. They have alonger wavelength & penetrate more deeply into the dermis and damage collagen & elastin giving you the dry, leathery ,wrinkly look . UV-B [think of B = Burning ] are a shorter wavelength & cause sunburn . Both cause melanoma , damagethe DNA of the skin surface and cause skin cancer.

25 Cooperatives voluntary association of people formed


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pto carry on some kind of economic activity benefiting members.

Different Types of Cooperatives:1. Producer Coop group of farmers who join to get betterprices for their goods. They eliminate the middle-man charges.

2. Housing Coop formed by members to buy the buildingthey live in.3. Purchasing Coop retail store owned and operated byits customers.4. Credit Union members pool their savings so they can

borrow from it at lower rates (the most common form of coop )5. Service Coop provides service to its members(electrical or telephone)6. Baby-Sitting Coop families swap baby-sitting dutieswithout ever exchanging money.

26 Nonprofit Organizations provides products withoutmaking a profit. Churches are the most common.(Boy Scouts, Y.M.C.A., Salvation Army, & Goodwill)

business organizations.ppt

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