2012 Pearson Education, Inc.

Publishing as Prentice Hall

6-1

0. I WANT TO START A BUSINESS, HOW SHOULD I SET IT UP? 1. What are the strengths and weaknesses of a sole proprietorship?

2. What are the advantages and disadvantages of a partnership and a partnership agreement? 3. How is a corporation formed, and how does it compare with sole proprietorships and partnerships? 4. What are the characteristics of not-for-profit corporations and cooperatives? 5. What are the different types of mergers and acquisitions and why do they occur?
2012 Pearson Education, Inc. Publishing as Prentice Hall 6-2

Forms of ownership

!! Sole Proprietorship

!! An individual or married couple pursuing business for a profit. This does not involve incorporation.

Some data: !! At the beginning of 2012, the 51.77% of the total amount of companies in Spain were sole proprietorship firms.

Forms of ownership
!! Partnership
!! Two or more people agree to contribute resources to start and operate a business together
Limited

General Partnership ! The owners share management responsibilities

Limited Partnership ! General partner manages the business ! Limited partners share profit but losses are limited to the amount of their investment

Liability Partnership ! Limits the liability of one partner for the negligence of another

Forms of ownership
!! Corporation
!! A legal entity that exists separately from its owners The 13.11% of total companies in Spain

!! Limited Liability Corporation (LLC)

!! A combination of sole proprietorship, partnership, and corporation

!! Protects owners against personal loss other than what is invested in the company !! Treated as a proprietorship or partnership for tax purposes At the beginning of 2012, about 1,123,574 were LLC in Spain (35,12% of the total amount of companies in Spain, INE).

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! !

Ease of formation Greater control and flexibility No specific corporate records to keep or file Potential financial/tax benefit of combined business and personal finances

!! !!

Unlimited liability Potential difficulty in borrowing money

Advantages

Disadvantages
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!! !!

!! !! !! !!

Advantages

More owners contribute capital Greater ability to increase sales, market the business, and generate income Shared financial responsibility Partners likely willing to work very hard Utilize complementary skills Two heads are better than one

!! !! !!

Need the right partner Must share control and profits Difference in opinion on companys direction

Disadvantages
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!! !! !! !! !!

!!

Inexpensive to set up Unlimited liability Financials flow through individuals tax returns No tax benefits Legally dissolves upon change or death of owner or partner Profits increase owners personal taxes Similarities

! ! !

Number of people contributing resources Sharing of profits and liabilities Ability to get financing

Differences
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Capital contributions !! Responsibilities of each partner !! Decision-making process !! Shares of profits or losses !! Departure of partners !! Addition of partners
!!

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!!

General partnerships Limited partnership

- General partners - Limited partners - Default arrangement - Simplest to form

!!

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! !

! ! !

Separated liability Extended life and ! ownership transfer Raising capital Corporate benefits Tax benefits

!! !! !! !!

Must file an annual report Must maintain minutes of key meetings Must follow corporate financial and tax rules Double taxation

Advantages

Disadvantages
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An LLC combines corporate limited liability with partnership tax advantages with fewer administrative requirements than corporations !! Often used by professional corporations formed by accountants, attorneys, and doctors
!!

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BITRONIC SL !! AIRCRAFTTECH SL. !! SK10 COMPOSITES AEROSPACIAL S.L. !! COLYAER SL !! TECNOLOGIAS AERONAUTICAS ESPECIALES AERIS NAVITER SL !! DISEO TECNICO AERONAUTICO SRL !! AEROSERVICE VILADAIR SL !! AVIA COMPOSITES SL
!!
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!!

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CONSTRUCCIONES AERONUTICAS SOCIEDAD ANNIMA (CASA EURO NAVAL SA AEROTALLER SA AVIATION PRODUCTS SA COMPAIA ESPAOLA DE TECNICA AERONAUTICA, SA INVERSAIL SA

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!! !!

!!

An incorporated business that does not seek a net profit Utilizes revenue available after normal operating expenses for the corporations declared social or educational goals - Revenues come primarily from fundraising and donations Tax-exempt

EXAMPLE:Washington Aerospace Partnership (IT IS A NON PROFIT) it is the result of the collaboration of business, labor and government leaders to ensure aerospace excellence. http://www.washington-aerospace.com/
!!
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A business that is owned and governed by members who use its products or services !! Provides services to people with common interests !! Members can be individuals or businesses !! Members set policy and elect directors !! Biggest advantage is group power
!!

2012 Pearson Education, Inc. Publishing as Prentice Hall

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What are the advantages and disadvantages of franchising within the context of entrepreneurship? A franchise is a method of doing business whereby the business (the franchiser) sells a companys products or services under the companys name to independent third-party operators (the franchisees). Franchises play an important part in our economy. Over 750,000 franchised businesses are in operation, employing close to 10 million people with a combined annual payroll of nearly $230 billion. More than half of all franchises are in the fast-food industry, and another 13 percent are full-service restaurants. Franchise opportunities exist in nearly every industry. Franchising provides a great opportunity to do business internationally. By the end of 2005, China had 168,000 franchised stores, a 40-percent increase compared with about 120,000 the year before.
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! ! ! !

Recognized brand name Proven system of operation Strength in numbers Initial training is part of the deal Marketing support is provided Market research is often provided

! ! ! ! !

Lack of control Start-up costs Workload Competition Share problems occurring elsewhere in the franchise

Pros

Cons
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!!

Merger

- Two companies join to form one company -! Friendly and mutually agreed upon
-! Iberia and British Airways (IAG) -! US Airways and American Airlines

!!

Acquisition

- One company takes over another company - Unfriendly acquisition

!! Hostile takeover !! Tender offer !! Proxy fight

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Generally, !! To increase competitive advantage !! To gain synergy Specifically, !! To become the dominant force in the market !! To reduce costs !! To add new product lines !! To expand into new geographic areas !! To gain innovations
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!! !!

!! !! !! !!

!! !!

Nearly two-thirds dont achieve greater market value Revenues and profits suffer because day-to-day activities are neglected while the companies are combined Corporate cultures may clash Communications may break down New division of responsibilities can be vague Divided loyalties, hidden agendas, or power struggles within new management team may lead to conflict Employees may be nervous as jobs are usually eliminated Employees whose jobs arent threatened may still leave
2012 Pearson Education, Inc. Publishing as Prentice Hall 6-3 0

1. What are the strengths and weaknesses of a sole proprietorship? 2. What are the advantages and disadvantages of a partnership and a partnership agreement?

3. How is a corporation formed, and how does it compare with sole proprietorships and partnerships? 4. What are the major differences between a C corporation, an S corporation, and an LLC? 5. What are the characteristics of not-for-profit corporations and cooperatives? 6. What are the different types of mergers and acquisitions and why do they occur?
2012 Pearson Education, Inc. Publishing as Prentice Hall 6-2 4