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Chapter 8 Business Combinations Types of Business Structures Sole Proprietorships Partnerships Corporations Sole Proprietorship business owned and managed by one individual who receives all the profits and bears all the losses Most common type of business (about 72%) 5% of total sales “mom and pop shops” Carol Brooks Antiques, Dana’s, B and B Tax Sole Proprietorship: Benefits Easy to start/end Control over profits/operations Pride of ownership Lower taxes (no corporate taxes) Less government regulation Sole Proprietorships: Costs Unlimited liability Difficulty in raising financial capital Management knowledge may be limited Limited life Attracting employees may be more difficult compared to partnerships/corporations Size limits efficiency Partnerships business owned and managed by two or more individuals who receive all the profits and bear all the losses General or limited-What is the difference? Law firms, dr. offices, accounting firms, etc. Around 8% of businesses Approx. 9% of sales Partnerships: Benefits Easier to raise capital Shared liability Partners combine managerial skills (efficiency) Personal satisfaction Lower taxes (no corp. taxes)/fewer regulations Relatively easy to start Attract employees (comparatively) Partnerships: Costs Unlimited liability (even though shared) Responsible for the actions of ALL partners Shared profits Possible conflicts between partners Possible instability after death of a partner (limited life) Corporations Business owned by stockholders and has rights and responsibilities as if it were a person Approximately 20% of businesses 87% of sales Chartered within a state Includes multinationals, conglomerates ADVANTAGES of a CORPORATION Limited liability for owners Unlimited life Raising capital is easier (access to resources) Hire professional managers to run company Easy to transfer ownership of company DISADVANTAGES OF A CORPORATION Difficult and expensive to start (charter) Owners have no say in company’s operations Corporate profits are taxed twice (double taxation) More government regulation than other combinations What is bankruptcy? There are several different types of bankruptcy filings and each is known by the title of the chapter of the Federal Bankruptcy Act in which they appear. Each chapter contains a different set of laws and rules. The two most common types of bankruptcy are Chapter 7 and Chapter 13. Federal Law and Courts have jurisdiction over bankruptcy cases Ch. 8 Business Growth and Expansion Reinvestment: reinvest cash flow or payout dividends Mergers Why? Improve efficiency Improve products Eliminate rivals Change image Ch. 8 Types of Mergers Vertical (flower) Companies who make products/services in different stages of production US Steel Raw materials-processing-final product-transportation Horizontal (paperclip chain) A-B-C Companies make same/similar products Two banks, two grocery stores, etc. Ch. 8 Alliances Conglomerate McDonalds and Disney Business involved in different sectors of the economy (4) Diversification Multinational “citizen” of different countries Other types of combinations Franchises Cooperatives Producer (OceanSpray, SunMaid, Florida Natural) Consumer (college bookstores, Sams Club*) Service (credit unions like MAX, Guardian or ASE, Dixie Electric, Central Alabama Electric Cooperative) Non-Profits YMCA, Boy Scouts of America, AMTRAK, American Cancer Society Stop here!!!!!! Ch 8: Non Profits Characteristics Incorporated (unlimited life, limited liability) No stocks, dividends or taxes Surplus? Baptist Hospital is an example So is the United Way, Chamber of Commerce, American Medical Association, YMCA, Amtrak, etc. Types of Non Profits Cooperatives: Voluntary association to conduct economic activities beneficial to members Consumer: benefits buyer (college bookstores) Producer: benefits seller (Sunmaid, Florida Natural) Service: benefits members (MFTCU, Dixie Electric) Other examples of Non Profits Labor Unions: AFL-CIO Professional or Business Organizations (AEA, ADA, ABA, AMA): licensing, standards, lobbying Chamber of Commerce Better Business Bureau Government: USPS, Amtrak