WAYS TO ORGANIZE A
BUSINESS
Types of Businesses PERCENTAGE OF
FIRMS
• SOLE
PROPRIETORSHIPS 75%
• PARTNERSHIPS 7%
• CORPORATIONS 18%
PERCENTAGE OF SALES
• SOLE • 6%
PROPRIETORSHIPS
• PARTNERSHIPS • 4%
• CORPORATIONS • 90%
Sole Proprietorships
Advantages Disadvantages
• Easy to form • Unlimited liability
• Keep all the profit • Limited life
• Own boss • Bear all the costs
• Pride of ownership • Limited growth
potential
Partnerships
Advantages Disadvantages
• Access to more • Limited life
financial capital • Unlimited liability (not
• Specialization always)
• Share costs • Disagreements
• Share the work • Different goals
• Share profits
Corporations
Advantages Disadvantages
• Access to lots of • Double taxation
capital • No sense of
• Limited liability ownership
• Unlimited life • Management is
• Money earning separate from
money ownership
Corporation
• The house the Marlboro Man built, Altria Group (formerly
Philip Morris Companies), is the world's largest tobacco
firm. Altria operates its cigarette business through
subsidiaries Philip Morris USA and Philip Morris
International, which sell Marlboro -- the world's best-
selling cigarette brand since 1972.
• The company controls about half of the US tobacco
market. However, tobacco is only part of its portfolio.
• It owns 85% of Kraft Foods, the world's #2 food
company (after Nestlé), which makes Jell-O, Kool-Aid,
Maxwell House, Oscar Mayer, and Post.
• The tobacco giant bought Nabisco in late 2000, folding it
into Kraft. Altria owns 33.9% of SABMiller plc.
•
• FORTUNE 500 2008: Full List 1-100
• List of billionaires (2008) - Wikipedia, the
free encyclopedia
Advantage or Disadvantage?
Which Business Type?
Limited Liability • Advantage of corporation
Easy to transfer ownership • Advantage of corp
• Limited Life • Disadvantage of Sole and Part
• Unlimited Liability • Disadvantage of Sole and Part
• More difficult and costly to • Disadvantage of Corp
organize
• Share expenses • Advantage of Part
• Easiest to organize • Advantage of Sole
• Faced with double taxation • Disadvantage of Corp
• Management is separate from
ownership • Disadvantage of Corp
• Unlimited Life • Advantage of Corp
• Potential loss of ownership by • Disadvantage of Corp
the founders
OTHER BUSINESS ORGANS
(organizations)
• Businesses that • Non-Profit
provide a good or Organization
service without
seeking a profit
• A business contract in • Franchise
which a company
agrees to let another
person establish an
enterprise using its
name
• DQ Grill & Chill® Restaurant
• Initial franchise fee is $35,000. (fees include
training program and opening and support
services)
• Franchise fee for additional store
development is
$25,000
• Royalties are 4% of sales
• Sales promotion fees 5% - 6% of sales
• Franchise Agreement is 20 years
• Basic requirements for new franchisees
– review of your background
– review of work history
– prior retail or foodservice
ownership or
management experience
– a proposed management plan
– financial resources necessary to
develop and operate the unit
• A business that is • Cooperative (co-op)
owned by the people ex. Credit union
who use its services
• A company that • Subsidiary
retains its corporate
identity after being
bought by another
company
• YUM! Brands, Inc. operates as a quick service
restaurant company. It develops, operates, franchises,
and licenses a system of restaurants, which prepare,
package, and sell various priced food items. The
company operates various restaurant brands, including
KFC, Pizza Hut, Taco Bell, Long John Silver's, and
A&W All-American Food Restaurants. Its restaurants
specialize in chicken, pizza, Mexican-style food, and
quick-service seafood categories. As of December 31,
2006, it operated approximately 34,000 restaurants in
100 countries and territories. The company was founded
in 1997. It was formerly known as TRICON Global
Restaurants, Inc. and changed its name to YUM!
Brands, Inc. in 2002. YUM! Brands, Inc. is
headquartered in Louisville, Kentucky.
EX: Horizontal Merger
MERGER MANIA
• HORIZONTAL: 2 or more firms in the same
market with the same good or service
• VERTICAL: 2 or more in different stages of
producing the same good or service
• CONGLOMERATE: firms buy other companies
that produce totally unrelated goods or services
EXAMPLES
• McDonalds buys Burger • Horizontal
King
• McDonalds buys a cow • Vertical
farm
• Steel company buys an • Vertical
iron ore mine
• Steel company buys a
shipping line • Vertical
• Tobacco company buys a
cereal company • Conglomerate
• Cingular buys AT&T • Horizontal