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Chapter 05 - How to Form a Business
5-1
How to Form a
Business
chapter
=
what’s new in this edition 5.3
brief chapter outline and learning goals 5.3
lecture outline and lecture notes 5.5
PowerPoint slide notes 5.43
lecture links 5.63
lecture link 5-1: THE FORTUNE LIST OF MOST ADMIRED CORPORATIONS 5.65
lecture link 5-2: THE DEVELOPMENT OF SEARS, ROEBUCK, AND COMPANY 5.66
lecture link 5-3: FORTUNE 500 LARGEST CORPORATIONS 5.66
lecture link 5-4: OUSTED FOUNDERS 5.66
lecture link 5-5: MICROSOFT GAMBLES WITH SKYPE PURCHASE 5.68
lecture link 5-6: JAM AND COFFEE 5.68
lecture link 5-7: EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS) 5.70
lecture link 5-8: SUSTAINABLE FRANCHISING 5.71
lecture link 5-9: FRANCHISING AROUND THE WORLD 5.71
critical thinking exercises 5.72
critical thinking exercise 5-1: PICKING PARTNERS 5.72
5
Chapter 05 - How to Form a Business
5-2
critical thinking exercise 5-2: INDEPENDENT RESEARCH: SMALL-BUSINESS 5.74
OWNERSHIP
critical thinking exercise 5-3: CHOOSING A FORM OF BUSINESS 5.75
OWNERSHIP
bonus cases 5.78
bonus case 5-1: BUILDING COMPUDYNE 5.78
bonus case 5-2: FRANCHISE OR INDEPENDENT? WHAT FITS YOUR MOLD? 5.80
what’s new in
this edition
additions to the 10th edition:
• Getting to Know Mary Ellen Sheets, Founder of Two Men and a Truck
• Name That Company: H&R Block
• Discussion of online franchising added to section E-Commerce in Franchising
• Social Media in Business: Franchise Expansion on Facebook
• Video Case
revisions to the 10th edition:
• Text was revised to eliminate redundancy and tighten discussions.
• Statistical data and examples throughout the chapter were updated to reflect current information.
• Legal Briefcase: Virtual Companies
• Thinking Green: Play Ball but Play Green
• Spotlight on Small Business: The Ties That Bind
deletions from the 9th edition:
• Getting to Know Brian Scudmore, Founder of 1-800-GOT-JUNK
• Name That Company: Mary Ellen Sheets and Two Men and a Truck
Chapter 05 - How to Form a Business
5-3
brief chapter outline
and learning goals
c h a p t e r 5
Chapter 05 - How to Form a Business
5-4
learning goal 4
Define and give examples of three types of corporate mergers, and explain the role of lever-
aged buyouts and taking a firm private.
V. CORPORATE EXPANSION: MERGERS AND ACQUISITIONS
learning goal 5
Outline the advantages and disadvantages of franchises, and discuss the opportunities for di-
versity in franchising and the challenges of global franchising.
VI. FRANCHISES
A. Advantages of Franchises
B. Disadvantages of Franchises
C. Diversity in Franchising
D. Home-Based Franchises
E. E-Commerce in Franchising
F. Using Technology in Franchising
G. Franchising in Global Markets
learning goal 6
Explain the role of cooperatives.
VII. COOPERATIVES
VIII. WHICH FORM OF OWNERSHIP IS FOR YOU?
IX. SUMMARY
Chapter 05 - How to Form a Business
Getting to Know MARY ELLEN SHEETS of TWO MEN AND A
TRUCK
Mary Ellen Sheets started her company when her sons were in college. They were looking
for ways to make some money so she bought a truck for $350 and placed an advertisement un-
der “Movers” in the classified section of the newspaper. When the boys went back to school,
she found more men to fill the trucks. Now it’s a large company bringing in $193.3 million an-
nually with 215 franchise locations.
ence in the success of the business.
Chapter 05 - How to Form a Business
5-6
PPT 5-1
Chapter Title
PPT 5-2
Learning Goals
(See complete PowerPoint slide notes on page 5.43.)
PPT 5-3
Learning Goals
(See complete PowerPoint slide notes on page 5.43.)
PPT 5-4
Mary Ellen Sheets
(See complete PowerPoint slide notes on page 5.44.)
PPT 5-5
Name That Company
(See complete PowerPoint slide notes on page 5.44.)
PPT 5-6
Major Forms of Ownership
(See complete PowerPoint slide notes on page 5.44.)
PPT 5-7
Forms of Business Ownership
TEXT FIGURE 5.1
Forms of Business Ownership
(Text page 116)
(See complete PowerPoint slide notes on page 5.45.)
lecture link 5-1
THE FORTUNE LIST OF MOST
ADMIRED CORPORATIONS
Each year Fortune magazine asks industry experts which
corporations it admires. This lecture link gives the Fortune
listing for 2006 to 2011. (See the complete lecture link on
page 5.63 in this manual.)
Chapter 05 - How to Form a Business
learning goal 1
Compare the advantages and disadvantages of sole proprietorships.
II. SOLE PROPRIETORSHIPS
A. ADVANTAGES OF SOLE PROPRIETORSHIPS
1. Unlimited liability—the risk of personal losses
Chapter 05 - How to Form a Business
5-8
PPT 5-8
Ethnic Business Centers
(See complete PowerPoint slide notes on page 5.45.)
PPT 5-9
Major Benefits of Sole
Proprietorship
(See complete PowerPoint slide notes on page 5.45.)
PPT 5-10
Disadvantages of Sole
Proprietorship
(See complete PowerPoint slide notes on page 5.46.)
Chapter 05 - How to Form a Business
are not skilled at management and with details
such as accounting.
Describe the differences between general and limited partners, and compare the ad-
vantages and disadvantages of partnerships.
III. PARTNERSHIPS
A. A PARTNERSHIP is a legal form of business with
two or more owners.
Chapter 05 - How to Form a Business
5-10
progress
assessment
(Text page 119)
PPT 5-11
Progress Assessment
(See complete PowerPoint slide notes on page 5.46.)
PPT 5-12
Major Types of Partnerships
(See complete PowerPoint slide notes on page 5.46.)
Chapter 05 - How to Form a Business
and thus avoids the corporate income tax.
4. A LIMITED LIABILITY PARTNERSHIP (LLP) is a
partnership that limits partners’ risk of losing their
Chapter 05 - How to Form a Business
5-12
PPT 5-13
Types of Partners
(See complete PowerPoint slide notes on page 5.47.)
PPT 5-14
Other Forms of Partnerships
(See complete PowerPoint slide notes on page 5.47.)
Chapter 05 - How to Form a Business
b. The UPA defines the THREE KEY ELE-
MENTS of any general partnership:
2. SHARED MANAGEMENT AND POOLED/
COMPLEMENTARY KNOWLEDGE: Partners
3. LONGER SURVIVAL: Partners are four times as
likely to succeed as sole proprietorships.
1. UNLIMITED LIABILITY
well as your own.
5-14
PPT 5-15
Advantages of Partnerships
(See complete PowerPoint slide notes on page 5.47.)
critical thinking
exercise 5-1
PICKING PARTNERS
This exercise explores the personal skills and capital that
can be obtained for a business by adding a partner. (See the
complete exercise on page 5.72 of this manual.)
PPT 5-16
Disadvantages of Partnerships
(See complete PowerPoint slide notes on page 5.48.)
TEXT FIGURE 5.2
How to Form a Partnership
(Text page 120)
This text figure gives some suggestions on what should be
included in partnership agreements.
Chapter 05 - How to Form a Business
IV. CORPORATIONS
A. A CONVENTIONAL (C) CORPORATION is a state-
chartered legal entity with authority to act and have li-
ability separate from its owners.
Chapter 05 - How to Form a Business
SPOTLIGHT ON
small
business
(Text page 121)
PPT 5-17
The Ties That Bind
(See complete PowerPoint slide notes on page 5.48.)
lecture link 5-2
THE DEVELOPMENT OF SEARS,
ROEBUCK, AND COMPANY
Sears started out as a sole proprietorship, became a partner-
ship, then formed a corporation. (See the complete lecture link
on page 5.65 in this manual.)
progress
assessment
(Text page 122)
PPT 5-18
Progress Assessment
(See complete PowerPoint slide notes on page 5.48.)
TEXT FIGURE 5.3
Corporate Types
(Text page 124)
This text figure identifies several different types of corpora-
tions.
PPT 5-19
Conventional Corporations
(See complete PowerPoint slide notes on page 5.49.)
5. EASE OF OWNERSHIP CHANGE: Selling stock
to someone else changes ownership.
6. EASE OF DRAWING TALENTED EMPLOYEES:
Corporations can offer benefits such as STOCK
corporation for a fixed price.
7. SEPARATION OF OWNERSHIP FROM MAN-
C. DISADVANTAGES OF CORPORATIONS
b. Many firms incorporate in Delaware and Neva-
3. DOUBLE TAXATION: Corporate income is taxed
Chapter 05 - How to Form a Business
bonus case 5-1
BUILDING COMPUDYNE
A small manufacturer of precision screws grew into one of
the biggest and most successful security companies in the Unit-
ed States. (See the complete case, discussion questions, and sug-
gested answers beginning on page 5.78 of this manual.)
PPT 5-23
Privacy Please
(See complete PowerPoint slide notes on page 5.50.)
PPT 5-24
Disadvantages of Corporations
(See complete PowerPoint slide notes on page 5.50.)
PPT 5-25
Even the Big Guys Make Mistakes
(See complete PowerPoint slide notes on page 5.51.)
