978-0134728391 Chapter 3 Part 2

3. Officers. Appointed by the board of directors, officers oversee the day-to-day operations

of the corporation. The chief executive officer, or CEO, oversees overall operations.

D. Special Issues in Corporate Ownership

1. Joint Ventures and Strategic Alliances: In a strategic alliance, two or more organizations

collaborate on a project for mutual gain; when partners share ownership of what is

essentially a new enterprise, it is called a joint venture.

2. Employee Stock Ownership Plans (ESOPs): ESOPs allow employees to own a significant

share of the corporation through trusts established on their behalf.

3. Institutional Ownership: Institutional investors include mutual funds and pension funds

that buy enormous blocks of stock.

4. Mergers and Acquisitions: A merger occurs when two firms combine to create a new

company; in an acquisition, one firm buys another outright. Many deals that are loosely

called mergers are really acquisitions.

5. Divestitures and Spin-Offs: A divestiture occurs when a firm sells off unrelated and/or

underperforming businesses. When a firm sells part of itself to raise capital, the strategy is

known as a spin-off.

KEY TEACHING TIPS

 Ownership in a corporation is represented through the sale of stock. Remind students that

shareholders own the corporation.

 Remind students that stock in a publicly held corporation is available for sale to the

public, whereas stock in a closely held corporation (private) is not available for sale to

the general public.

QUICK QUESTIONS

 What is meant by “double taxation?”

 How do joint ventures and strategic alliances allow companies to spread risk?

Use In-Class Activity 6: Class Discussion: Conjuring Up Profits?

Time Limit: 30 minutes

Learning Catalytics is a “bring your own device” student engagement, assessment,

and classroom intelligence system. It allows instructors to engage students in class

IN-CLASS ACTIVITIES

In-Class Activity 1: Ice-Breaker: The Role of Small Business

Activity Overview:

This activity helps students understand the role of small business in their communities.

Time Limit: 15 minutes

What to Do:

1. Ask students to list small businesses.

2. Ask students to share how those businesses are important to their towns or communities,

whether small businesses in the area complement each other in the products and services they

offer, and in what way(s) these businesses help big businesses. (10 minutes)

Don’t Forget:

In-Class Activity 2: Up for Debate: The Wide World of Risk

Activity Overview:

This activity is designed to get students thinking about the importance of entrepreneurship in the

U.S. economy.

Time Limit: 30 minutes

What to Do:

1. Divide the class into small groups and have them list various examples of how entrepre–

neurial spirit has been/is evident throughout this country’s history. How is entrepreneurship

valuable to an economic system? In what types of businesses is entrepreneurship especially

important? (15 minutes)

2. Reassemble the class and discuss the degree of entrepreneurial spirit evidenced by the group.

In which area(s) of the U.S. economy is entrepreneurship most important? (15 minutes)

Don’t Forget:

In-Class Activity 3: Small-Group Discussion: Entrepreneurship and the

Growth of Businesses

Activity Overview:

This activity asks students to weigh the importance of entrepreneurship in the development of

fast-growing businesses; this activity is based on Application Exercise 10 of the end-of-chapter

materials.

Time Limit: 20 minutes

What to Do:

1. Divide the class into small groups and ask each group to identify two or three of the fastest–

growing businesses in the United States. (5 minutes)

2. Ask each group to consider what role entrepreneurship has played in the growth

of these firms. (5 minutes)

3. Reassemble the class and ask students to share their results. (10 minutes)

Don’t Forget:

A number of fast-growing businesses are flourishing in the United States; students can consider

In-Class Activity 4: Small-Group Discussion: What’s the Next Big Thing?

Activity Overview:

This activity is designed to encourage students to be innovative in designing a business.

Time Limit: 45 minutes

What to Do:

1. Place students in four-member groups and ask each group to come up with an innovative

business idea. Groups should consider the following questions: (30 minutes)

 What is my product or service?

 Who are my customers?

 Where are my customers located?

 Is my business idea easily copied?

 If there are substitutes for my product or service, how can I make my product/service

stand out from competitors’ offerings?

2. Reassemble the class and ask each group to share their ideas. (15 minutes)

Don’t Forget:

In-Class Activity 5: Small-Group Discussion: How Can We Succeed in the

Software Industry?

Activity Overview:

This activity asks students to identify what helps a company become a success or a failure.

Time Limit: 30 minutes

What to Do:

1. Divide the class into small groups and ask each group to put together a list of factors that

might mean the difference between the success and failure of a new company entering the

business software industry. Can small start-ups realistically hope to compete with companies

such as Microsoft? (15 minutes)

2. Reassemble the class and ask students to share their results. (15 minutes)

Don’t Forget:

In-Class Activity 6: Conjuring up Profits?

This activity should generate a lot of discussion since most of the students have a Facebook

account and have probably seen the movie, The Social Network..

DISCUSSION QUESTIONS

1. Why do you think Facebook has been so successful?

2. Facebook is a corporation. Why do you think the firm uses this form of ownership?

3. What threats might derail Facebook’s success? What steps might the firm take today in order

to thwart those threats?

4. Suppose Mark Zuckerberg asked you for advice on how to generate more profits from

Facebook. What would you tell him?

ANSWERS FOR END OF CHAPTER ACTIVITIES

QUESTIONS FOR REVIEW

3-1. Why are small businesses important to the U.S. economy?

3-2. Which industries are easiest for a small business to enter? Which are hardest? Why?

3-3. What are the primary reasons for new business failure and success?

3-4. What are the basic forms of noncorporate business ownership? What are the key

advantages and disadvantages of each?

3-22

QUESTIONS FOR ANALYSIS

3-5. After considering the characteristics of entrepreneurs, do you think that you would be a

good candidate to start your own business? Why or why not?

3-6. If you were going to open a new business, what type would it be? Why?

3-7. Would you prefer to buy an existing business or start from scratch? Why?

3-8. Why might a closely held corporation choose to remain private? Why might it choose to

be publicly traded?

APPLICATION EXERCISES

3-9. Interview the owner/manager of a sole proprietorship or a general partnership. What

characteristics of that business form led the owner to choose it? Does he or she ever

contemplate changing the form of the business?

3-10. Although more than half of all small businesses don’t survive five years, franchises have a

much better track record. However, it can be difficult to buy a franchise. Research a popular

food industry franchise, such as Panera Bread, Sonic, California Tortilla, or Subway, and

detail the requirements for net worth and liquid cash for the franchisee as well as up-front

and annual fees.

BUILDING A BUSINESS: CONTINUING TEAM EXERCISE 3-11 TO 3-15

(Learning Objectives 2, 3, 4, and 5 – AACSB – application of knowledge and interpersonal

relations and teamwork)

This exercise helps students focus on the reality of being an entrepreneur, the costs of starting a

business, obtaining financing, and the steps that an entrepreneur has to follow to have any chance

of success. Students should discuss the pros and cons of various forms of financing noting the

likelihood of obtaining said financing, start-up costs, and the pros and cons of various forms of

ownership. Although there are no right or wrong answers, students should have engaged in

rigorous discussion and analysis before presenting their answers.

The starting point for nearly every new successful venture is a business plan. The key

viability of the business idea. Having to put ideas, plans, and expectation in writing is sobering,

and the very step of writing a business plan will have prevented many would–be entrepreneurs

from launching foolish ventures. The second reason for the business plan is to help attract

financing for the new venture. This might come from friends, banks, or venture capitalists.

TEAM EXERCISE, A TASTY IDEA 3-16 TO 3-18

(Learning Objective 3 – AACSB – application of knowledge, analytical thinking)

At the very least the business partners will be required to have a formal business plan that

includes (a) setting out the goals and objectives of the new business, (b) what are the sales

forecasts of the new business, and (c) the business’s financial plan.

Students will identify a variety of sources of funding including loans, SBA-funded programs,

venture capitalists, friends and family, internet sources, etc. Students should consider the pros

and cons of the funding sources. For example, venture capital as a source may have “strings

attached” that might interfere with plans for the business. However, if the terms were especially

When deciding on the form of business, students will need to carefully analyze the pros and cons

of each focusing especially on unlimited liability, the role of decision making, dissolution, ease

of start-up, cost, etc.

EXERCISING YOUR ETHICS: BREAKING UP IS HARD TO DO

(Learning Objective 5 – AACSB – ethical understanding and reasoning, analytical

thinking)

3-19. What are the reasons the business has been successful? How did each partner contribute to

the success?

3-20. Looking ahead, what are the biggest risks to their venture?

3-21. Is it fair for Connie to work fewer hours than Mark? What changes could they make to

create equity and fairness in their agreement?

Answers will vary, but students will want to consider whether changes should be made to the

CASES:

IT ALL STARTED WITH A LATE FEE

(Learning Objective 6 – AACSB – analytical thinking, application of knowledge)

3-22. What are some of the primary reasons Netflix has been successful?

3-23. Netflix is a corporation. Why do you think the firm uses this form of ownership?

3-25

liability, easier access to financing, and continuity of operation.

3-24. What threats might derail Netflix’s success? What steps might the firm take today to thwart

those threats?

3-25. Suppose Reed Hastings asked you for advice on how to make Netflix better. What would

you tell him?

ICE CREAM HEADACHE

(Learning Objective 3 – AACSB – analytical thinking, application of knowledge)

3-26. What would be the advantages of buying a Cold Stone Creamery franchise as opposed to

starting a business from scratch?

3-27. What are the disadvantages of buying a Cold Stone Creamery franchise?

3-28. While franchise owners must have at least $125,000 of cash available, average start-up

costs are more than double this amount. What are the most likely sources of funding for a

franchise?

3-29. How would you research a franchise purchase before making the decision to invest?

3-30. Do you think that you would be interested in owning a Cold Stone Creamery franchise?

Why or why not?