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Selecting the Proper Form of Business Ownership and Exploring Mergers and Acquisitions

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Selecting the Proper Form of Business Ownership and Exploring Mergers and Acquisitions Chapter 4 Sole Proprietorships Partnerships Corporations Sole Proprietorship ... – PowerPoint PPT presentation

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Title: Selecting the Proper Form of Business Ownership and Exploring Mergers and Acquisitions


1
  • Selecting the Proper Form of Business Ownership
    and Exploring Mergers and Acquisitions
  • Chapter 4

2
Choosing a Form of Business Ownership
  • Sole Proprietorships

Partnerships
Corporations
3
Sole Proprietorship
  • Sole Proprietorship
  • Business owned by a single individual
  • Unlimited Liability
  • Legal condition under which any business damages
    or debts can also be attached to the owner
    because the two have no separate legal identity

4
Sole Proprietorship
  • Advantages
  • Easy to establish
  • Owner has control independence
  • Owner reaps all profits
  • Income is taxed at individual rates
  • Company plans financial performace remain
    private
  • Disadvantages
  • Limited financial resources
  • Owner may lack managerial skills
  • Owner is liable for business debts damages
  • Business may cease with death of owner

5
Partnerships
  • Partnership
  • Unincorporated business owned and operated by two
    or more persons under a voluntary legal
    association
  • General Partnership
  • Partnership in which all partners have the right
    to participate as co-owners and are individually
    liable for the business's debts
  • Limited Partnership
  • Partnership composed of one or more general
    partners and one or more partners whose liability
    is usually limited to the amount of their capital
    investment

6
Partnerships
  • Advantages
  • Easy to establish
  • Owners have control independence
  • Owners reap all profits
  • Income is taxed at lower individual rates
  • Strength in numbers
  • Disadvantages
  • Owners are liable for business debts damages
  • Potential interpersonal problems

7
Corporations
  • Corporation
  • Legally chartered enterprise having most of the
    legal rights of a person, including the right to
    conduct business, to own and sell property, to
    borrow money, and to sue or be sued-owners of the
    corporation enjoy limited liability
  • Shareholders Owners of a corporation
  • Stock Shares of ownership in a corporation
  • Stock Certificate Document that proves stock
    ownership

8
Common vs. Preferred Stock
  • Common Stock
  • Shares whose owners have voting rights and have
    the last claim on distributed profits and assets
  • Preferred Stock
  • Shares that give their owners first claim on a
    company's dividends and assets after paying all
    debts usually pays fixed dividends
  • Dividends
  • Distributions of corporate assets to shareholders
    in the form of cash or other assets

9
Structure of a corporation
  • Shareholders
  • Owners can be
  • Individuals
  • Other Companies
  • Not-for-Profit Organizations
  • Pension Funds
  • Mutual Funds

Board of Directors Group of people elected by the
shareholders who have the ultimate authority in
guiding the affairs of a corporation
Elects
Appoints
Officers Chief Executive Officer (CEO) Chief
Financial Officer (CFO) Chief Operating Officer
(COO) Persons appointed by the board of directors
to carry out the board's policies and supervise
the activities of the corporation
Proxy Document authorizing another person to
vote on behalf of a shareholder in a corporation
10
Understanding Mergers Acquisitions
  • Merger
  • Combination of two companies in which one company
    purchases the other and assumes control of its
    property and liabilities
  • Consolidation
  • Combination of two or more companies in which the
    old companies cease to exist and a new enterprise
    is created

11
Mergers Acquisitions
  • Advantages
  • Economies of scale
  • Efficiencies
  • Synergies sum is greater than individual parts
  • Disadvantages
  • Culture clashes
  • Create a burden of high-risk corporate debt
  • Distract managers from day-to-day operations

12
Types of Mergers
  • Trusts
  • Monopolistic arrangements established when one
    company buys a controlling share of the stock of
    competing companies in the same industry
  • Horizontal Mergers
  • Combinations of companies that compete directly
    in the same industry
  • Vertical Mergers
  • Combinations of companies that participate in
    different phases of the same industry
    (i.ematerials. production. distribution

13
Types of Mergers
  • Conglomerate Mergers
  • Combinations of companies that are in unrelated
    businesses. Designed to augment a company's
    growth and diversify risk
  • Leveraged Buyouts (LBOs)
  • Situation in which individuals or groups of
    investors purchase companies primarily with debt
    secured by the company's assets
  • Hostile Takeovers
  • Situations in which an outside party buys enough
    stock in a corporation to take control against
    the wishes of the board of directors and
    corporate officers

14
Merger Acquisition Defenses
  • A hostile takeover can be launched in two ways
  • Tender Offer
  • Invitation made directly to shareholders by an
    outside party who wishes to buy a company's stock
    at a price above the current market price
  • Proxy Fight
  • Attempt to gain control of a takeover target by
    urging shareholders to vote for directors favored
    by the acquiring party

15
Merger Acquisition Defenses
Schemes to avoid hostile takeovers
Poison Pill
Shark Repellant
Golden Parachute
White Knight
16
  • Poison pill-showing the company less valuable .
  • Special sale of newly issued stock tocurrent
    stockholders at prices below the market price
  • Increases the number of shareholders and makes
    the company more expensive to overtake.
  • The golden parachute-benefit the companys top
    execurives by guaranteeing them generous
    compensation packages if they ever leave or
    forced out after a takeover .
  • The shark repellent-stokeholders must approve the
    takeover.
  • The white knight uses a friendly buyer to take
    over the company before a raider does.
  • White knights agree to leave the current
    management tean inplace and let the company
    operate in an independent fashion.
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