PARTNERSHIPA business owned by two or more people.

An Association of two or more persons to carry on as co-owners of a business for profit.

A partnership can be based on a written contract or a voluntary and legal oral agreement. The law regards individual as partners when they act in such a way as to make people believe they operate a business together.

TYPES OF PARTNERSHIPS

TYPES OF PARTNERSHIP: GENERAL PARTNERSHIP

A Partnership in which at least one

partner has unlimited liability; a

general partner has authority to act

and make binding decision as an

owner. Partners generally share

profits and losses according to a plan

specified by agreement between

them. The general partner may be

liable for all the debts of the business.

TYPES OF PARTNERSHIP: LIMITED PARTNERSHIP

A Partnership with at least one general partner

and one or more limited partners who are liable

for losses only up to the amount of their

investment.

The general partners arrange and run the

business, while the limited partners are investors

only. Investors receive special tax advantages and

protection from liability.

Limited partners legally may have no say in

managing the business. If there is any violation,

the limited partnership status is dissolved.

TYPES OF PARTNERSHIP:MASTER LIMITED PARTNERSHIP [MLPs]

A new form of partnership, the master limited

partnership (MLP), looks much like a

corporation in that it acts like a corporation

and is traded on the stock exchanges like a

corporation, but it is taxed like a partnership

and thus avoids the corporate income tax. Two

well-known MLPs are Burger King and

Perkins Family Restaurants.

TYPES OF PARTNERSHIP:MASTER LIMITED PARTNERSHIP [MLPs]

Sometimes a number of individuals and businesses join

together in order to accomplish a specific purpose or

objectives or to complete a single transaction.

A joint venture (often abbreviated JV) is an entity

formed between two or more parties to undertake

economic activity together. The parties agree to create a

new entity by both contributing equity (capital), and

they then share in the revenues, expenses, and control of

the enterprise. The venture can be for one specific

project only, or a continuing business relationship such

as the Fuji Xerox joint venture.

PARTNERSHIP CONTRACTSound business practice dictates that a partnership agreement be written and signed,

although it is not a legal requirement. Such a contractual agreement is called Articles of

Partnership.

Written articles of partnership can prevent or lessen misunderstandings at a later date.

Oral partnership agreements, though quite legal, tend to be hard to recreate and are open

to misunderstandings. Written articles of partnership provide a proof of an agreement.

PARTNERSHIP CONTRACT Name of business partnership

Type of business

Location of the business

Expected life of the partnership

Names of the partners and amount of each one's investment

Procedure for distributing profits and covering losses

Amounts that partners will withdraw for services

Procedure for withdrawal of funds

Duties of each partner

Procedures for dissolving the partnership

PARTNERSHIP: ADVANTAGES More Capital

In the sole proprietorship, the amount of capital is limited to personal wealth and the credit of the

owner. But in a partnership business, when two or more people pool their money and credit, it is

easier to pay the rent, utilities, and other bills incurred by a business.

Combined Managerial Skills

In a partnership, people with different talents and skills may join together to form a business. It is

simply much easier to manage the day-to-day activities of a business with carefully chosen partners.

Partners give each other free time from the business and provide different skills and perspectives. 0

PARTNERSHIP: ADVANTAGES Ease of Starting

As it involves a private contract contractual agreement, a partnership is fairly easy to start. It is nearly as free from government regulation as a sole proprietorship.

Clear Legal StatusThe legal outline for partnerships have been established through the court. The questions of rights, responsibilities, liabilities and partner duties have been covered. Therefore the legal status of a partnership is clearly visible. Lawyers can provide legal advice about the partnership issues.

Tax AdvantagesThe partnership has some potential tax advantage over a corporation. In partnership has some proprietorship, the owners pay taxes on their business earnings. But the partnership as a business does not pay income tax.

PARTNERSHIP: DISADVANTAGESWhen two people agree on anything, there is the possibility of conflict and tension. Partnerships have caused splits among families, friends, and marriages.

Unlimited LiabilityEach general partner is liable for the debts of the firm, no matter who was responsible for causing those debts. You are liable for your partners’ mistakes as well as your own. Like sole proprietors, general partners can lose their homes, cars, and everything else they own if the business loses a lawsuit or goes bankrupt.

InstabilityIf a partner dies or withdraws from the business, the partnership is dissolved.

PARTNERSHIP: DISADVANTAGES

Disagreements Among Partners

Disagreements over money are just one example of potential conflict in a partnership. Who has final authority over employees? Who hires and fires employees? Who works what hours? What if one partner wants to buy expensive equipment for the firm and the other partner disagrees? Potential conflicts are many. Because of such problems, all terms of partnership should be spelled out in writing to protect all parties and to minimize misunderstandings.

Decisions made by several people (Partners) are often better than those made by one, but when there are two or more people deciding on some aspect of the business can be dangerous. Power and authority are divided and the partners will not always agree on each other. As a result poor decision making and more time consuming can occur.

PARTNERSHIP: DISADVANTAGES

Investment withdrawal difficulty

A person who invests money in a partnership may have a

hard time withdrawing the investment. It is much easier to

invest in a partnership than to withdraw. Sure, you can

end a partnership just by quitting. However, questions

about who gets what and what happens next are often

very difficult to solve when the partnership ends.

Limited Capital Availability

The partnership may have an advantage over the sole

proprietorship in the availability of capital, but it does not

compare to a corporation in ability to raise capital.

Partners sometimes have limited capabilities and cannot

compete in businesses requiring large amount of capital.

The amount of capital a partnership can raise depends on

the personal wealth of the partners and their credit ratings.

SYNDICATES

Two or more businesses joined together to accomplish specific business goals; a popular form in

underwriting large amounts of corporation stocks.

It engages in financial transactions.

Unlike a Joint Venture, a syndicate need not to be dissolved after the transaction is completed.

Member of syndicate can sell their own interest to buyer, the remaining partners cant say anything.

Some industries such as automobile manufacturing, computer manufacturing, oil refining and natural gas production require millions of dollars to operate a business.

Typically such vast amount of money are put together by attracting numerous investors.

The unincorporated forms of business – sole proprietorship and the partnership do not attract investors who do not want to make decisions or to be actually involved in managing the firm.

CORPORATION

A legal entity with authority to act and have liability separate from its owners.

In the eyes of law, the corporation is an artificial being, invisible and intangible. It has the legal rights of an individual; it can own property, purchase goods and services and sue other persons or corporation.

CORPORATION

Basically a vast amount of money put together to attract investors

The corporation owners spread over a wide geographical area can hire professional managers to operate the business

It has legal right, purchase property, goods and services.

CORPORATION

Charter

A state’s written agreement giving a corporation the right to operate as a business. The state-issued document authorizing its formation.

The individuals forming the corporation are called its Incorporators.

Domestic Corporation

An enterprise organized under the laws of one state or country and doing business within the state or country.

Foreign Corporation

A business incorporated in one state or country and doing business in another state or country.

FORMING A CORPORATION

Factors involved to start a corporation:

To form a corporation, any country needs at least 3 persons.

The applicants fill out an application form for a Charter (Articles of Incorporation)

The form is then reviewed by the appropriate government officials. After granting the charter, the incorporators and all subscribers or the owners of the

stock of the business meet and elect the Board of Directors.

FORMING A CORPORATION

Factors involved to start a corporation: (Contd.)

They also approve the bylaws of the corporation.

The Board of Directors then meets to select the professional managers and to make any other decisions needed to start the business.

The corporation has relationship with shareholders, creditors, customers, and employees.

The actual owner of corporation are shareholders who invest money in the business.

The manager of the corporation decide what property to purchase, when and whom to hire, where to borrow needed funds.

FORMING A CORPORATION

CORPORATION: EXAMPLES

CORPORATION: EXAMPLES

The Corporation Chartered by a state as a separate entity

Professional Managers

Property (Equipment, Real Estate, Inventory,

Buildings

People (Supervisors,

Labourers, Clerks, Sales Personnel)

Customers (Buyers of goods and

services)

Shareholders (Investors of money)

Creditors (Banks, Bondholders, other

businesses)

Is Owned By

OwesRecruits & Hires

Owns

Is Run By

Sells To

CORPORATION: AT A GLANCE

Limited LiabilityA major advantage of corporations is the limited liability of owners. Corporations in England and Canada have the letters Ltd. after their name, as in British Motors, Ltd. The Ltd. stands for “limited liability,” probably the most significant advantage of corporations. A person investing funds in a corporation receives shares of stocks and becomes an owner. In a corporation, the liability for the shareholder equals the amount of funds invested. Thus if the business is forced to liquidate each owner loses only the amount of money, he or she has invested.

Skilled Management TeamThe Board of Directors has the duty of hiring professional managers and the owners delegate their power of operating business to these managers. Professional managers are trained and experienced executives. The professional managers may own shares of stock in the business but not usually not enough to control the corporation.

CORPORATION: ADVANTAGESMost people are not willing to risk everything to go into business. Yet for a business to grow and prosper and create economic opportunity, many people would have to be willing to invest their money in it. One way to solve this problem is to create an artificial being, an entity that exists only in the eyes of the law—a corporation. Let’s explore some of the advantages of corporations:1

Greater Capital BaseTo raise money, a corporation can sell ownership (stock) to anyone who is interested. This means that millions of people can own part of major companies like IBM, Xerox, and General Motors and smaller companies as well, such as JobDirect.com. Corporations may also find it easier to obtain loans since lenders find it easier to place a value on the company when they can review how the stock is trading. Corporations, however can attract capital from a large number of investors by selling shares of stocks.

Transfer of OwnershipThe Shareholders have the right to sell their shares of a corporation’s stock to whomever they like, barring a legal restriction on some closed corporations. These shares of ownership can be sold whenever the

shareholder desires and at the price the buyer is willing to pay. Thus shareholders can freely buy and sell shares of stock. The investment flows easily and is not frozen. This right to sell shares of stock gives corporations the ability to attract large number of shareholders.

CORPORATION: ADVANTAGES

StabilityBecause corporations are separate from those who own them, the Shareholders’ death, retirement or sale of stock need not dissolve the business. The corporation’s policies may be hampered by the sale of large blocks of stock, but business will go on. Nor will the death or retirement of the President of the board or Chief Executive Officer stop the corporation from doing business.

Legal-Entity StatusA Corporation can purchase property, make contracts or sue and be sued in its corporate name. These characteristics distinguish it most clearly from other forms of business organizations.

CORPORATION: ADVANTAGES

Difficulty and Expense of StartingStarting a corporation involves applying for a Charter from a state. Each state has its own set of laws; these must be considered before deciding where to incorporate. Fees and other expenses to start the business need to be considered.

Initial CostIncorporation may cost thousands of dollars and involve expensive lawyers and accountants.

Multiple TaxationCorporate income is taxed twice. First the corporation pays tax on income before it can distribute any to stockholders. Then the stockholders pay tax on the income (dividends) they receive from the corporation.

CORPORATION: DISADVANTAGES

Lack of ControlThe individual shareholder has little control over the operations of the corporations except to vote for a line up of individuals for the Board of Directors. The buying and selling of shares of stock is the only real control owner has.

Possible Conflict with Board of DirectorsSome conflict may rise if the stockholders elect a board of directors that disagrees with the present management.

Difficulty of Termination Once a corporation is started, it’s relatively

hard to end.

CORPORATION: DISADVANTAGES

Lack of Personal InterestIn most corporations except the small ones management and ownership are separate. This separation can result in a lack of personal interest in the success of the corporation.

Credit LimitationsBanks and other lenders have to consider the limited liability of corporations. If a corporation fails, its creditors can look only to the assets of the business to satisfy claims.

Lack of Secrecy A corporation must provide each shareholder with an

annual report and other reports. These reports present data on sales volume, profit, total assets and other financial matters. Public disclosure of these data enables competitors and other outsiders to see the corporation’s financial condition.

CORPORATION: DISADVANTAGES

PrivateAttempts to earn a satisfactory profit

PublicOwned and run by the government

ClosedStock held by only a few owners and not actively sold on the stock market

OpenStock held by numerous people and actively sold on the stock market. Eg. Beximco Pharmaceuticals Ltd.

MunicipalCities and townships that carry out business. Government owned Corporations. Eg. Dhaka City Corporation, Chittagong City Corporation, etc.

TYPES OF CORPORATION

DomesticIncorporated in one state or country and doing business within that state or country. Eg. AKIJ Group, PHP Group

ForeignIncorporated in one state or country and doing business in another state or country. Unilever Bangladesh Limited incorporated in UK.

AlienIncorporated in one nation and operates in another state or country.Eg. Coca Cola (COKE) --- Abdul Monem Limited.

NonprofitService organization incorporated for limited-liability status. Eg. Save the Children, CARE, Anjuman-e-Mufidul Islam, etc.

Single-IndividualIndividually owned business incorporated to escape high personal income tax rate.

TYPES OF CORPORATION

Combining two or more business enterprises into a single entity.

Joining together of two corporations.

Types of Mergers

Horizontal Merger Vertical Merger Conglomerate Merger

MERGERS

Horizontal MergerA merger involving competitive firms in the same market.Example: A Garment Manufacturer merging with another Garment Manufacturer.

Vertical MergerA merger in which a firm joins with its suppliers.Example: A Cement Manufacturer (Lafarge Surma Cement) merging with the stone

crushers of Meghalaya, India.

Conglomerate MergerA merger involving firms selling goods in unrelated markets.Example: Automobile Manufacturer merging with a Construction Firm.

TYPES OF MERGERS

An Organization in which people collectively own and operate a business in order to compete with bigger competitors.

Take approval from Social Welfare Department. Group of people doing business for their own benefit

or welfare. Only the members get the benefits. Profits are distributed among the members.

Milk Vita Amul India Kingshuk Co-operative Society Ltd. Dhaka Club Gulshan Club

COOPERATIVES

END OF LECTURE 2