Chapter 13 Ownership and Management. Copyright © 2007 by Nelson, a division of Thomson Canada Limited 2 Summary of Objectives To assess the advantages.

Chapter 13 Ownership and Management

Copyright © 2007 by Nelson, a division of Copyright © 2007 by Nelson, a division of Thomson Canada LimitedThomson Canada Limited

22

Summary of Objectives

To assess the advantages of types of To assess the advantages of types of business ownershipbusiness ownership

To identify factors to include in a lease To identify factors to include in a lease or offer to purchaseor offer to purchase

To establish what protection occurs To establish what protection occurs from trademark registrationfrom trademark registration

To examine insurance requirements To examine insurance requirements for businessesfor businesses


33

Types of Business Structures Sole proprietorshipSole proprietorship

PartnershipPartnership

Corporation Corporation


44

Sole Proprietorship

Business is owned by one individualBusiness is owned by one individual

Assets and liabilities are the Assets and liabilities are the responsibility of the individual, not responsibility of the individual, not the business.the business.

Business income is reported on the Business income is reported on the individual’s tax return.individual’s tax return.

Business losses can be offset.Business losses can be offset.


55

Partnership

A business involving two or more individualsA business involving two or more individuals

The partnership is created expressly or by The partnership is created expressly or by conduct of the partiesconduct of the parties

Income and assets are shared as arrangedIncome and assets are shared as arranged

Partnership income is reported on individuals’ Partnership income is reported on individuals’ tax returnstax returns

An actual or apparent partner may bind other An actual or apparent partner may bind other partners in obligations to third partiespartners in obligations to third parties

Limited liability partnerships are allowedLimited liability partnerships are allowed

Partners owe each other a duty of good faithPartners owe each other a duty of good faith


66

Corporations

Created by statute with a separate existence Created by statute with a separate existence from their ownersfrom their owners

Corporations file their own tax returns.Corporations file their own tax returns.

Liability is limited to the amount invested.Liability is limited to the amount invested.

Personal assets of shareholders are Personal assets of shareholders are protected.protected.

Government filing requirements and feesGovernment filing requirements and fees

Records must be kept for review at head Records must be kept for review at head office.office.


77

Chains and Franchises

A chain – one business owner A chain – one business owner operates at several locationsoperates at several locations

A franchise – franchisee pays A franchise – franchisee pays royalties to franchiser for its royalties to franchiser for its reputation and quality and for reputation and quality and for market developmentmarket development


88

Buying a Hospitality Business Have an accountant and a lawyer Have an accountant and a lawyer

review review

• books and recordsbooks and records

• licences, leases, title to property, licences, leases, title to property, trade namestrade names

• key management personnel or key management personnel or union issuesunion issues


99

Non Competition Clauses There may be a clause in the purchase There may be a clause in the purchase

agreement to restrict the seller from agreement to restrict the seller from competing with the business for a competing with the business for a reasonable amount of time within a reasonable amount of time within a reasonable geographical location.reasonable geographical location.

There may be a clause in an There may be a clause in an employment contract which restricts employment contract which restricts an employee from using trade secrets, an employee from using trade secrets, confidential information and trade confidential information and trade connections.connections.


1010

Financing a Hospitality Business Funding sources include the Funding sources include the

Federal Business Development Federal Business Development Bank, stock market investors, Bank, stock market investors, banks and other lendersbanks and other lenders

Other methods of funding include Other methods of funding include equity financing, debt financing equity financing, debt financing and sale of assets.and sale of assets.


1111

Real and Personal Property Real propertyReal property includes land, includes land,

buildings and fixtures (items buildings and fixtures (items affixed to the building).affixed to the building).

Personal propertyPersonal property includes includes chattels (tangible items) and chattels (tangible items) and intangibles (intellectual property, intangibles (intellectual property, financial papers and rights such financial papers and rights such as those under a contract).as those under a contract).


1212

Ownership of Land

A business may own a freehold A business may own a freehold interest in land and fixtures.interest in land and fixtures.

Ownership of land requires Ownership of land requires payment of property taxes and payment of property taxes and maintenance of the property.maintenance of the property.

The market value of land may The market value of land may fluctuate.fluctuate.


1313

Easements, Rights of Way, Restrictive Covenants These are lesser interests in land than These are lesser interests in land than

ownershipownership

An easement is a right of use of An easement is a right of use of another’s land for a specific purpose.another’s land for a specific purpose.

A restrictive covenant is a restriction A restrictive covenant is a restriction placed on some aspect of land use.placed on some aspect of land use.

Zoning is a restrictive covenant placed Zoning is a restrictive covenant placed on land by a municipality.on land by a municipality.


1414

Mortgages

Land is used as security for a loanLand is used as security for a loan

A mortgage is required to be A mortgage is required to be registered on the title to the registered on the title to the property.property.

The amortization period is the time The amortization period is the time required to pay off the principal required to pay off the principal completely at a particular interest completely at a particular interest rate.rate.


1515

Mortgages 2 A default on the payment of a A default on the payment of a

mortgage may result inmortgage may result in

• foreclosureforeclosure

• power of salepower of sale

• taking possession of the propertytaking possession of the property

• action on the covenantaction on the covenant

• seizure and sale of the property at seizure and sale of the property at auctionauction


1616

Liens and Leases

A supplier or worker who is not A supplier or worker who is not paid by an owner can register a paid by an owner can register a lien against the title to the lien against the title to the property.property.

A lease allows the lessee to use A lease allows the lessee to use the lessor’s property for the the lessor’s property for the duration of the lease in exchange duration of the lease in exchange for rent.for rent.


1717

Personal Property

Chattels are physical personal or Chattels are physical personal or business property not affixed to land business property not affixed to land or buildings.or buildings.

IntangiblesIntangibles

• are not land and not chattelsare not land and not chattels

• include rights under a contract or debt include rights under a contract or debt instrument, goodwill, and ownership of a instrument, goodwill, and ownership of a trademarktrademark


1818

Personal Property 2 Personal property also includesPersonal property also includes

• equipment leases (instead of a purchase equipment leases (instead of a purchase requiring chattels as security, equipment is requiring chattels as security, equipment is simply leased)simply leased)

• conditional sales contracts (rather than lease conditional sales contracts (rather than lease and return equipment to lessor, the business and return equipment to lessor, the business acquires ownership at the end of the lease acquires ownership at the end of the lease period after the payment of a lump sum)period after the payment of a lump sum)

• chattel liens (an unpaid repairer or storer of chattel liens (an unpaid repairer or storer of equipment may be entitled to put a lien on it)equipment may be entitled to put a lien on it)


1919

Trademark

A trademark is a symbol, word, A trademark is a symbol, word, name or device used to identify name or device used to identify or signify a company or its or signify a company or its product.product.

A competitor is prevented by law A competitor is prevented by law from using the same or a slightly from using the same or a slightly altered version of a trademark.altered version of a trademark.


2020

Passing Off

To obtain an injunction to prevent the tort of To obtain an injunction to prevent the tort of passing off, the trademark owner must showpassing off, the trademark owner must show

• a misrepresentation,a misrepresentation,

• by the defendant in the course of trade,by the defendant in the course of trade,

• to potential customers,to potential customers,

• which reasonably foreseeably could have the which reasonably foreseeably could have the effect of injuring goodwill, andeffect of injuring goodwill, and

• which did or probably will injure the goodwill of which did or probably will injure the goodwill of the trademark owner’s business.the trademark owner’s business.


2121

Marketing and Public Relations Direct marketing includes signs, Direct marketing includes signs,

business cards, brochures, and business cards, brochures, and advertising.advertising.

Indirect marketing includes word of Indirect marketing includes word of mouth, good service, and attractive mouth, good service, and attractive amenities.amenities.

Hybrid marketing includes Hybrid marketing includes participating in community initiatives.participating in community initiatives.


2222

Insurance

Insurance spreads the cost of potential loss Insurance spreads the cost of potential loss among a group of similarly affected among a group of similarly affected businesses.businesses.

Types of coverage include the following:Types of coverage include the following:

• Public liabilityPublic liability

• Fire and theftFire and theft

• Business interruptionBusiness interruption

• Event insuranceEvent insurance

• Fidelity insuranceFidelity insurance

Chapter 13 Ownership and Management. Copyright © 2007 by Nelson, a division of Thomson Canada Limited 2 Summary of Objectives To assess the advantages.

Documents

business income

business ownership

management slide

business losses

sole proprietorship

market development slide

duty of good faith slide

individual assets