Forms of business ownership EASE OF STARTING YOUR OWN BUSINESS.

Forms of business ownershipEASE OF STARTING YOUR OWN BUSINESS

Basic forms of business ownership 1. Sole proprietorship

You are the sole owner of the businessSubject to all liability

– the responsibility to pay all normal debts and also to pay

A. because of a court orderB. because of lawC. due to contractsD. for damages to a person or property in an

accident

Sole Proprietor Unlimited liability – Whereby all of the debts of the

business must be shouldered by you

Advantages:Relatively easy to start a businessBeing your own bossRetain all company profitsNo special taxes; business losses can be claimed against

income

Sole Proprietor Disadvantages:

Limited financial resourcesManagement difficulties – you can’t be good at

everythingOverwhelming time commitmentFew to no benefitsSlow growth/expansion

2. Partnerships Two or more people legally agreeing to be co-owners of a

business

A. General partnership – all owners share in operating the business and in assuming liability for the business

B. Limited partnership – has one or more general partner and one or more limited partner

General partner – has unlimited liability and is active in managing the firm

Limited partner – invests money but does not have any management responsibilities or liability

2. Partnerships Advantages:

More financial resourcesShared management and complementary skillsShared riskNo special taxes

Disadvantages:Unlimited liabilityDivision of profitsDifficult to end the businessDisagreement amongst partners

3. Corporations Incorporating is the act of creating a corporation

These are federally or provincially chartered legal entities with authority to act and have liability separate from its owners

Investors/shareholders are not liable to any debts beyond what they invested

Allows many people/parties to share in ownership

3. Corporations A. Public Corporations

- Have the right to issue stocks to the public thus raising a lot of capital

- Can be small or large companies

3. Corporations B. Private corporation

- Not allowed to issue stocks to the public- Regulations permit 50 or less shareholders- Good for when substantial capital is no required

3. CorporationsGeneral advantages:

- limited liability

- ability to raise large sums of money for investment

- perpetual life: if a shareholder dies, the corporation stays

- ease of ownership change

3. CorporationsGeneral disadvantages:

- Initial cost: incorporating requires many lawyers, accountants, and other services

- extensive paperwork: detailed financial records, meeting minutes and more are required

- Double taxation: income the corporation makes is taxed. Then dividends given to shareholders is taxed again

- Internal conflicts: disagreements between shareholders or board members

Progress assessment - Questions 1. Would you be a sole proprietor? Or have a partnership? Give 3

reasons to support your decision

2. Why would unlimited liability be considered a major drawback of sole proprietorship?

3. What is the difference between a limited partner and a general partner?

4. What are the advantages and disadvantages of incorporating?

5. If you are a shareholder of a corporation, can you be sued for someone who was severely injured by their product? Why or why not?

3. Corporations Corporate Governance – policies that stipulate how an

organization interacts with stakeholders

Board of directors – in general, govern management decisions and operations

Business Regulations Registration – required by the government so that they can

keep track of businesses that are in operation

Articles of incorporation – legal authorization from the federal or provincial governments for a company to become a corporation

Reporting and Information – Filing annual reports to the government, and receiving information from the government

Corporate Expansion 1. Mergers – two separate entities forming a single

companyA. Vertical merger – Joining of 2 forms that are involved in

different stages of a related businessEx: Coca cola merging with a artificial sweetening

company. Or a bottling company

B. Horizontal merger – joining of 2 firms in the same industry and allows them to diversify or expand their productsEx: Coca cola merging with a mineral water company

Corporate Expansion C. Conglomerate merger – multiple firms of unrelated

industries to diversify business operations and investments. Ex: Coca cola and Lays

Corporate Expansion 2. Acquisition – when one company purchases another.

Taking up their property and obligations

Leveraged buyout (“Taking the company private”) – When employees of a company buy all the shares and own the company

3. Franchising – Selling someone else the right to sell/provide your product/serviceEx: La Poire

3. Franchising Advantages:

Management and marketing assistancePersonal ownershipNationally recognized nameLower failure rate

3. Franchising Disadvantages:

Large start-up costShared profitManagement regulationCoattail effects

4. Co-Operatives An organization owned by members and customers who

pay an annual fee (usually).

Interest lie in the common needs of members

One vote/member vs one vote/shareholder

Profits (“dividends”) are distributed among members on the basis of how much they use the co-op; not how many shares they hold Not subject to income tax!

Question/Assignment sheet Complete, and hand in

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