Forms of Business Organizations and Ownership

Business Management 12

Stewart

Sole Proprietorship

• Business owned and operated by one person

• Solely responsible for profits or debts

• Very common in Canadian economy

Ie. Small local business

Advantages

• Own boss• Confidentiality

Any others?

Disadvantages

• Unlimited personal liability

- proprietor’s personal assets can be seized to pay outstanding debts

• No one else to rely on for funds/run business

• Difficult & expensive to obtain loans

• Progressive income tax ( income = tax)

The Partnership

• Owned by 2 or more• Bound by a partnership agreement- no one set form - outlines rights and responsibilities

General Partnership- All partners participate in management- Unlimited personal liability for business

losses

The Partnership

Limited partnership- limited partners- at least one general partner- Not permitted to take part in management- Personally liable for debts only up to their initial

investment- No additional personal assets can be seizedIe. Law firm, architects, accountants

Advantages

• Pooling of talent & capital

• Personal motivation & satisfaction

• Attracts capital

• Obtaining credit is easier & interest rate

Disadvantages

• Progressive income tax• Not easy to sell shares (approval)• Right to retire (no new partner)• Investment funds only from within (personal

savings/mortgages)• Disputes• Legally terminates due to death, mental

incapacitation, financially insolvent, breach of partnership

Advantage or Disadvantage?

• Unlimited personal liability

Joint liability – all partners liable for debts

Several liability – partner doesn’t pay?

All other partners must pay debt

The Corporation

• Public (shares traded freely) or private (shares traded only with approval)

• Established ONLY with gov’t authorization• Shares = corporate assets, equal • Sold – stockbroker, stock market• Owners – shareholder (few – 1000’s) = $$$

Oldest – Hudson’s Bay Company

Advantages

• Profit distribution• Re-invest into firm = self financing = $• Dividends –$ not reinvested shareholders

- per share basis, Preferred, Common

• Obligations responsibility of corp• Limited personal liability (investment)• investors = large scale• Shares transfer• Lower income tax

Disadvantages

• Gov’t fee much

• Closely regulated by gov’t

- books (all aspects), annual meetings, financial statements & tax returns

Privacy? (competition) control

The Government Enterprise

• Owned by federal, provincial or municipal

• Provide services that are costly

• Set up to standardize services & jobs

Crown corporations – gov’t not person holds all/most shares

Ie. Canada Post, the CBC, Via Rail, Hydro One (ON)

Not for Profit

• Refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit

• Not-for-profit organizations are permitted to generate surplus revenues they must be retained by the organization for its self-preservation, expansion, or plans.