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

Use your textbook to help you