+
Understanding
Canadian
Business
Chapter 6
Forms of Business
Ownership
+
Learning Goals
1.
Compare the advantages and
disadvantages of sole proprietorship.
2.
Describe the differences between general
and limited partners, and compare the
advantages and disadvantages of
partnerships.
3.
Compare the advantages and
disadvantages of corporations.
+
Learning Goals
4.
Define and give examples of three types of
corporate mergers, and explain the role
and leveraged buyouts and taking a firm
private.
5.
Outline the advantages and disadvantages
of franchises, and discuss the challenges of
global franchising.
6.
Describe the role of co-operatives in
Canada.
+
 One
key to success in starting a new
business is understanding how to get the
resources you need.
 You
may have to take on partners or find
other ways of obtaining money.
 You
may need help from someone with
more expertise than you have in certain
areas, or you may need to raise more
money to expand.
+
Sole Proprietorship
Term
Definition
Sole
Proprietorship
A business that is owned and usually
managed, by one person.
Liability
For a business, it includes the responsibility
to pay all normal debts and to pay
because of a court order or law, for
performance under a contract, or
payment of damages to a person or
property in an accident.
Unlimited
Liability
The responsibility of business owners for all
of the debts of the business.
+ Advantages
of Sole
Proprietorship
 Sole
proprietorships are the easiest kind of
business for you to explore in your quest for
an interesting career. Other advantages
include:
Ease of starting
and ending the
business
Being your own
boss
Retention of
company profit
No special
taxes
+ Disadvantages of Sole
Proprietorship
Unlimited liability – the risk of personal losses
Limited financial resources
Management difficulties
Overwhelming time commitment
Few fringe benefits
Limited growth
Limited lifespan
+ Partnerships
Term
Definition
Partnership
A legal form of business with two or more
owners.
General
partnership
A partnership in which all owners share in
operating the business and in assuming liability
for the business’s debts.
Limited
partnership
A partnership with one or more general
partners and one or more limited partners.
Limited partner
An owner who invests money in the business
but does not have any management
responsibility or liability for losses beyond the
investment.
Limited liability
The responsibility of a business’s owner for
losses only up to the amount they invest;
limited partners and shareholders have limited
liability.
+ Advantages of Partnerships
1.
More financial resources
2.
Shared management &
pooled/complementary
skills and knowledge
3.
Longer survival
4.
Shared risk
5.
No special taxes
+ Disadvantages of Partnerships
1.
Unlimited liability

2.
Division of profits

3.
Sharing risk means sharing profits, and that can
cause conflicts.
Disagreements among partners

4.
Each general partner is liable for the debts of the
firm, no matter who was responsible for causing the
debts.
All terms of partnership should be spelled out in
writing to protect all parties and minimize
misunderstandings
Difficult to terminate
+
Progress Assessment
What
is the difference between a
limited partners and a general
partners?
What
are some of the advantages
and disadvantages of partnerships?
+
Corporations
Term
Definition
Corporation
A legal entity with authority to act and
have liability separate from its owners.
Public
corporation
Corporation that has the right to issue
shares to the public, so its shares may be
listed on a stock exchange.
Private
corporation
Corporation that is not allowed to issue
stocks to the public, so its shares are not
listed on stock exchanges; it is limited to
50 or fewer shareholders.
+
Advantages of Corporations
Limited liability
More money for
investment
Size
Ease of ownership
change
Sell stock to
someone else
Perpetual life
•Because corporations
are separate from
those who own them
Ease of drawing
talented
employees
Separation of
ownership from
management
+
Disadvantages of
Corporations
Extensive
paperwork
Size
Double taxation
Two tax rates
Difficulty of
termination
Possible conflict
with stockholders
and board of
directors
Initial cost
+ How Owners Affect
Management
+
Business Regulations
 Registration

Governments need to know what businesses are in
operation to ensure that a wide range of laws and
regulations are being followed.

Unique business names

Taxes are being paid
 Articles
of incorporation is a legal authorization
from the federal or provincial/territorial
government for a company to use the
corporate format.
+
Other Types of Corporations
 Non-resident

Conducts business in Canada, but has its head office
outside of Canada.
 Non-profit

corporation
Formed for charitable or socially beneficial purposes.
 Crown

corporation
Are companies that only the federal or a provincial
government can set up.
 Professional

corporation
corporation
Is a Canadian-controlled private corporation engaged in
providing professional services.
+
Progress Assessment
 What
are the major advantages and
disadvantages of incorporating a
business?
 What
is the role of owners
(stockholders) in the corporate
hierarchy?
 If
you buy stock in a corporation and
someone is injured by one of the
corporation’s products, can you
personally be sued? Why or why not?
+ Sweet
Opportunities
You are a consultant, and will make a
recommendation as to what form of
business ownership you think is best for
each client.
+
Liability
Liability
can be an issue for sole
proprietorships and partnerships
when:
Debts
are owed when a business
fails or has financial difficulties;
If
not insured, when there is loss due
to disaster;
Lawsuits
occur
+
Finance Options
Corporations
have more options
when they need to obtain
additional financing (loans,
investments in the form of stocks
and/or corporate bonds).
Sole
proprietors and partners often
have personal assets as their only
source of money (they can maybe
borrow from banks, friends, family).
+
Tax Implications
Sole
proprietors and partners pay
individual income tax on their
companies’ earnings.
Double
Taxation – a corporation is
taxed as a separate entity that
pays tax on its income.
Stockholders also pay personal
income tax on any dividends they
make.
+
Life of the Business
Sole
proprietorships and
partnerships may dissolve in the
event of the death or illness of the
owner.
Disagreements
may lead to
partnerships breaking up.
Corporations
continue to exist
beyond personal circumstances.
+
Discussion Questions
Why
do you think so many
corporations begin as sole
proprietorships or partnerships?
Why
do you think so many sole
proprietorships and partnerships
become corporations?
+
Definitions
Term
Definition
Merger
The result of two firms forming
one company.
Acquisition
One company’s purchase of the
property and obligations of
another company.
Leveraged
buyout (LBO)
An attempt by employees,
management, or a group of
investors to purchase an
organization primarily through
borrowing.
+
Vertical Merger
(companies in different stages in related industries)
+
Horizontal Merger
(companies in the same industry)
+
Conglomerate Merger
(companies in unrelated industries)
+ Franchising
Term
Definition
Franchise
agreement
An arrangement whereby someone
with a good idea for a business sells the
rights to use the business name and sell
its products in a given territory.
Franchisor
A company that develops a product
concept and sells others the rights to
make and sell the products.
Franchise
The right to use a specific business’s
name and sell its goods or services in a
given territory.
Franchisee
A person who buys a franchise.
+ Franchising
Advantages
Disadvantages
Management and
marketing
assistance
1.
Large start-up costs
2.
Shared profit
2.
Personal ownership
3.
3.
Nationally
recognized name
Management
regulation
4.
Coattail effects
5.
Restrictions on
selling
6.
Fraudulent
franchisors
1.
4.
Financial advice
and assistance
5.
Lower failure rate
+ How Much Does a Franchise
Cost?
Company
Snap-on Tools
PropertyGuys.com
Cost
$25,001 - $50,000
$50,001 - $100,000
The UPS Store
$100,001 - $200,000
Great Canadian Dollar Store
$200,001 - $500,000
Second Cup
$200,001 - $500,000
Harvey’s
Montana’s Cookhouse
$500,001 - $1,000,000
$1,000,000+
+
Checklist for Evaluating a
Franchise

How much equity capital will you need to purchase
the franchise and operate it until your income
equals your expenses?

Does the franchisor offer financing for a portion of
the franchising fees? On what terms?

Are you prepared to give up some independence
of action to secure the advantages offered by the
franchise? Do you have your family’s support?

Does the industry appeal to you? Are you ready to
spend much or all of the remainder of your business
life with this franchisor, offering its products or
services to the public?
+ Home-based
Advantages
 Relief
from the stress
of commuting
Franchises
Disadvantages
 Feeling

Home-based
franchisees feel less
isolated than homebased entrepreneurs.

Experienced
franchisors share their
knowledge of building
a profitable enterprise
with franchisees.
 Extra
time for family
activities and
 Low
overhead
expenses
of isolation
+ E-Commerce
in Franchising
 PropertyGuys.com
is an example of a
franchise that uses e-commerce
 Formed
in 1998 in Moncton, NB.
PropertyGuys.com has built on the
“For Sale by Owner (FSBO)” Internet concept.
 Packages
include a combination of print
advertising, direct mail, electronic mail, seller’s
documentation, a For Sale sign, a website
listing, and a phone answering service.
+ Franchising in International
Markets
 The
US is by far the most popular target for
Canadian-based franchises.

There are now more than 130 locations
in seven countries.
 What
makes franchising successful
in international markets is what
makes it successful domestically;
convenience and predictable level of
service.
+
Co-operative
An organization that is
owned by members and
customers, who pay an
annual membership fee
and share in any profits.
+
Co-operatives
 4/10
op.
Canadians are members of at least one co-
 There
are more than 9,000 co-operatives in
Canada that employ 155,000 people.
 Some
co-ops are listed in Canada’s top 500
companies and several financial co-operatives
have been rated the best places to work in
Canada.
 Fishermen
and farmers catch and produce their
own products, but part of the marketing is done
through jointly owned co-ops.
+ Co-operatives
Differ from
Other Businesses
 Purpose – meet the common
needs of the members
 Control
structure
1 Member = 1 Vote
 The
Mountain Equipment
Co-op story
 Allocation
of profit – share
profits among their member-owners
on the basis of how much they use
the co-op, not how many shares
they hold