Unit 1 – Chapter 2
Types of Business Ownership
Introduction
• Deciding which type of business ownership you
want to establish needs serious thought.
• Each has it advantages, but each also has
some disadvantages.
• Over time, the form of business ownership you
use can change! That’s a G☺☺D thing!!
We will explore:
•
•
•
•
The different types
Features of each type
Advantages
Disadvantages / risks
Types of Business Ownership
•
•
•
•
•
Sole Proprietorship
Partnership
Corporation
Cooperative
Franchise
Sole Proprietorship
• a business owned and operated by one
person.
• The owner is responsible for all
operations of the business AND
• assumes all the risks.
Sole Proprietorship
• this is the most common form of
business in Canada!!
Common Businesses that are Sole Proprietors
•
•
•
•
•
•
•
•
•
architects
artists
authors
baby-sitters
carpenters
computer specialists
construction consultants
digital designers
Web designers
•
•
•
•
•
•
•
•
•
•
ecotourism guides
engineers
environmental consultants
farmers
gardeners
industrial designers
inventors
photographers
researchers
song-writers
Sole Proprietorship
• WHY would a person want to
“Go it Alone” when opening a
business?
• What problems or issues might
arise because a person owns a
business ALONE?
• Why might it NOT be a good
idea to own it alone?
Sole Proprietor- Advantages
• Owner in direct control of decision
making - you are your OWN BOSS!!
• All profits to owner. Cha-Ching !!$$
• Tax advantages to owner (Ie. Writeoffs).
• Secrecy (Shhhh!!) of financial
information.
• Relatively low start-up costs; (Ex.
home-based businesses)
• Greatest freedom from regulation.
• Minimal working capital required.
Sole Proprietor - Disadvantages
• Unlimited liability
…DEBT…AWWWWW!!!!!!!!!
• Lack of continuity in absence of
owner;
• Difficulty raising capital.
• Costs & time commitment can be
high.
Unlimited liability….a closer look!!
• Owner is fully responsible for all
debts and obligations related to his
or her business.
• A creditor (those whom you owe
money to) with a claim has a right
against all of his or her assets.
• Business OR personal.
• Ex. Personal Savings, vehicles,
properties, home, equipment etc..
Expanding Your Knowledge p. 33
1. Define the term Collateral.
2. When would a person need collateral?
3. What kinds of things would be used as
collateral?
4. What collateral would a teenager possibly
have?
Partnership
• two or more people own and
operate the business together.
• Created by a written legal
document called a partnership
agreement.
• 2 types of partnership:
General partnership
Limited partnership
Partnership - General partnership
EACH PARTNER:
• shares the management of the
business.
• is personally liable for all the debts of
the business. (Unlimited liability)
• is responsible for and must assume
the consequences of the actions of
the other partner(s).
Partnership – Limited partnership
A LIMITED PARTNER:
• contributes only capital.
• takes no part in control or
management.
• is liable for debts to a
specified extent only or
original investment.
(limited liability)
Limited liability….a closer look!!
• all debts and obligations
related to the business are
“limited” to business assets
only.
• A partner’s risk is “limited” to
monies invested into the
business.
Partnership
• WHY would a person want to
“have a partner” when
opening a business?
• What problems or issues
might arise because more than
one person owns the
business?
• Why might it NOT be a good
idea to have a partner ?
Partnership - Advantages
• Partners co-own the business.
• They share responsibilities.
• They share time commitment.
• They may have greater financial
resources.
• They share business losses.
• Variety of skills and experience may
help the business to make more profit.
• Ease of formation.
• Relatively low start-up costs; (Ex.
home-based businesses)
Partnership - Disadvantages
• Partners have unlimited liability for all the
other partners.
• They may have conflicts.
• Profits are shared.
• Partnerships are more difficult to close
down than sole proprietorships.
• Lack of continuity;
• Difficulty raising additional capital
• Hard to find suitable partners
• Partners can legally bind each other
without prior approval
Corporations
• A corporation is a legal entity that exists
independently of its owners,
• its owners are called shareholders.
• Shareholders, the people who buy shares in a
company,are all part owners of the company.
• A corporation is identified by the terms
"Limited", "Ltd.", "Incorporated", "Inc.",
"Corporation", or "Corp.".
Corporations - Advantages
• Separate legal entity.
• The owners are
shareholders. They have
limited liability for the
debts.
• ownership is
transferable, therefore
continuous existence is
possible
• Ex. A corporation can
continue to exist after the
death of its owners.
• Corporations usually have
a lower tax rate than
private owners (possible
tax advantage).
• easier to raise capital.
(sell more shares!)
• Usually shareholders do
not operate the company.
They hire employees to do
so.
• specialized management
hired.
Corporations - Disadvantages
•
most expensive form to
organize;
•
double taxation of
dividends
•
share the profits, usually
small.
•
•
Possible development of
conflict between
shareholders and
executives.
Employees who are not
owners may not be
committed to the business.
•
Corporations have more
complicated structures (Ex.
Board of Directors)
•
Corporations must publish
annual reports, which could give
away important secrets to
competitors.
•
closely regulated and extensive
record keeping necessary;
•
The value of company shares
can change depending on
changes in the stock market.
Expanding Your Knowledge p. 36-40
1. Identify and briefly
describe the 4 types of
corporations.
2. Name 2 examples of
each type of corporation.
3. Describe or define:
Articles of Incorporation,
Merger, Acquisition
Co-operatives
• Co-operatives, also called co-ops, are businesses owned
and operated by a group of people with a strong common
interest.
• the members have a close association with the enterprise
as producers or consumers of its products or services,
or as its employees.
• The start-up costs are shared among the members of the
co-operative.
• Members own and control the business and make all
business decisions.
• There are different types of co-ops (farmers, financial
services, consumers…etc..)
Co-operatives – F.Y.I.
• Cooperatives are based on the values of self-help,
self-responsibility, democracy and equality.
• Membership is open, meaning that anyone who
satisfies certain conditions may join.
• Economic benefits are distributed proportionally.
• Cooperatives may be generally classified as either
consumer cooperatives or producer
cooperatives.
• Read p. 40 TEXT
Co-operatives – F.Y.I.
• Building cooperative - pool resources to build
housing, normally using a high proportion of their
own labour. When the building is finished, each
member is the sole owner of a homestead, and the
cooperative may be dissolved.
• Retailers' cooperative - employs economies of scale
on behalf of its members to get discounts from
manufacturers and to pool marketing. It is common
for locally-owned grocery stores, hardware stores
and pharmacies.
• Worker cooperative - owned and democratically
controlled by its "worker-owners".
Co-operatives – F.Y.I.
• Consumers' cooperative - is a
business owned by its customers.
“The CO-OP grocery store!!
• Agricultural cooperative - are both
marketing and supply
cooperatives. They promote and
may actually distribute specific
commodities as well as provide
inputs into the agricultural process.
• Cooperative banking (credit union)
provides a broader range of loan
and savings products at a much
cheaper cost to their members.
Co-operatives - Advantages
• Members help run the business and share in
financial decisions.
• Variety of different skills to run the business.
• Shared ownership = less risk than it would be for a
sole proprietor or a partner.
• Limited Liability to the amount of your share in the
capital of the co-op. (Ie. Membership fee or cost of
share).
Co-operatives - Advantages
• One person = one vote, no one person or group of
people can dominate business.
• High volume of business = more of the profits.
• Members receive favorable prices because they
buy goods in large quantities (bulk).
• Co-ops also control the sale and price of goods
produced by members. This helps members get the
best price.
Cooperatives - Disadvantages
• Difficulty raising additional funds to expand their
business.
• Having only one vote can be a disadvantage.
Members may not want to invest more money
• Decision-making can be difficult because of the
number of people involved.
• Commitment of the members may vary. Ex. Some
may have more money at stake or take the
business more seriously than others.
Franchise System
Franchise
Agreement
Franchisor
Franchisee
Franchise
• A franchise agreement is the written contract between
the franchise seller (franchisor) and buyer
(franchisee).
• A franchisor sells the rights to use the business name
and to sell a product or service in a given territory.
• The franchisee purchases the right to distribute the
products, use techniques (supplies & packaging), and
trademarks (name and logos etc.) of the franchise.
Franchise
• Advertising, training, and other support services are
commonly made available by the franchisor.
• Franchisee runs business by franchisor’s
rules/procedures.
• Franchisee buys materials from franchisor / approved
supplier.
• In return, the franchisor, receives a royalty fee based
on a percentage of gross monthly sales…
(even if the franchisee does NOT earn a profit!)
Franchise Contract
Franchisor, Inc.
Branded
Product/Service
Performance
Monitoring
$$$$$
Franchisee
Franchise - Advantages
• Franchisees buy a business with a good
reputation, well known name and products.
• Franchisors supply training and financial
knowledge.
• Franchisors usually provide packaging,
advertising, and equipment to the franchisee.
Franchise - Disadvantages
• Franchises can be expensive to buy.
• Franchisees may have to follow a lot of rules
laid down by the franchisors. No or limited
control.
• If a franchisor’s business fails, so will the
franchisee’s business.
http://ms.radio-canada.ca/archives_new/2006/en/wmv/td_mcdonalds19900131et1.wmv
http://archives.cbc.ca/on_this_day/01/31/12844/
Growth in Canadian Business
• The business environment constantly changes.
• To survive, people in business must be prepared to take
advantage of the opportunities that change offers.
Some of these changes include:
 advances in technologies, especially in information
technologies
 an increase in global business connections
 the growth of the small business and service sectors
 a greater emphasis on the natural environment
 a focus on business ethics and social responsibility
Technological Change –
The Technological Revolution!!!!!
New technologies change the way businesses :
 Produce goods,
 Buy goods,
 Sell goods and services,
 The way they communicate with each other,
 The way they obtain financial and other resources,
 Even the ways that people work and types of jobs.
 Not to mention creating a new forms of business existence.
The Information Age
• Competition among businesses is very fierce.
• One of the things that gives companies a
competitive edge is information.
• Information technologies, such as laptop and
palm-held computers and cellular phones,
give employees fast access to information.
The Information Age
• This information can help a business operate
efficiently and quickly. Examples:
– Track the movement of their shipments.
– Search the world to find the best quality and
price for production materials and other
resources.
– Internet based security.
– Financing and loans from any place.
Increased Globalization
• The information age and communication technology
have reduced the impact of the geographic barriers.
• Doing business internationally is called globalization.
• Globalization gives Canadian businesses the chance
to increase:
their customer markets.(+)
their profits.(+)
competition for markets. (-)
Growth of Small Business
A small business is one that is:
• independently operated
• not dominant in its field
• limits in terms of employees (< 50 employees, < 100
employees in the manufacturing sector)
• has limits in annual sales.
Growth of Small Business
A small business usually:
 started by entrepreneurs who saw a need or market
trend
 most often in the service sector
 owners tend to develop a close relationship with
their customers.
 Read top page 50.
Growth of Small Business – Home-based businesses
• small businesses are being
operated from homes.
• are considered the fastest growing
form of small business.
• have only one employee, the
owner.
• to reduce their operating expenses.
Growth of the Service Sector
• The most significant growth of small
businesses in Canada has been in the
service sector.
• One reason for this growth is that
Canadians have more money and less
time. (need others to do things for us).
• Example: The success of the Molly Maid
franchise happened largely because
people are willing to pay others to clean
their homes.
Growth of the Service Sector
• Another reason for the
service sector’s growth is
that fewer manufacturing
jobs are available.
• Canada has an aging
population, services that
are critical to the elderly,
such as health care, are
likely to be more in
demand.
Growing Concern for the Environment
• Worldwide concern for the
environment has had a
significant impact on the
way businesses are run.
• Among the concerns are:
– the depletion of the
ozone layer = global
warming.
– toxic waste in our water
systems.
– huge amounts of waste
and garbage.
Growing Concern for the Environment
• In 1999, the federal government passed the new
Canadian Environmental Protection Act,
focuses on:
– pollution prevention
– protection of the environment
– human health
in order to contribute to sustainable development.”
• Canadian businesses are required to incorporate
environmentally responsible policies in their normal
operations.
EXAMPLES
•
•
•
•
•
•
•
•
•
•
No CFC’s
CFL (Compact Florescent Lights)
Scrubbers for stacks
Minimum recyclable content
(paper)
Recycle cardboard, plastics,
aluminum and bottles.
Water meters
Phosphate-free detergents
Use of organics over chemical
fertilizers, herbicides and
pesticides.
Catalytic converters on vehicles.
Environmental risk assessmentswoods operations etc.
http://216.128.16.108/streamingmedia/NWNA-External.wmv
Business Ethics and Social Responsibility
• Ethics are standards of conduct that society believes
people should follow.
• socially responsible towards their employees, their
immediate community, and the wider global community.
• Social responsibility is the duty to care for others whose
actions can be affected in a damaging way.
• A major force for change during the last 100 years has
been the labour movement (unions).
• serious issues such as: dangerous working conditions,
lack of pensions or compensation for injured workers,
child labour, low pay, and long hours.
Some goals of socially responsible
businesses and citizens are:
 to end discrimination of women and minorities in terms of hiring,
promotion, salaries, and firing
 to halt the production and sale of weapons and land mines.
 to practice sustainable development and not to allow short-term
economic considerations to replace longer-term,
 to end white-collar crime (usually thefts by employees), which has
become more complicated in the age of Internet finance
 to ensure that the Canadian marketplace remains fair and
competitive by outlawing price fixing and bid rigging (secret
agreements among competitors to control prices)
 to eliminate from the global market place dangerous drugs
produced by pharmaceutical companies.
social responsibility – McDonald’s
http://www.youtube.com/watch?v=S_bgP3ASUM4