Chapter 5: Forms of Business Ownerships

Small Business

A independent business with 1-99 employees.

Medium-Sized Business

Has 100-499 employees.

Large Business

Has 500 or more employees.

ISED

Innovation, Science and Economic Development Canada

Micro-enterprises

A business defined as having 1-4 employees.

Sole Proprietorship

A business owned by one person.

Advantages of Sole Proprietorships:

1. Responsible for day-to-day activities.

2. Getting all income.

3. Not getting any special federal and provincial in come tax (it taxed as personal income).

Disadvantages of Sole Proprietorships:

1. Not having enough knowledge.

2. Discontinuation when gone.

3. Your own assists are liabilities.

Partnerships

A business owned jointly by two or more people.

Cooperatives

A legal entity with several corporate features, such as limited liability, an unlimited life span, an elected board of directors, and an administrative staff.

Buyer Cooperative

Combine groups that buy together to save money and get better deals (like in bulk).

Seller Cooperatives

Combine groups that sell together to get better prices, wider reach, and stronger marketing.

Ex.Farmers' co-op selling milk or cheese under one brand.

Principles of Cooperation

1. Open Membership - Anyone can join and use the cooperative's services.

2. Democratic Member Control - Members control and make decisions for the cooperative.

3. Members' Economic Participation - Members contribute equally to the cooperative's capital.

4. Autonomy - Cooperatives are self-managed by their members.

5. Education and Training - Cooperatives provide learning opportunities for members and elect leaders.

6. Cooperation Among Cooperatives - Cooperatives support each other by working together.

7. Concern for Community - Decisions consider local development and community well-being.

Corporation

A business owned by stockholders who share in its profits but are not personally responsible for its debts.

Stock

A share of ownership in a corporation.

Benefits of Corperation:

-Limited liability

-Greater access to to financial resources (selling stocks, bank loans, advantage against other companies)

-Continuity & Transferability

Cons of Cooperations:

1. Separation of ownership and management - Managers may not own stock, and shareholders may not work for the company.

2. Agency problem - Conflicts of interest can arise between managers and shareholders.

3. High startup costs - Incorporating can cost $1,000-$6,000+ in fees.

4. Regulations and oversight - Corporations face more government rules than small businesses.

5. Double taxation - Corporations pay taxes on earnings, and shareholders pay taxes on dividends.

Limited Liability Companies (LLC)

A business that protects its owners from personal financial risk while allowing flexible management and simpler taxes.

Ex. A small bakery or tech startup that wants protection from personal liability but doesn't want the strict rules of a corporation.

Key Features of LLC:

1. Limited liability - Owners (called members) aren't personally responsible for the company's debts. Their personal assets are usually protected.

2. Flexible management - Members can manage the business themselves, or they can hire managers.

3. Pass-through taxation - Profits and losses can pass through to members' personal taxes, avoiding the double taxation that corporations face.

4. Fewer formalities - LLCs are easier to set up and maintain than corporations.

Non-Profit Organizations

An organization formed to serve some public purpose rather than for financial gain.