Business Test #2

Forms of Business Ownership

Forms of Business Ownership

1. Sole proprietorship

2. Partnership

3. Corporations

4. Co-operatives

5. Franchises (are a hybrid of any of the following forms)

Sole Proprietorship

A business owned by one person who is considered the proprietor. They have many responsibilities and need to fill various roles in order for success.

Advantages of a Sole Proprietorship

• If the business prospers, the owner receives all of the profits.

• Your the boss

• Maximum privacy

• Establishing it is simpler compared to the other forms

Disadvantages of Sole Proprietorship

• Funds to run the business usually come from the owner’s savings, friends, family, or from a bank loan

• If the business does poorly, the owner is responsible for its losses. This is called unlimited liability.

• There's no legal distinction between private and business assets

• All the responsibility for making day-to-day business decisions

• Retaining high-calibre employees can be difficult

Partnership

• A partnership refers to a type of business in which two or more individuals share the costs and responsibilities of owning and operating it.

• The terms of the partnership are recorded in the partnership agreement

• The most common form of partnership is a general partnership (unlimited liability)

• When two individuals form a limited partnership, the partners are only responsible for the funds they both invested in the initial business.This is called limited liability.

Advantages of Partnership

• shared responsibilities and risks

• access to more resources and expertise,

• increased flexibility

• potential tax benefits

• more range of ideas

Disadvantages of Partnership

• Unlimited liability: Partners are personally liable for the debts and obligations of the partnership, which means their personal assets can be used to pay off business debts.

• Shared profits: Profits must be shared among partners, which can lead to disagreements over how much each partner should receive.

• Decision-making: Partners must agree on all major business decisions, which can be time-consuming and lead to conflicts.

• Limited life: A partnership may dissolve if one partner leaves or dies, which can disrupt the business.

Corporation

A corporation is a business granted legal status with rights, privileges, and liabilities that are distinct from those of the people who work for the business

Corporations can be small such as a one-person business or large such as a multinational that conducts business in several different countries

A publicly traded corporation that makes a profit may pay out dividends to shareholders.

Publicly Traded

Once shares are sold

Divedend

the part of a corporations profit after taxes that each shareholder receives

Stocks/Shares

Small portions of corporate ownership that are owned publicly

Shareholders

Individuals who own shares of a corporation and become owners of the business. They have limited liability.

Board of Directors

A board of directors runs a corporation that is owned by shareholders. The board is elected by the stockholders and is the highest authority in the management of the corporation.

Types of Corporations

Private

Public

Crown

Municipal

Private Corporation

Only a few people control all the shares, or stock, and therefore, the business.

Shares are not listed for sale on a stock exchange or trading market where stocks are bought and sold

EX: Ikea

Public Corporations

Raises money by making shares available to thousands of people through selling shares on the stock market.

These individuals become the owners of the business.

People with only a few shares of stock have little influence on a company’s policies

EX: McDonalds, Netflix, Amazon

Crown Corporations

Operated by the provincial or federal government

EX: CBC, Via Rail, Canada Post

Municipal Corporations

The formal name of a city or town, to provide services to the local citizens

Examples: The Town of Oakville, The Regional municipality of Halton

Co-operatives

• Is a business owned by the workers or members who buy the products or use the services that the business offers.

• This type of business is motivated by service and not profit.

• Unlike a corporation, however, each member has only one vote, regardless of the number of shares owned

• EX: Mountain Equipment Co-Op, Farmers Co-Op

Franchises

In a franchise operation, one business, the franchiser, licenses the rights to its name, operating procedure, designs, and business expertise to another business, the franchisee

EX: Booster Juice, Dunkin Donuts, Subway, Thai Express, Pizza Pizza

Franchise Agreement

A franchise agreement can provide the franchisee with a ready made, fully operational business (turn key) and brand recognition that is appealing to consumers

Franchise Requirements

• paying the franchise fee

• agreeing to pay a monthly percentage fee as well as any national or local advertising costs

• purchasing all supplies centrally from the franchiser

• participating in franchiser standards training

Why Start a Business?

People who desire to be the boss and take responsibility for making decisions often decide to run their own business.

What Different Types of Businesses Are There?

Retail Business

Manufacturing Business

Service Business

Not-for-Profit Business

What Are Your Skills and Interests?

Different ideas, skills, and knowledge can be used to start a new business. Two popular ones are home-based or Web-based businesses

Home Based

Technology has changed how SOHO (“small office, homebased office”) businesses operate. Computers, scanners, and Internet access are a few of the tools that home office businesses use today to be successful

Web-Based

E-commerce (“electronic commerce”) is a marketplace where consumers and sellers meet without face-to-face contact. • In the “real world,” products are tangible. Products and services are sold to us by personal contact with the sellers. • In cyberspace or online, we do not interact with products or come face-to-face with the sellers. Our experience with services is limited or non-existent. • Consumers are often reluctant to purchase online due to unreliable or dishonest businesses and privacy issues.

Where Can You Find Information About a Business?

Businesses require accurate and current information to make good decisions. Important resources to find information include:

Libraries • trade associations • Internet – business news media websites • Existing businesses • federal and provincial governments • Statistics Canada

What are the start-up Costs?

Capital resources to run a business are available through debt financing referred to as borrowing money to run the business. • Using your savings or investor savings called equity financing is an alternative way to fund a business.

What Level of Risk Can You Expect? Even with research and planning, business can

Even with research and planning, business can be risky. Risks or threats beyond and within the owner’s control can put the business in financial difficulty.

What Steps Are Involved in Running this Business?

Some types of businesses, such as manufacturing, are complex. A complex business requires many people with different skills to successfully start and operate it

What Resources Will You Need?

Forecasting is determining the resources the business requires and how much financing it needs to obtain them. It is an attempt to minimize the risk factor when starting a business. Determining which resources are necessary and the type of financing needed to acquire them is part of forecasting.

Revenue is the amount of money gained from the sale of products or services. •REVENUE – (Costs + Expenses) = PROFIT

International Business Structure

• Joint Ventures

• International Franchises

• Strategic Alliances

• Mergers

• Offshoring

• Multinational Corporations

Joint Ventures

Two or more business owners form a (usually temporary) partnership for a project that will benefit both parties.

A joint venture can match the skills and expertise of two different individuals or businesses to generate more benefits for both parties.

International Franchises

An international franchise is a way to achieve an international presence by buying the rights to a chain operation from the franchiser

Strategic Alliances

Strategic alliances occur when two or more businesses agree to commit particular resources to achieve a common set of objectives.

Alliance partners remain separate and entirely independent of each other.

Usually makes sense when the parties involved have complementary strengths

Mergers

Mergers happen when two or more companies join together.

One of the businesses usually wants to purchase a controlling interest in the other company, or both business have combined interests.

Offshoring

• Offshoring relocates some of a company’s operations to another country.

• Usually this happens to take advantage of:

lower labour costs, • to be closer to large and emerging buyer markets • to have access to skilled workforces.

Multinational Corporations

A business enterprise that conducts business in another country or several different countries is a multinational corporation.

A multinational corporation offers different benefits to the country it invests in.

• Some positive benefits include new jobs and training for people. • Negative consequences could be less pay and more financial instability for citizens of that country.