BMG100 Course 7

Course Overview

• Course Title: BMG100 Understanding Business and Society

• Instructor: Vincent Cloutier, MBA

• Institution: The Williams School of Business

• Term: Winter 2025

Today's Agenda

• Organizational Structures

Chapter 4: Organizational Structures

• Discusses various options for organizing a business

Learning Objectives

• Define and examine the Sole Proprietorship form of organization.

• Identify the types of Partnerships and evaluate their advantages and disadvantages.

• Describe the Corporate form of organization, citing its advantages and disadvantages.

• Define mergers, acquisitions, and leveraged buyouts.

Business Performance and Ownership in Canada

• Market Overview:

  • Approximately 2.3 to 2.5 million business establishments in Canada.

• Employer Businesses:

  • Nearly half of these are employer businesses.

• Indeterminate Businesses:

  • The other half consists of self-employed and contract workers.

• Geographic Distribution:

  • 2/3 of businesses are located in Ontario and Quebec; BC and Alberta account for the remaining 1/3.

Employer Business Statistics

• Size Distribution Among Employer Businesses:

  • 55% have 1 to 4 employees.

  • 43% have 5 to 99 employees.

  • Less than 2% have 100 to 499 employees.

  • Less than 0.5% of firms employ over 500 workers.

• Small and Medium-Sized Enterprises (SMEs):

  • SMEs defined as businesses with fewer than 500 employees.

  • Comprise roughly 98 to 99% of all businesses in Canada.

Impact of SMEs on Canada's Economy

1. Nearly 1.1 million SMEs exist in Canada.

2. Over half (55%) of SMEs have fewer than 4 employees.

3. Only 1.6% of SMEs are medium-sized enterprises.

4. Small businesses employed almost 69.7% of private sector workers in 2012.

5. From 2002 to 2012, small businesses created approximately 100,000 jobs per year, accounting for 77.7% of all private sector jobs created.

6. SMEs represented 54.2% of economic output in 2005.

7. 90% of exporting companies have fewer than 100 employees but account for 25% of export value.

8. The largest number of SMEs operate in wholesale trade and retail (18.8%).

9. Less than 25% of SMEs invest in R&D.

10. Only about 51% of new firms survive five years.

Forms of Business Ownership

• Types of ownership include:

  • Sole Proprietorship

  • Partnership

  • Corporation

  • Cooperative

Comparison of Business Ownership Forms

Sole Proprietorship

• Characteristics:

  • Owned by a single individual

  • Common in Canada, often employing fewer than 50 people.

Advantages of Sole Proprietorship

• Ease and cost of formation

• Secrecy

• Distribution and use of profits

• Flexibility and control

• Limited government regulation

• Simplicity in taxation

Disadvantages of Sole Proprietorship

• Unlimited liability for debts

• Limited sources of funds

• Limited skills and expertise

• Lack of continuity upon owner's death

Partnership

• Defined as an association of two or more individuals who co-own a business for profit.

• Types of Partnerships:

  • General Partnership

  • Limited Partnership

  • Limited Liability Partnership (LLP)

Partnership Agreement

• Legal document outlining the partnership's terms

Key Aspects of Partnership Agreement

• Name, purpose, location, and duration of the partnership

• Responsibilities and authority of each partner

• Contribution amounts, profit/loss distribution

Advantages of Partnership

• Ease of organization

• Combined skills and knowledge

• Access to capital and credit

Disadvantages of Partnership

• Unlimited liability for general partners

• Potential for disagreements

• Limited lifespan of the partnership

Keys to Success in Partnership

• Complementary skill sets among partners

• Importance of honesty and communication

• Possession of a formal dispute resolution mechanism

Shotgun Clause

• Clause allowing one partner to buy out the other partner's share.

Corporations

• Legal entities under provincial or federal law with separate liabilities and assets from owners.

• Ownership: Typically owned by shareholders.

Federal vs. Provincial Corporations

• Federal corps can operate across Canada; provincial are limited to their home province.

Articles of Incorporation

• Legal documents provided to the government outlining the corporation's information.

Types of Corporations

• Private Corporation: Owned by few individuals; closely managed.

• Public Corporation: Stock available to the public.

• IPO: When a private corporation goes public.

Elements of a Corporation

• Board of Directors: Oversees corporation operations.

  • Inside Directors: Employees of the corporation.

  • Outside Directors: Not affiliated executives of other corporations.

Advantages of Corporations

• Limited liability

• Easier transfer of ownership

• Perpetual life potential

Disadvantages of Corporations

• Double taxation on corporate income

• More complex to establish and maintain

Other Types of Business Ownership

• Joint Venture: Collaboration for a specific project.

• Cooperative: Member-owned organization for mutual benefit.

Trends in Business Ownership

• Mergers: Combination of two companies into a new entity.

• Acquisitions: One company buys another, potentially taking on debts.

• Leveraged Buyout (LBO): Acquisition using borrowed money secured by the assets of the acquired company.

Discussion Questions

1. Are all partnerships destined to fail? Why or why not?

2. Preference between partnership or sole proprietorship?

3. Recommended form of ownership for a friend's tutoring business?

4. Advantages and disadvantages of cooperatives?

To Do / Upcoming Events

• Kayak Business Simulation: Decision round at 3:30 PM, Feb. 5th

• Quiz #3 available until 5:00 PM, Feb. 4th

• Upcoming Chapters on Management (Feb. 3rd and 5th)