Introduction A business is always owned by someone. This can just be one person, or thousands....
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Introduction A business is always owned by someone. This can
just be one person, or thousands. Different businesses have different ownership and
organizational structures based on their needs. Survival is the main goal of businesses when they
start. Most businesses aim to make a profit for their
owners. Profits may not be the major objective, but in order to survive a business will need make a profit in the long term.
Exception is ‘not-for-profit’ organizations; e.g., a charity
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Types of Business Ownership
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What is a Sole Proprietorship?
A type of business where: The business is owned and operated by a single
person Most common form of business ownership, especially
for small businesses Owner has unlimited liability – if the business fails,
the owner could lose personal assets if the business owes money
Examples: Pet Panache, Coffee Cravings, Serendipity
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Unlimited Liability VERY important concept Business owner responsible for all debts of
business May have to sell own possessions to pay creditors
if the business fails
Sole proprietors may lose personal assets if their business fails
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Why Open a Sole Proprietorship?
Sole proprietorships often have success – why? Can offer specialist services to customers Can be sensitive to the needs of customers –
since they are closer to the customer and react more quickly
Can cater for the needs of local people – a small business in a local area can build up a following in the community due to trust
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What is a Partnership?A type of business where: The business is owned and operated by two or
more people Roles and responsibilities of partners are outlined
in a Partnership Agreement Owners have unlimited liability
Examples: Starlet; Madden, Sirman & Cowle (lawyers office)
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Unlimited Liability VERY important concept Business owners have to share responsibility for all
debts of business Partners may have to sell own possessions to pay
creditors (e.g. bank) – even IF your partner made the problem in the first place!
Partners may lose personal assets if their business fails
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Why Open a Partnership? Spreads the risk - people to share the burden of
debt Partner may bring money or resources to the
business Partner may bring other skills and ideas to the
business, complementing the work already done by the original partner
Increased credibility with potential customers and suppliers – who may see dealing with the business as less risky than trading with just a sole proprietorship
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What is a Franchise?A type of business where: A person can buy the right to use a business
name to sell their goods/services A franchise is already an established business
name
Examples: McDonald’s, Molly Maid, Tim Hortons, Sport Chek, Subway
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Opening a Franchise Franchisor – Person who SELLS the right to the
name and structure of the business Franchisee – Person who BUYS the rights to the
name and sets up the business Franchisee must invest – pay for start up costs
Covers the cost of franchise licence and setting up the business
Also must pay a proportion of their revenues – a franchise fee to the franchisor
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Advantages – Franchising Customer recognition Established brand name Easier to raise money from the bank to buy a
franchise Given necessary equipment to do job well Owners and employees receive training National advertising paid for by franchisor Possibly higher volume of sales
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Disadvantages – Franchising
Cost to buy franchise Have to pay a percentage of your revenue to
franchisor Cannot make as many decisions on your own –
most are made by franchisor Contract – must run business for a set time
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What is a Corporation? Type of business that is a separate legal ‘entity’ Most large businesses are corporations Can be public or private Public corporations are owned by shareholders Liability is limited (important!)
Examples: Wal-Mart, Royal Bank, Goodyear, Ford, GM, Sears
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Limited Liability Shareholders can only lose money they have
invested Corporation is a separate legal entity – you have
to sue the company, not the shareholders Limited liability means that they can only recover
money from existing assets of business (e.g selling equipment)
They cannot claim personal assets of shareholders to recover amounts owed by company
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Structure of a Corporation
Employees
Managers
Board of Directors
Shareholders/Owners
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Shares – Public Corporation Why buy shares?
Shares normally pay dividends = a share of profits Companies listed on a stock exchange usually pay
dividends twice each year Over time value of share may increase and so can be
sold for a profit (known as a “capital gain”) What’s the risk?
The price of shares can go down as well as up Company can reduce or eliminate its dividends Company fails and investor loses the money invested
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Disadvantages – Corporation
Costly and complicated to set up Financial information must be made public Value of company shares change Have to please shareholders Owners have small share of profit and no ‘say’ in
daily running of the business Employees may not feel important
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Advantages – Corporation Able to raise large amounts of money to grow
business Ownership is continuous and easily transfers to
different owners Not personally responsible for debts (limited
liability) Professional management team
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What is a Co-operative?A type of business where: The business is owned by its members Member’s needs are met with specific services,
often related to agriculture and financial services Each member has a single vote, regardless of how
much they have invested Examples:
Mountain Equipment Co-op (MEC), Kingston Community Credit Union
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Co-operativeAdvantages Owned and controlled by members Democratic control – one member, one vote policy Limited liabilityDisadvantages Longer decision-making process Members less likely to invest more Extensive record-keeping necessary to track
members
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Members pay a fee to join ($5)• They sell outdoor gear – clothing boots, tents,
climbing equipment, indoor sports • They have goods that can’t be found anywhere
else in Canada• They do not advertise – word of mouth• Some programs – e.g. outdoorgearswap.com
allows members to trade MEC does not make profit, but helps them with their environmentally friendly reputation
• Coop members elect board members who run company
• Coops do NOT pay income tax to government• Their profit goes back into company