Business Organization and Finance

What is a Sole Proprietorship ?

• A form of business organization where one person owns and operates the business

How do they rank ?

• There are more sole Proprietorships than any other type business in Canada

How are they regulated ?

• Each province has its own regulations concerning these types of businesses.

Who makes the decisions?

• The person who has the business makes all of the production decisions. They also establish prices, whom to hire, provide the capital necessary, and collect all of the profits.

Financial risks

• Liable for the entire business from an economic perspective.

• They have to shoulder all financial rewards, as well as losses (unlimited liability)

• Could also lose their personal property.

• Difficult to sell the business.

Non ability to govern

• A new proprietorship has to be formed

• New ends with the person going to jail, sickness, death..etc.

Professions

• Accounting• Dentistry• Farming• General Stores• Restaurants

Partnership

• Business organization in which two or more individuals enter a business as owners and share property.

• Oral or written agreement between people

Advantages of a Partnership

• It can raise more capital than SP• Divided responsibilities• Shared expertise• Business can continue to run even

if a partner is sick.

Disadvantages

• Difficulty to reach agreements on certain issues such as salaries, Profits and losses, How/who to admit in the firm,

• Each partner has unlimited liability

Corporation

• Form of business that has an existence of its own separate from those who created or own it.

Types

• Crown• Business

Crown Corporation

• Owned and controlled by some level of government.

CBC, Hydro-Quebec

Business Corporations

• Companies owned by private individuals

Loblaw's, Irving

Rights held by Corporations

• Legal Personality• Hold property, enter in contracts,

sue in court, and be sued.

How to establish

• Canadian Business Corporation…for establishing a business that operates between provinces

• Provincial Incorporation…businesses operates in one province.

Advantage

• Limited Liability….the person who invest in a corporation is not solely responsible for all of the debts, but only what they invested. (value)

Raising funds/capital

• Retain earnings of the corporation• Issuing securities

Securities

• Used to raise funds for companies

Major Securities

• Common Shares- Part owner of a company. Purchased according to the value of a share

• Preferred Shares- stocks issues by a corporation that shows ownership of the company.

• Bonds-written promise to pay a stated sum of money at some time in the future. You are not an owner but a creditor.

Control of the corporation

• Shareholders control the corporation• Board of directors control the company

and make all of the decisions. Each share holder votes for the members of the BOD.

• A chairperson is elected by the BOID

More Advantages

• Last a long time• Large amounts of Capital

Disadvantages

• Costly to set up: The start-up and administration fees are high because of the need to obtain charters and print shares and to appoint a board of directors and corporate officials.

• Impersonal character of management: In large corporations, employees may not have a high level of commitment to the company and work may be depersonalized.

• Double taxation: Corporations pay corporate taxes on their profits and the shareholders pay taxes on their dividends.

• BOD may be a highly selfish group that makes decisions in their own interest