1. Business Organization

2. 2 Forms of Business Organization A group that engages in economic activity (wealth exchanged for goods or services) is called a “firm.” A group that engages in economic activity (wealth exchanged for goods or services) is called a “firm.” Firms: Firms: Designed to achieve maximum profit by providing goods and services for which customers are willing/able to pay

3. 3 Sole Proprietorship Business owned and operated by one person Business owned and operated by one person Solely responsible for profits or debts Solely responsible for profits or debts Very common in Canadian economy Very common in Canadian economy Ie. Small businesses owned by one person

4. 4 Advantages You are your own boss You are your own boss You have more ability to keep your business dealings, financial affairs and production processes confidential. You have more ability to keep your business dealings, financial affairs and production processes confidential. Any others?

5. 5 Disadvantages Unlimited personal liability Unlimited personal liability - proprietor’s personal assets can be seized to pay outstanding debts No one else to rely on for funds/run business No one else to rely on for funds/run business Difficult & expensive to obtain loans Difficult & expensive to obtain loans Progressive income tax ( income = tax) Progressive income tax ( income = tax)

6. 6 The Partnership Owned by 2 or more Owned by 2 or more Bound by a partnership agreement Bound by a partnership agreement - no one set form - outlines rights and responsibilities General Partnership - All partners participate in management - Unlimited personal liability for business losses

7. 7 The Partnership Limited partnership - Still at least one general partner - Limited partners are: - Not permitted to take part in management - Personally liable for debts only up to their initial investment - No additional personal assets can be seized Ie. Law firm, architects, accountants

8. 8 Advantages Pooling of talent & capital Pooling of talent & capital Personal motivation & satisfaction Personal motivation & satisfaction Attracts capital Attracts capital Obtaining credit is easier & interest rate Obtaining credit is easier & interest rate

9. 9 Disadvantages Progressive income tax Progressive income tax Not easy to sell share (usually require approval) Not easy to sell share (usually require approval) Right to but out retiree (no new partner) Right to but out retiree (no new partner) Investment funds can only come from within (personal savings/mortgages) Investment funds can only come from within (personal savings/mortgages) Disputes are likely when you have more than one general partner. Disputes are likely when you have more than one general partner. Legally terminates due to death, mental incapacitation, financially insolvent, breach of partnership Legally terminates due to death, mental incapacitation, financially insolvent, breach of partnership

10. 10 Advantage or Disadvantage? Unlimited personal liability for General Partners Unlimited personal liability for General Partners Joint liability – all partners liable for debts. If someone doesn’t pay, however, their debts still exist and must be divided among the other partners. This is called “Several liability”

11. 11 The Corporation Public (shares traded freely) or private (shares traded only with approval) Public (shares traded freely) or private (shares traded only with approval) Established ONLY with gov’t authorization (why do you think that is?) Established ONLY with gov’t authorization (why do you think that is?) Shares = corporate assets, equal Shares = corporate assets, equal Sold – stockbroker, stock market Sold – stockbroker, stock market Owners – shareholder (few – 1000’s) = $ Owners – shareholder (few – 1000’s) = $ Oldest – Hudson’s Bay Company

12. 12 The Corporation Common shares - Shareholder has voting rights Preferred shares - Preferential position for profits and assets - No voting rights Vote = in person or proxy

13. 13 Advantages Profit distribution Profit distribution Re-invest into firm = self financing = $ Re-invest into firm = self financing = $ Dividends –$ not reinvested shareholders Dividends –$ not reinvested shareholders - per share basis, Preferred, Common - per share basis, Preferred, Common Obligations responsibility of corp Obligations responsibility of corp Limited personal liability (investment) Limited personal liability (investment) investors = large scale investors = large scale Shares transfer Shares transfer Lower income tax Lower income tax

14. 14 Disadvantages Gov’t fee much Gov’t fee much Closely regulated by gov’t Closely regulated by gov’t - books (all aspects), annual meetings, financial statements & tax returns - books (all aspects), annual meetings, financial statements & tax returns  Privacy? (competition)  control

15. 15 The Co-operative Enterprise Equally owned Equally owned Must have common goal Must have common goal Retail Cooperative – provide goods at reduced price Financial Cooperative – arrange savings & loans at better rates than banks Service Cooperatives – provides housing, medical insurance & equipment rentals Popular in Western and rural Eastern Canada

16. 16 Each member has a single vote & majority wins Each member has a single vote & majority wins Board of Directors (annual) Board of Directors (annual) Roles are voluntarily Roles are voluntarily Ie. Credit Unions

17. 17 Advantages One vote = equal say One vote = equal say Obtain and sell goods at a better price Obtain and sell goods at a better price Limited personal liability Limited personal liability Patronage return – profit based upon amount of business transacted by each individual 1% of goods sold = 1% of profit

18. 18 Disadvantages Decision making – equal say & different ideas Decision making – equal say & different ideas Unpaid positions discourage many Unpaid positions discourage many Investment funds only from members = less capital when needed Investment funds only from members = less capital when needed Business only with existing members = limited customers & business volume Business only with existing members = limited customers & business volume Serve members NOT profit Serve members NOT profit

19. 19 The Government Enterprise Owned by federal, provincial or municipal Owned by federal, provincial or municipal Provide services that are costly Provide services that are costly Set up to standardize services & jobs Set up to standardize services & jobs Crown corporations – gov’t not person holds all/most shares Ie. Canada Post, the CBC, Via Rail, Hydro One (ON)