Forms of Business Ownership Futures/Start

5 Forms of Business Ownership Sole Proprietor Partnership Corporation Franchise Cooperative

Sole Proprietorship A business that is owned and operated by one person

Sole Proprietorship Advantages Disadvantages Simple to start/little cost http://www.companiesoffice.gov.mb.ca/forms.html#business Unlimited liability: Owner assumes responsibility for paying all debts/liabilities Makes all decisions Difficult to raise funds Keeps all profits Responsible for all functions of the business (“Jack of all trades, master of none” Satisfaction of being one’s own boss Limited life of the business Easy to dissolve  

Partnership two or more people jointly share in the ownership and operation of a business written contract/ agreement written agreement partnership agreement http://www.legaldeeds.com/Interface/Services/incorporation/Canada/partnership_agreement/partnership_agreement.html Limited partners (“Silent” Partners): Just an investor; only liable to the extent of their capital investment in the company Cannot participate in managing the company and may not withdraw the invested capital during the term of the partnership

Partnership Advantages Disadvantages Unlimited liability: Simple to start/little cost Unlimited liability: Owner assumes responsibility for paying all debts/liabilities Greater access to funds Disagreements Greater expertise (different areas of knowledge) Difficult to dissolve

Corporation legal entity (body) that exists independent of its owners Some business start off small and grow to be very large demanding a sizable investment in land, buildings and equipmentform a corporation When a corporation wants to raise money for expansion or growthsell shares/stock to public to raise money owners of a corporation shareholders

Corporation Organizational Chart

Stock Certificates

Shareholder Responsibility meet at least once a year to vote and elect a Board of Directors each shareholder is allowed one vote for each share owned One share equals one vote 2000 shares equals 2000 votes

Profits of a Corporation Profits of a corporation belong to shareholders some of profit might be used to expand business (e.g., buy new equipment) and/or Profit is given to shareholderscalled dividends The amount of the “dividend per share” is determined by Profit to be paid out No. of shares held (dividing the amount of profit to be paid out by the number of shares held by shareholders)

Profits/Dividends cont’d Example: If a company paid out $250 000 of profit and there were 125 000 shares, each share would have a dividend value of $2. $250 000 profit = $2/per share 125 000 shares (the owner of one share would receive $2, the owner of 2000 shares would receive $4 000)

Corporation 2 main types of Corporations: 1) Public Corporation: shares can be sold to the public (traded on the stock exchange) 2) Crown Corporation: owned by federal, provincial, or municipal governments (e.g., the Mint, Canada Post)

Corporation Set-Up How is a corporation started? Articles of incorporation: document that is drawn up and filed with the government Becomes company’s charter (rules that govern company’s operations)

Corporation – Advantages/Disadvantages Limited liability: if the business fails, creditors take only the $ that the shareholder has invested (no personal property) [e.g., Mira’s Wedding Supplies Ltd.Ltd. Stands for “limited:”] Complicated to start – very expensive (lawyers, government fees) Continuous life – the business will not cease because one owner dies Government regulation Easy transfer of ownership: shareholders buy and sell shares without “company’s” permission Little secrecy – documents (e.g., income statements) published and available to the public (if company is doing poorly, everyone knows it) Ability to acquire funding: issue and sell shares to acquire money High Taxes: pays taxes as a business and then pays profits (dividends) to shareholders which are then taxed again ”Double Taxation” Specialized staff – larger staff with a variety of skills

Quick Quiz… What’s in Common? Tim Horton’s Robin’s Donuts A & W Restaurants Nutrilawn Cinnebon Harvey’s Island Ink Jet Subway Extreme Pita Sangster’s Health Food Stores

Franchise A business which licenses the right to sell the company’s goods or services in a specific area Franchisor: “home office”the parent business that supplies the products/services to the individual franchise Franchisee: An individual owner of a franchise that sells the franchisor’s products or services to the public

Top 2010 Franchises Subway $84,300 - $258,300 McDonald's $995,900 - $1,842,700 7-Eleven Inc. $40,500 - $775,300 Hampton Inn/Hampton Inn & Suites $3,716,000 - $13,148,800 Supercuts $111,000 - $239,700 H & R Block $26,427 - $84,094 Dunkin' Donuts $537,750 - $1,765,300 Jani-King $11,400 - $35,050 Servpro $102,250 - $161,150 ampm Mini Market $1,835,823 - $7,615,065

Franchise – Advantages/Disadvantages Expertise in doing business: franchisor supplies franchisee with easy-to-follow instructions”turn-key” operation Expensive (initial fees, monthly/annual fees): initial fees very high; franchisee may pay operating fees, royalty fees, and advertising fees to franchisor Training: all franchisees receive same training Lack of Control: franchisee cannot make independent decisions about products; loses advantage of being own boss Established Name Recognition: reputation of a known name Image Problems: if other franchise stores do not maintain standards, may influence your store Equipment, Packaging and Advertising: franchisor provides all to franchisee Protected Territory: franchisor agree not to set up another franchise within a certain areano direct competition

Co-operatives Members own and control the business and make all business decisions Examples: Co-op Gas, Credit Unions, farmers Regardless of the number of shares the member owns, each member only has one vote

Co-operatives cont’d Profits are paid to shareholders based on volume of business (purchases) that they have made Example: Total Sales of a Business = $40 000 Ima Owner bought goods = $ 1 000 Profit of company = $15 000 To calculate dividends paid to members: Sales to member x Profit Total Sales 1000 x 15 000 = $ 375 40 000 Called a Patronage Refund

Co-operatives – Advantages/Disadvantages Members own and control the business Difficult to raise additional funds – some people are reluctant to invest in a co-operative because they have only the same amount of control over the business over someone who has invested much less Each member only gets one voteno one person or group of people can dominate the co-operative Decision making – number of people involved Profits paid to members (the more business they do, the more they get back in the form of a patronage refund) Favourable prices because goods bought in large quantities