Business Organization

2 Let’s Review Primary Industry Primary Industry Secondary Industry Secondary Industry Service Industry Service Industry

3 Forms of Business Organization Economic activity = firms Economic activity = firms Firms: Firms: Designed to achieve maximum profit by providing goods and services for which customers are willing/able to pay

4 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 economyIe.

5 Advantages Own boss Own boss Confidentiality Confidentiality Any others?

6 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)

7 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

8 The Partnership Limited partnership - limited partners - at least one general partner - 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

9 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

10 Disadvantages Progressive income tax Progressive income tax Not easy to sell share (approval) Not easy to sell share (approval) Right to but out retiree (no new partner) Right to but out retiree (no new partner) Investment funds only from within (personal savings/mortgages) Investment funds only from within (personal savings/mortgages) Disputes Disputes Legally terminates due to death, mental incapacitation, financially insolvent, breach of partnership Legally terminates due to death, mental incapacitation, financially insolvent, breach of partnership

11 Advantage or Disadvantage? Unlimited personal liability Unlimited personal liability Joint liability – all partners liable for debts Several liability – partner doesn’t pay? All other partners must pay debt

12 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 Established ONLY with gov’t authorization 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

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

14 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

15 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

16 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

17 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

18 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

19 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

20 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)