Forms of Business Ownership and Organization Chapter 5

LO 5.1 Distinguish between small and large businesses. LO 5.2 Discuss the contributions of small businesses to the economy. LO 5.3 Discuss the survival rate of small businesses. LO 5.4 Describe the features of an effective business plan. LO 5.5 Describe funding opportunities for small businesses, including the role of Business Development Bank of Canada (BDC). LO 5.6 Explain how franchising provides opportunities for both franchisors and franchisees. Learning Objectives LO 5.7 Outline the three main legal forms of business ownership and summarize the features of not-for-profit organizations. LO 5.8 Describe public and collective (co-operative) business ownership. LO 5.9 Describe the ownership structure of corporations and the levels of corporate management. LO 5.10 Describe mergers, acquisitions, and joint ventures.

Approx. 97% of Canadian firms have fewer than 100 employees on staff. Canada has approx. 2.7 million self-employed individuals. Small businesses are a launching pad for entrepreneurs. Most Businesses are Small Businesses

Industry Canada defines a small business as an “independent business with fewer than 100 employees and revenues less than $2 million” Small businesses account for approximately two-thirds of the employment in five Canadian industries: non- institutional health care, construction, accommodation and food, forestry, and other services. What is a Small Business?

Distribution of Businesses

Home-Based Business Benefits Allows for more control of business Allows for more control of personal time Keeps start-up and operating expenses low Drawbacks Owner can feel isolated business has less visibility to customers Typical Small-Business Ventures

Create New Jobs Account for more than 29% of the GDP Offer Customized Services Create New Industries Encourage Innovation Contributions of Small Business to the Economy

Approx. 4 % of small businesses close after one year. Approx. 15% of small businesses close permanently within three years. Approx. 30% of small businesses fail within five years. Why Small Businesses Fail

Management Inexperience Inadequate Financing Meeting Government Regulations Why Small Business Fail

Creating a Business Plan Written documentation that provides orderly statement of goals, methods, and purpose Discusses the company’s mission and vision Analyzes unique advantage, customers, and competition The Business Plan: A Foundation for Success

The Business Development Bank of Canada (BDC) assists, counsels, and protects the interest of small businesses in Canada. In the U.S. the Small Business Administration (SBA) is the advocate and/or supporter for small businesses. Many small business resources are available at the websites of both organizations. Assistance for Small Businesses

When a bank loans money to a small business and it is not paid back, the government will guarantee payment of 85% of the loan if the loan applicant had successfully applied to the Canada Small Business Financing Program. Business Incubators Local community initiatives to share resources for small start-ups. The Canadian Association of Business Incubators is a national association of member organizations. Association of Canadian Business Incubation Assistance for Small Businesses

Approx. 50% of Canadian small- and medium- sized enterprises (SMEs) have at least one female owner. Women still face challenges: Smaller-scale operations Challenges finding investors Access to capital Small-Business Opportunities for Women

A contract-based business arrangement between a manufacturer or other supplier, and a dealer, to produce and market the supplier’s good or service. Links to franchising opportunities: Subway Entrepreneur Franchising

Franchising agreements exist between franchisee and franchisor. Canada has 76,000 individual franchise businesses operating under 900 different brand names. These franchises employ more than one million Canadians. More than $100 billion in sales each year Franchising overseas is a growing trend The Franchising Sector

ADVANTAGES Prior Performance Record Recognizable Company Name (Brand) Proven Business Model Tested Management Program Savings through Volume Purchases Benefits and Problems of Franchising DISADVANTAGES Franchise Fees Future Payments (Royalties) Linked to Reputation and Management Franchise Agreement Restrictions Tight Control

Forms of Private Business Ownership Sole Proprietorships A business ownership in which the sole proprietor’s status as an individual is not legally separate from his or her status as a business owner Partnerships An association of two or more persons who operate a business as co-owners by voluntary legal agreement Corporations A legal organization with assets and liabilities separate from the assets and liabilities of its owners Not-for-Profit Corporations Organizations whose goals do not include pursuing a profit

Public (Government) Ownership A government unit or agency owns and operates an organization. Examples: Manitoba Hydro, Toronto Transit Commission (TTC) Collective (Co-operative) Ownership The owners work together to operate all or part of the activities in their firm or industry. Examples: Vancity Credit Union, Mountain Equipment Co-op Public and Collective Ownership of Business

Most small businesses are incorporated in the provinces where they operate, but they may choose to incorporate in any province. Incorporation can be done at the federal or provincial level Information in the articles of incorporation (right) forms the basis on which a government grants a corporate charter Where and How Businesses Incorporate

Shareholders – acquire shares in exchange for ownership Preferred Shares Common Shares Board of Directors – elected by shareholders to oversee corporation Corporate Officers & Managers – make major corporate decisions and handle ongoing operations Corporate Management

Mergers and Acquisitions (M&A) Merger – combination of two or more firms to form one company Vertical Horizontal Conglomerate Acquisition – agreement in which one firm purchases the property and assumes the obligations of another Joint Venture – partnership between companies for a specific activity When Businesses Join Forces