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Forms of business ownership EASE OF STARTING YOUR OWN BUSINESS.

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Presentation on theme: "Forms of business ownership EASE OF STARTING YOUR OWN BUSINESS."— Presentation transcript:

1 Forms of business ownership EASE OF STARTING YOUR OWN BUSINESS

2 Basic forms of business ownership  1. Sole proprietorship  You are the sole owner of the business  Subject to all liability – the responsibility to pay all normal debts and also to pay  A. because of a court order  B. because of law  C. due to contracts  D. for damages to a person or property in an accident

3 Sole Proprietor  Unlimited liability – Whereby all of the debts of the business must be shouldered by you  Advantages:  Relatively easy to start a business  Being your own boss  Retain all company profits  No special taxes; business losses can be claimed against income

4 Sole Proprietor  Disadvantages:  Limited financial resources  Management difficulties – you can’t be good at everything  Overwhelming time commitment  Few to no benefits  Slow growth/expansion

5 2. Partnerships  Two or more people legally agreeing to be co-owners of a business  A. General partnership – all owners share in operating the business and in assuming liability for the business  B. Limited partnership – has one or more general partner and one or more limited partner  General partner – has unlimited liability and is active in managing the firm  Limited partner – invests money but does not have any management responsibilities or liability

6 2. Partnerships  Advantages:  More financial resources  Shared management and complementary skills  Shared risk  No special taxes  Disadvantages:  Unlimited liability  Division of profits  Difficult to end the business  Disagreement amongst partners

7 3. Corporations  Incorporating is the act of creating a corporation  These are federally or provincially chartered legal entities with authority to act and have liability separate from its owners  Investors/shareholders are not liable to any debts beyond what they invested  Allows many people/parties to share in ownership

8 3. Corporations  A. Public Corporations - Have the right to issue stocks to the public thus raising a lot of capital - Can be small or large companies

9 3. Corporations  B. Private corporation - Not allowed to issue stocks to the public - Regulations permit 50 or less shareholders - Good for when substantial capital is no required

10 3. Corporations General advantages: - limited liability - ability to raise large sums of money for investment - perpetual life: if a shareholder dies, the corporation stays - ease of ownership change

11 3. Corporations General disadvantages: - Initial cost: incorporating requires many lawyers, accountants, and other services - extensive paperwork: detailed financial records, meeting minutes and more are required - Double taxation: income the corporation makes is taxed. Then dividends given to shareholders is taxed again - Internal conflicts: disagreements between shareholders or board members

12 Progress assessment - Questions  1. Would you be a sole proprietor? Or have a partnership? Give 3 reasons to support your decision  2. Why would unlimited liability be considered a major drawback of sole proprietorship?  3. What is the difference between a limited partner and a general partner?  4. What are the advantages and disadvantages of incorporating?  5. If you are a shareholder of a corporation, can you be sued for someone who was severely injured by their product? Why or why not?

13 3. Corporations  Corporate Governance – policies that stipulate how an organization interacts with stakeholders  Board of directors – in general, govern management decisions and operations

14 Business Regulations  Registration – required by the government so that they can keep track of businesses that are in operation  Articles of incorporation – legal authorization from the federal or provincial governments for a company to become a corporation  Reporting and Information – Filing annual reports to the government, and receiving information from the government

15 Corporate Expansion  1. Mergers – two separate entities forming a single company  A. Vertical merger – Joining of 2 forms that are involved in different stages of a related business  Ex: Coca cola merging with a artificial sweetening company. Or a bottling company  B. Horizontal merger – joining of 2 firms in the same industry and allows them to diversify or expand their products  Ex: Coca cola merging with a mineral water company

16 Corporate Expansion  C. Conglomerate merger – multiple firms of unrelated industries to diversify business operations and investments.  Ex: Coca cola and Lays

17 Corporate Expansion  2. Acquisition – when one company purchases another. Taking up their property and obligations  Leveraged buyout (“Taking the company private”) – When employees of a company buy all the shares and own the company  3. Franchising – Selling someone else the right to sell/provide your product/service  Ex: La Poire

18 3. Franchising  Advantages:  Management and marketing assistance  Personal ownership  Nationally recognized name  Lower failure rate

19 3. Franchising  Disadvantages:  Large start-up cost  Shared profit  Management regulation  Coattail effects

20 4. Co-Operatives  An organization owned by members and customers who pay an annual fee (usually).  Interest lie in the common needs of members  One vote/member vs one vote/shareholder  Profits (“dividends”) are distributed among members on the basis of how much they use the co-op; not how many shares they hold  Not subject to income tax!

21 Question/Assignment sheet  Complete, and hand in  Use your textbook to help you

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