Transcript Chapter 2

Chapter 5
FORMS OF BUSINESS OWNERSHIP
Prepared by
Norm Althouse
University of Calgary
Copyright © 2011 by Nelson Education Ltd.
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LEARNING OUTCOMES
1 Discuss the advantages and disadvantages of the sole proprietorship form
of business organization.
2 Describe the advantages of operating as a partnership, and what downside
risks partners should consider.
3 Explain how the corporate structure provides advantages and
disadvantages to a company, and identify a special type of corporation.
4 Review some of the other business organization options in addition to sole
proprietorships, partnerships, and corporations.
5 Identify when franchising is an appropriate business form, and why it is
growing in importance.
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6 Understand why mergers and acquisitions can be important to a company’s
overall growth.
7 List some of the current trends that may affect the business organizations
of the future.
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Business Ownership
Financing?
Employees?
Expenses?
Liabilities?
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Operating control?
Ownership?
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SOLE PROPRIETORSHIPS
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Sole
Proprietorship
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A business that is
established, owned,
operated, and
often financed by
one person.
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SOLE PROPRIETORSHIPS
Advantages
 Easy and inexpensive
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to form
Profits go to the owner
Direct control of the business
Relative freedom from
government regulations
No corporate taxation
Ease of dissolution
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Disadvantages
 Unlimited liability
 Difficulty in raising capital
 Limited managerial expertise
 Trouble finding qualified
employees
 Personal time commitment
 Unstable business life
 Losses are owner’s responsibility
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PARTNERSHIPS
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Partnership
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An association of
two or more individuals
who agree to operate
a business together
for profit.
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Common Types of Partnerships
General
Partnership
Limited
Partnership
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Limited Liability
Partnership
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Partners share in the
mangement and profits
One of more general
partners, and one or more
limited partners whose
liability is limited to
their investment
Each individual partner is
protected from the
responsibility for the
acts of other partners
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PARTNERSHIPS
Advantages
Disadvantages
 Ease of formation
 Availability of capital
 Unlimited liability
 Diversity of skills and expertise
 Potential for conflicts between
 Flexibility
partners
 Complexity of sharing of profits
 Difficulty exiting or dissolving
 No special taxes (corporate)
 Relative freedom from
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government control
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CORPORATIONS
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Corporation
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A legal entity with an
existence and life separate
from its owners,
who are not
personally liable for
the entity’s debts
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Common Types of Corporations
Public
Corporation
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Private
Corporation
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A corporation whose
shares are widely held
and available to the
general public
Shares are not traded
publicly and therefore
not available to the
general public
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The Incorporation Process
Select company’s name
Write articles of incorporation
Pay required fees and taxes
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Hold organizational meeting
Adopt bylaws, elect directors,
pass operating resolutions
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Chapter 5
Articles of Incorporation
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The Corporate Structure
Shareholders
Elect
Directors
Hire
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Officers
President
VP
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Treasurer Secretary
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Corporations
Advantages
 Limited liability
 Double taxation of profits
 Ease of transferring ownership
 Cost and complexity of formation
 Unlimited life
 More government restrictions
 Ability to attract
 Business losses cannot be written
financing
 Ability to attract employees
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Disadvantages
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off against the other income of
the owners of the company
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One-Person Corporation
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A corporation with only one person as
a shareholder; common in
professional practices
(e.g., medical doctors, accountants, lawyers, etc.)
and trades (e.g., plumbers, electricians, etc.)
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Crown Corporation
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A corporation that is owned either by
a provincial government or the federal government
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Cooperatives
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Cooperatives
Legal entities formed by
people with similar
interests, to reduce costs
and gain economic power
Purpose
Primary focus is to meet the
common need of the members
Control
Structure
One member – one vote system
Allocation of
Profit
Based on how much they use
the cooperative
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Joint Venture
Chapter 5
Joint Venture
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Two or more companies
that form an alliance
to pursue a specific
project for a specified
time period
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Franchising
Chapter 5
Franchising
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A form of business organization
based on a business arrangement
between a franchisor, which
supplies the product concept and
the franchisee, who sells the goods
or services of the franchisor in a
certain geographic area
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Franchises
Advantages
Disadvantages
 Increased ability for franchisor
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to expand
 Recognized name, product,
and operating concept
 Management training and
assistance
 Financial assistance
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 Loss of control
 Cost of franchising
 Restricted operating freedom
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Chapter 5
Top 10 Franchises for 2010
1
Subway
Submarine sandwiches & salads
2
McDonald's
Hamburgers, chicken, salads
3
7-Eleven Inc.
Convenience store
4
Hampton Inn
Mid-priced hotels
5
Supercuts
Hair salon
6
H & R Block
Tax preparation & electronic filing
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Dunkin' Donuts
Coffee, doughnuts, baked goods
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Jani-King
Commercial cleaning
9
Servpro
Insurance/disaster restoration & cleaning
10
ampm Mini Market
Convenience store & gas station
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Chapter 5
MERGERS AND ACQUISITIONS
Merger
The combination of two
or more firms to form
a new company,
which often takes on a
new corporate identity.
Acquisition
The purchase of a
corporation by another
corporation or
investor group.
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Types of Mergers
 Horizontal merger
– same industry, same stage of production
 Vertical merger
– Same industry, different stages of production
 Conglomerate merger
– different industries
 Leveraged buyout
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– Corporate takeover with borrowed money
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Trends in Business Ownership
Baby Boomers Drive Franchise Trends
Boomers Rewrite the Rules of Retirement
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Franchise
Innovations
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