Business Types and Ownership Business Types Businesses

Business Types and Ownership

Business Types Businesses are categorized into two main categories 1) For-Profit 2) Non-Profit

Non-profit and Not-for profit What’s the Difference? • Non-profit – an organization is formed soley for the purpose of serving the public and not for generating profit. • Not-for profit - does not seek a profit but may have surplus which must be used to preserve and expand its operations

For-profit Business • The goal is to make a profit by supplying goods and services to meet consumer demands • Profit- is the income left after all costs and expenses are paid • Expenses- are those expenditures that are involved in running a business, such as wages, supplies, marketing, etc.

Business Types • Costs – the amount of money required for each stage of production, such as the cost of raw materials. • GOAL – to make a profit while keeping expenses and costs down. Revenue – Expenses = Profit (or Loss)

Large and Small Business • Are most businesses large or small? • Large Business – more than 500 people • Small-Medium Business (SMB) – less than 500 people.

Forms of Business Ownership Five main types of Business Ownership • Sole Proprietorships • Partnerships • Corporations • Co-operatives • Franchises

Sole Proprietorship • …owned by one person • …monies for business come from owner’s pocket or in the form of a loan from the bank • …owner enjoys all the profits • …owner also is responsible for all the losses – unlimited liability

Can you think of any sole proprietorships?

Advantages • …easier to administer (run) the business • …less expensive • …business income is taxed as personal income Disadvantages • Unlimited liability – you can LOSE EVERYTHYING!

Partnership • …is operated by two or more individuals who want to share costs and responsibilities of running a business. • There are 2 types of partnerships • General Partnership • Limited Partnership

Partnership • General Partnership • Is most common • Unlimited liability for all partners • Limited Partnership • Only responsible for paying back the amount they invested or put into the partnership

Partnership • Advantages • Partners could have complementary skills (eg. sales expert and accountant) • May have more money to invest into the business than in the case of a sole proprietorship • Disadvantages • Partners may disagree on many elements of the business that could lead to legal issues (violation of the partnership agreement, law suits against your partner)

Corporations • Corporations – a business that has been granted legal status with rights, privileges and liabilities that are distinct/separate from those of the people who work for the business. • Corporations can be as small as 1 person or as large as a multinational

Corporations • Most corporations are owned by individuals, families or small groups • Large corporations are divided into shares or stocks because having it run by 1 or 2 people would inefficient. • Once shares have sold, the corporation becomes publicly owned.

Corporations • Individuals who buy shares are called shareholders. • The more shares a shareholder owns the more control they have • Due to a large number of owners (shareholders) a board of directors is put in place to run the corporation

Corporations • Shareholders have limited liability • If the company makes a profit it can put it back into the company to expand operations and pay the rest out as a dividend • Dividend = Total Profit / Total Number of Shares

Corporations Types of Corporations; - Private Corporation - Public Corporation - Crown Corporation

Corporations Private Corporation – only a few people control all the shares, or stock, and therefore, the business – Shares/stock are not listed on the stock exchange - eg. Sobeys, Costco Wholesale Canada, Mc. Cain foods

Corporations Public Corporation – Raises money by making shares available on the stock – Shareholders become owners in the business (eg. 10 shares = 10 votes) – Eg. Coke, RIM, Apple, TD Bank, etc. Crown Corporation – Business operated by the provincial or federal government – Provides services to local citizens – Eg. Via Rail, Canadian Broadcasting Company, Atomic Energy of Canada

Co-operative • …is owned by the workers or by members who buy the products or use the services that the business offers. • Regardless of how many shares a member owns they each have 1 vote (unlike a corporation) • Profits are distributed based on how large of a monetary contribution they give to the company. Eg. a member who buys $5, 000 worth of goods or services will receive a dividend 5 times as large as someone who buys $1, 000 worth of goods and services

Co-operative • Examples of co-operatives • Gay Lea Foods Cooperative of Canada • Canadian University Press • Farmers

Franchises The franchiser (ex. Mc. Donalds) licenses the rights to its name, operating procedure, designs and business expertise to another business, the franchisee (Joe Shmoe who wants to own his own Mc. Donalds restaurant)

Franchises • You are the owner of Starbucks and you want to eventually have a Starbucks on every block in North America. What rules would you put in place for franchisees to allow you to maximize profit and prevent them from discrediting your company ?

Franchises Continued • The franchiser and franchisee are independent businesses affiliated for the agreement only. • A franchisee must pay a franchise fee in addition to a monthly fee (ex. 5% of sales) • A franchisee must also pay local and national advertising costs (ex. 1% of sales) • All supplies must be purchased through the franchise

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