Chapter 5 FORMS OF BUSINESS OWNERSHIP Prepared by

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. Chapter 5 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. Copyright © 2011 by Nelson Education Ltd. 2

Business Ownership Financing? Employees? Expenses? Liabilities? Chapter 5 Operating control? Ownership? Copyright © 2011

SOLE PROPRIETORSHIPS Chapter 5 Sole Proprietorship Copyright © 2011 by Nelson Education Ltd. A

SOLE PROPRIETORSHIPS Advantages Chapter 5 § Easy and inexpensive to form § Profits go to the owner § Direct control of the business § Relative freedom from government regulations § No corporate taxation § Ease of dissolution Copyright © 2011 by Nelson Education Ltd. 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 5

PARTNERSHIPS Chapter 5 Partnership Copyright © 2011 by Nelson Education Ltd. An association of

Common Types of Partnerships Limited Partnership Chapter 5 Limited Liability Partnership Copyright © 2011 by Nelson Education Ltd. 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 7

PARTNERSHIPS Advantages Chapter 5 § § § Ease of formation Availability of capital Diversity of skills and expertise Flexibility No special taxes (corporate) Relative freedom from government control Copyright © 2011 by Nelson Education Ltd. Disadvantages § Unlimited liability § Potential for conflicts between partners § Complexity of sharing of profits § Difficulty exiting or dissolving 8

CORPORATIONS Chapter 5 Corporation Copyright © 2011 by Nelson Education Ltd. A legal entity

Chapter 5 Common Types of Corporations Copyright © 2011 by Nelson Education Ltd. 10

The Incorporation Process Select company’s name Write articles of incorporation Pay required fees and taxes Chapter 5 Hold organizational meeting Adopt bylaws, elect directors, pass operating resolutions Copyright © 2011 by Nelson Education Ltd. 11

Chapter 5 Articles of Incorporation Copyright © 2011 by Nelson Education Ltd. 12

The Corporate Structure Shareholders Elect Directors Hire Chapter 5 Officers President VP Copyright ©

Corporations Disadvantages § Limited liability § Ease of transferring ownership § Unlimited life § Ability to attract financing § Ability to attract employees Chapter 5 Advantages § Double taxation of profits § Cost and complexity of formation § More government restrictions § Business losses cannot be written off against the other income of the owners of the company Copyright © 2011 by Nelson Education Ltd. 14

One-Person Corporation Chapter 5 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. ) Copyright © 2011 by Nelson Education Ltd. 15

Crown Corporation Chapter 5 A corporation that is owned either by a provincial government

Cooperatives Legal entities formed by people with similar interests, to reduce costs and gain economic power Control Structure Chapter 5 Purpose Primary focus is to meet the common need of the members One member – one vote system Allocation of Profit Based on how much they use the cooperative Copyright © 2011 by Nelson Education Ltd. 17

Joint Venture Chapter 5 Joint Venture Copyright © 2011 by Nelson Education Ltd. Two

Franchising Chapter 5 Franchising Copyright © 2011 by Nelson Education Ltd. 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 19

Franchises Advantages Chapter 5 § Increased ability for franchisor to expand § Recognized name, product, and operating concept § Management training and assistance § Financial assistance Copyright © 2011 by Nelson Education Ltd. Disadvantages § Loss of control § Cost of franchising § Restricted operating freedom 20

Top 10 Franchises for 2010 Subway Submarine sandwiches & salads 2 Mc. Donald'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 7 Dunkin' Donuts Coffee, doughnuts, baked goods 8 Jani-King Commercial cleaning 9 Chapter 5 1 Servpro Insurance/disaster restoration & cleaning 10 ampm Mini Market Convenience store & gas station Copyright © 2011 by Nelson Education Ltd. 21

Chapter 5 MERGERS AND ACQUISITIONS Copyright © 2011 by Nelson Education Ltd. 22

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 Chapter 5 – Corporate takeover with borrowed money Copyright © 2011 by Nelson Education Ltd. 23