Forms of business ownership EASE OF STARTING YOUR OWN BUSINESS

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

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

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

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

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

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

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

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

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

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

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?