Business Organization Economics 11/12

Let’s Review Primary Industry Secondary Industry Service Industry

Forms of Business Organization Economic activity = firms Firms: Designed to achieve maximum profit by providing goods and services for which customers are willing/able to pay

Sole Proprietorship Business owned and operated by one person Solely responsible for profits or debts Very common in Canadian economy Ie. Small local business

Advantages Own boss Confidentiality Any others?

Disadvantages Unlimited personal liability - proprietor’s personal assets can be seized to pay outstanding debts No one else to rely on for funds/run business Difficult & expensive to obtain loans Progressive income tax ( income = tax)

The Partnership Owned by 2 or more Bound by a partnership agreement no one set form outlines rights and responsibilities General Partnership All partners participate in management Unlimited personal liability for business losses

The Partnership Limited partnership limited partners at least one general partner Not permitted to take part in management Personally liable for debts only up to their initial investment No additional personal assets can be seized Ie. Law firm, architects, accountants

Advantages Pooling of talent & capital Personal motivation & satisfaction Attracts capital Obtaining credit is easier & interest rate

Disadvantages Progressive income tax Not easy to sell shares (approval) Right to retire (no new partner) Investment funds only from within (personal savings/mortgages) Disputes Legally terminates due to death, mental incapacitation, financially insolvent, breach of partnership

Advantage or Disadvantage? Unlimited personal liability Joint liability – all partners liable for debts Several liability – partner doesn’t pay? All other partners must pay debt

The Corporation Public (shares traded freely) or private (shares traded only with approval) Established ONLY with gov’t authorization Shares = corporate assets, equal Sold – stockbroker, stock market Owners – shareholder (few – 1000’s) = $$$ Oldest – Hudson’s Bay Company

The Corporation Common shares Shareholder has voting rights Preferred shares Preferential position for profits and assets No voting rights Vote = in person or proxy

Advantages Profit distribution Re-invest into firm = self financing = $ Dividends –$ not reinvested shareholders - per share basis, Preferred, Common Obligations responsibility of corp Limited personal liability (investment) investors = large scale Shares transfer Lower income tax

Disadvantages Gov’t fee much Closely regulated by gov’t - books (all aspects), annual meetings, financial statements & tax returns Privacy? (competition) control

The Co-operative Enterprise Equally owned Must have common goal Retail Cooperative – provide goods at reduced price Financial Cooperative – arrange savings & loans at better rates than banks Service Cooperatives – provides housing, medical insurance & equipment rentals Popular in Western and rural Eastern Canada

The Co-operative Enterprise contd. Each member has a single vote & majority wins Board of Directors (annual) Roles are voluntarily Ie. Credit Unions

Advantages One vote = equal say Obtain and sell goods at a better price Limited personal liability Patronage return – profit based upon amount of business transacted by each individual 1% of goods sold = 1% of profit

Disadvantages Decision making – equal say & different ideas Unpaid positions discourage many Investment funds only from members = less capital when needed Business only with existing members = limited customers & business volume Serve members NOT profit

The Government Enterprise Owned by federal, provincial or municipal Provide services that are costly Set up to standardize services & jobs Crown corporations – gov’t not person holds all/most shares Ie. Canada Post, the CBC, Via Rail, Hydro One (ON)