NEW WORD to KNOW! Liability – For a business, it includes the responsibility to pay all normal debts and to pay because of a court order or law, for performance under a contract, or payment of damages to a person or property in an accident.

Basic Forms of Ownership Sole Proprietorship: a business that is owned, and usually managed by, one person in the community. Partnership: two or more persons agree to be co-owners of a business. Corporation: a legal entity with authority to act and have liability separate from its owners.

Forms of Business Organization Sole Proprietorship Advantages Simple and inexpensive to start Individual control over operations All profit to the owner Losses deductible from any other income Disadvantages Unlimited liability More difficult to obtain financing Limited resources and opportunity Overwhelming time commitment

Forms of Business Organization Partnership Advantages Pooling of financial resources and talents Simplicity and ease of organization Increased ability to obtain capital Potential for growth Disadvantages Unlimited liability Divided authority Division of Profit Disagreements among partners Difficult to terminate

How to Form a Partnership Choose your partner carefully Get a partnership agreement in writing Types of Partners General - unlimited liability; involved in company business Limited - limited liability; not involved in company business

Forms of Business Organization Corporation Advantages Limited liability Continuity of the business Easier to raise capital Potential employee benefits Tax advantages Ease of attracting employees Separation of ownership and management Disadvantages Cost Legal formalities Inability to flow losses through to the shareholders Termination difficult Size – inflexible to new ideas

Corporations Public - Shares are traded on one or more stock exchanges. Private - Not traded on any stock exchange and is limited to 50 or fewer stockholders. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Cooperatives Owned by the members and customers Profits are shared amongst the members who pay an annual membership fee. Co-workers, farmers, fishermen, consumers, etc. band together to form “co-ops” Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Franchises Advantages Disadvantages Management and marketing assistance Personal ownership Recognized name Financial advice and assistance Lower failure rate High start-up costs Shared profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors

Franchising Terminology Franchise Agreement: An arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell its products in a given territory. Franchisor: A company that develops products concept and sells other the rights to make and sell the products Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Franchising Terminology Franchisee : A person who buys a franchise Franchise: The right to use a specific business’s name and sell its goods or services in a given territory. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Other Legal Requirements Licences and Permits Municipal Provincial Land Use and Zoning Mandatory Deductions Income Tax Employment Insurance Canada Pension Plan Taxes Provincial Sales Tax GST/HST Employment Standards Insurance

Types of Insurance 1. General Liability Insurance 2. Business Premises Insurance 3. Business Use Vehicle Insurance 4. Business Interruption or Loss-of-Income Insurance 5. Disability or Accident and Sickness Insurance 6. Key Person Insurance 7. Credit Insurance 8. Surety and Fidelity Bonds 9. Partnership Insurance 10. Workers’ Compensation

Assignment What type of business ownership do you believe is right for you? (Don’t forget to explain your choice in at least 3 sentences!)