Forms of Business Ownership Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Learning Goals Compare the advantages and disadvantages of sole proprietorships. Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. Compare the advantages and disadvantages of corporations. Define and give examples of three types of mergers, and explain the role of leveraged buyouts and taking a firm private. Outline the advantages and disadvantages of franchises, and discuss the challenges of global franchising. Describe the role of co-operatives in Canada. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

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. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Sole Proprietorship Advantages Disadvantages Ease of start/end Be your own boss Pride of ownership Leave legacy Retain profit No special taxes Unlimited liability Limited financial resources Management difficulties Overwhelming time commitment Few fringe benefits Limited growth Limited lifespan Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Partnership Disadvantages Advantages More financial resources Shared management, knowledge Longer survival Shared risk No special taxes Unlimited liability Division of profits Disagreements among partners Difficult to terminate Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

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 Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Corporation Advantages Disadvantages Extensive paperwork Limited liability More money for investment Size-may be larger due to increased resources Perpetual life Ease of ownership change Ease of attracting talented employees Separation of ownership from management Extensive paperwork Double taxation Two tax returns Size-may become too inflexible to new ideas Termination difficult Stockholder and board conflict High initial cost Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

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

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 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

Just Us Coffee Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Reflections Taking into consideration your strengths and weaknesses what type of business ownership do you think would be right for you. Explain your response. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson