Which type is Best for Your Venture? 1

One of the first decisions that you will have to make as a business owner is how the company should be structured 2

 What is your vision?  What will be the size/nature of your business?  How much control do you wish to have?  What will your control structure look like?  Where could the business be vulnerable to legal actions or ramifications? 3

 What are the tax implications of the different ownership structures?  What is your financial plan? (Expected profits or loss.  How long are you prepared to function at a loss?  How should profits be distributed? Should you re- invest in your company?  What salary should you pay yourself? 4

A legally constructed business may take one of the following forms: 1. Sole Proprietorship 2. Partnership 3. Corporation 5

 Majority of small business start out.  Owned by one person  Owner will usually run the day-to-day the business. 6

 Sole proprietors own all the assets of the business and the profits generated by it  They also assume complete responsibility for any of its liabilities or debts  In the eyes of the law and the public, you are one in the same with the business 7

ADVANTAGESDISADVANTAGES  quick, easy, and inexpensive to establish  limited in terms of employee compensation plans  only requires registration and appropriate licenses  all business income is taxable  owner makes all decisions  profits may be taxed at a higher rate than for an incorporated organization  owner includes all business profits/losses with personal income  harder to raise capital than for a partnership or a corporation 8

 Two or more people share ownership.  Like proprietorships, the law does not distinguish between the business and its owners.  All partners may or may not be actively involved in the day-to-day operation of the venture. 9

 Each partner contributes something toward the partnership:  Startup money  Material resources  Talent  Specialized skill  Experience  Specific knowledge  Business contacts. 10

 Partners should create a legal partnership agreement that outlines: The time and capital each will contribute How decisions will be made How profits will be shared (percentage) How disputes will be resolved How future partners will be admitted to the partnership How partners can be bought out Terminating the partnership 11

General Partnership  Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement.  Equal shares are assumed unless there is a written agreement that states differently.  i.e

Limited Partnership  Most of the partners have limited liability based on the extent of their investment  Limited input regarding management decisions  Most partners are investors for short term projects, or for investing in capital assets 13

Limited Partnership  This form of ownership is not often used for operating retail or service businesses  Forming a limited partnership is more complex and formal than that of a general partnership  Think Shark Tank… 14

Joint Venture  Acts like a general partnership, but is clearly for a limited period of time or a single project  If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership 15

Silent Partnership  One or more visible people  A person might invest money in the partnership but do not take an active part in the management of it  i.e. Less than 50% investment, etc. 16

ADVANTAGESDISADVANTAGES  quick, easy, and inexpensive to establish  general partners assume unlimited liability for all debts/obligations incurred by the partnership  each partner may deduct business losses (in proportion to the amount invested in the business) from whatever is earned within the business  both business and personal income are taxed  favourable tax treatment, especially for startup losses  profits may be taxed at a higher rate than for an incorporated organization  combines the talents and resources of two or more people  unless otherwise stated in a partnership agreement, the partnership is automatically dissolved when one of the partners dies  if the partners can’t agree on the day- to-day operation of the partnership, decisions become difficult to make 17

 Constituted by law  A distinct legal entity from its shareholders  This means it is separated and apart from those who own it  A shareholder’s liability for the corporations debts are limited to his or her investment 18

 To operate a business for profit and to distribute the profits among the shareholders  A corporation can be taxed; it can be sued; it can enter into contractual agreements  The owners of a corporation are its shareholders 19

 The shareholders elect a board of directors to oversee the major policies and decisions of the corporation  The corporation has a life of its own and does not dissolve when ownership changes 20

ADVANTAGESDISADVANTAGES  corporations have an unlimited life, so day-to-day business continues despite the illness or death of their owners  more costly to set up because of government fees, name searches, legal fees  ownership is easily transferred  requires more formal annual activities (annual meeting, minutes, report)  profits can be removed from the corporation in the form of dividends, which can be a tax benefit to the owner  losses cannot be used by the owner to offset personal income  the corporation can arrange for employee benefits such as group insurance or registered pension plans  owner’s personal assets can still be seized by the lending agency if he or she has put up personal collateral for a business loan 21

 A firm expands into new markets by selling the rights to use the company's name and products to individuals  Franchising company provides training services and an advertising campaign for the purchaser of the franchise 22

 Purchaser agrees to meet certain quality standards, provide certain products, and pay a franchise fee to the franchising organization 23

ADVANTAGESDISADVANTAGES  Smaller than usual capital investment  Possible high franchiser fee  Prior public acceptance of product  Some loss of independence  Better than average profit margins  Possible difficulties in canceling contract  Management assistance 24