Introduction A business is always owned by someone. This can just be one person, or thousands. Different businesses have different ownership and organizational structures based on their needs. Survival is the main goal of businesses when they start. Most businesses aim to make a profit for their owners. Profits may not be the major objective, but in order to survive a business will need make a profit in the long term. Exception is ‘not-for-profit’ organizations; e.g., a charity

Types of Business Ownership

What is a Sole Proprietorship? A type of business where: The business is owned and operated by a single person Most common form of business ownership, especially for small businesses Owner has unlimited liability – if the business fails, the owner could lose personal assets if the business owes money Examples: Pet Panache, Coffee Cravings, Serendipity

Unlimited Liability VERY important concept Business owner responsible for all debts of business May have to sell own possessions to pay creditors if the business fails Sole proprietors may lose personal assets if their business fails

Why Open a Sole Proprietorship? Sole proprietorships often have success – why? Can offer specialist services to customers Can be sensitive to the needs of customers – since they are closer to the customer and react more quickly Can cater for the needs of local people – a small business in a local area can build up a following in the community due to trust

What is a Partnership? A type of business where: The business is owned and operated by two or more people Roles and responsibilities of partners are outlined in a Partnership Agreement Owners have unlimited liability Examples: Starlet; Madden, Sirman & Cowle (lawyers office)

Unlimited Liability VERY important concept Business owners have to share responsibility for all debts of business Partners may have to sell own possessions to pay creditors (e.g. bank) – even IF your partner made the problem in the first place! Partners may lose personal assets if their business fails

Why Open a Partnership? Spreads the risk - people to share the burden of debt Partner may bring money or resources to the business Partner may bring other skills and ideas to the business, complementing the work already done by the original partner Increased credibility with potential customers and suppliers – who may see dealing with the business as less risky than trading with just a sole proprietorship

What is a Franchise? A type of business where: A person can buy the right to use a business name to sell their goods/services A franchise is already an established business name Examples: McDonald’s, Molly Maid, Tim Hortons, Sport Chek, Subway

Opening a Franchise Franchisor – Person who SELLS the right to the name and structure of the business Franchisee – Person who BUYS the rights to the name and sets up the business Franchisee must invest – pay for start up costs Covers the cost of franchise licence and setting up the business Also must pay a proportion of their revenues – a franchise fee to the franchisor

Advantages – Franchising Customer recognition Established brand name Easier to raise money from the bank to buy a franchise Given necessary equipment to do job well Owners and employees receive training National advertising paid for by franchisor Possibly higher volume of sales

Disadvantages – Franchising Cost to buy franchise Have to pay a percentage of your revenue to franchisor Cannot make as many decisions on your own – most are made by franchisor Contract – must run business for a set time

What is a Corporation? Type of business that is a separate legal ‘ entity ’ Most large businesses are corporations Can be public or private Public corporations are owned by shareholders Liability is limited (important!) Examples: Wal-Mart, Royal Bank, Goodyear, Ford, GM, Sears

Limited Liability Shareholders can only lose money they have invested Corporation is a separate legal entity – you have to sue the company, not the shareholders Limited liability means that they can only recover money from existing assets of business (e.g selling equipment) They cannot claim personal assets of shareholders to recover amounts owed by company

Structure of a Corporation Employees Managers Board of Directors Shareholders/Owners

Shares – Public Corporation Why buy shares? Shares normally pay dividends = a share of profits Companies listed on a stock exchange usually pay dividends twice each year Over time value of share may increase and so can be sold for a profit (known as a “capital gain”) What’s the risk? The price of shares can go down as well as up Company can reduce or eliminate its dividends Company fails and investor loses the money invested

Disadvantages – Corporation Costly and complicated to set up Financial information must be made public Value of company shares change Have to please shareholders Owners have small share of profit and no ‘say’ in daily running of the business Employees may not feel important

Advantages – Corporation Able to raise large amounts of money to grow business Ownership is continuous and easily transfers to different owners Not personally responsible for debts (limited liability) Professional management team

What is a Co-operative? A type of business where: The business is owned by its members Member’s needs are met with specific services, often related to agriculture and financial services Each member has a single vote, regardless of how much they have invested Examples: Mountain Equipment Co-op (MEC), Kingston Community Credit Union

Co-operative Advantages Owned and controlled by members Democratic control – one member, one vote policy Limited liability Disadvantages Longer decision-making process Members less likely to invest more Extensive record-keeping necessary to track members

Members pay a fee to join ($5) They sell outdoor gear – clothing boots, tents, climbing equipment, indoor sports They have goods that can’t be found anywhere else in Canada They do not advertise – word of mouth Some programs – e.g. outdoorgearswap.com allows members to trade MEC does not make profit, but helps them with their environmentally friendly reputation Coop members elect board members who run company Coops do NOT pay income tax to government Their profit goes back into company