2. Forms Of Business Organization

3. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Basic Forms of Ownership  Sole Proprietorship: a business that is owned, and usually managed by, one person.  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.

4. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Sole Proprietorship o Ease of start/end o Be your own boss o Pride of ownership o Leave legacy o Retain profit o No special taxes o Cheapest to Start-up  Unlimited liability  Limited financial resources  Difficulty in management  Overwhelming time commitment  Few fringe benefits  Limited growth  Limited life span AdvantagesDisadvantages

5. 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

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

7. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Corporations  Private Corporation - shares cannot be sold to the public  Public Corporation - shares are sold to the public and often listed on a stock exchange

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

9. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Other Types of Corporations  Non-resident - has its head office outside of Canada  Personal Services - for an athlete or entertainer to take advantage of corporate tax rates  Non-profit - universities, hospitals, charities, etc.

10. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Franchises “ In business for yourself, not by yourself ”  Over 1,100 franchisor companies in Canadafranchisor  Over 60,000 outlets in Canada  Over $90 Billion in sales in Canada “Like a pre packaged dinner”

11. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Franchises o Management and marketing assistance o Personal ownership o Nationally recognized name o Financial advice and assistance o Lower failure rate o High start-up costs o Shared profit o Management regulation o Coattail effects – your success is tied to the franchisor’s performance o Restrictions on selling o Fraudulent franchisors AdvantagesDisadvantages

12. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Franchise Success Versus Independent Business Success Percentage of businesses still operating 97 91 90 62 23 18 0 25 50 75 100 10 Years Independent business Franchised business 5 Years 1 Year

13. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Buying a Franchise  Shop around - do your homework  Get legal and financial advice  Look for financial stability in the franchisor  Analyze the business plan and proforma statements

14. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Franchise System  Franchisor – Owner of parent company who licenses (sells) the rights to operate his/her business to a franchisee.  Franchisee - One who purchases the rights to operate an existing company from the franchisor.  Franchise Agreement

15. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Franchisor Assigns Territory Provides Financial Aid/Advice Provides Training/Support Offers Merchandise/ Supplies at Competitive Price

16. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Franchisee Pays Up-Front Costs Makes Monthly Payment to Franchisor Runs Business by Franchisor’s Rules/Procedures Buys Materials from Franchisor/ Approved Supplier

17. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson How to Avoid a Franchise Lemon  Research them & their business experience  Get summary of any bankruptcy, lawsuits, etc  Estimate all costs to set up franchise  Review franchise contract & three most recent financial statements

18. Top 10 Fastest-Growing Franchises for 2008  Jan-Pro Franchising Int'l. Inc. Jan-Pro Franchising Int'l. Inc.  7-Eleven Inc. 7-Eleven Inc.  Subway Subway  Jani-King Jani-King  Dunkin' Donuts Dunkin' Donuts  Jackson Hewitt Tax Service Jackson Hewitt Tax Service  Bonus Building Care Bonus Building Care  Instant Tax Service Instant Tax Service  Liberty Tax Service Liberty Tax Service  RE/MAX Int'l. Inc. RE/MAX Int'l. Inc.

19. Top 10 Fastest-Growing Franchises for 2009  Jan-Pro Franchising Int'l. Inc. Jan-Pro Franchising Int'l. Inc.  Subway Subway  Instant Tax Service Instant Tax Service  Stratus Building Solutions Stratus Building Solutions  Snap Fitness Inc. Snap Fitness Inc.  Dunkin' Donuts Dunkin' Donuts  Jazzercise Inc. Jazzercise Inc.  Bonus Building Care Bonus Building Care  Anytime Fitness Anytime Fitness  Vanguard Cleaning Systems Vanguard Cleaning Systems

20. Top 10 Fastest-Growing Franchises for 2011  Stratus Building Solutions Stratus Building Solutions  Jan-Pro Franchising Int'l. Inc. Jan-Pro Franchising Int'l. Inc.  Subway Subway  CleanNet USA Inc. CleanNet USA Inc.  Anago Cleaning Systems Anago Cleaning Systems  Pizza Hut Inc. Pizza Hut Inc.  Liberty Tax Service Liberty Tax Service  Vanguard Cleaning Systems Vanguard Cleaning Systems  Bonus Building Care Bonus Building Care  System4 System4

21. Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson Cooperatives  Owned by the members and customers, as opposed by shareholders.  Profits are shared amongst the members who pay an annual membership fee.  Co-workers, farmers, fishermen, consumers, etc. band together to form “co- ops” (provides members with goods and/or services).