2. TYPES OF BUSINESSES

3. Types of Businesses  Throughout this semester, we will cover a variety of examples of businesses  We will look at –Different types of business Ie. West 49 vs. First Choice vs. Furniture manufacturer –Different forms of ownership Single owner, multiple, investors, etc.

4. All businesses fall into three general categories… 1.service 2.manufacturing 3.merchandising Types of Business Sells effort (ie. work, talent) that does not result in a material item. A haircut would be an example of a service. A service is often viewed as an expense by the buyer. Combines effort and materials to produce a new product. These products may be viewed by the buyer as an expense (ie. fuel) or an asset (ie. car). Purchases a manufacturer’s product and resells it to another customer for a higher price. Again, such products may be viewed as assets or expenses by the buyer.

5. Forms of Business Organization

6. There are three forms of business organization. They are: Sole Proprietorship Sole Proprietorship Partnership Partnership Corporation Corporation

7. Business Ownership  Split into 6 groups (roughly 4 or 5 students each)  I will assign you a type of business ownership 1)Come up with a list of as many advantages/disadvantages your group can think of for that type of ownership 2)What differences in accounting practices do you think exist for your type of business?

8. Sole Proprietorship An unincorporated business owned by a single individual.An unincorporated business owned by a single individual. The law does not distinguish between the business and the owner.The law does not distinguish between the business and the owner.

9. great freedom from regulation great freedom from regulation Advantages low start-up cost low start-up cost all profits to owner all profits to owner owner has complete control owner has complete control Sole Proprietorship

10. Disadvantages difficult to raise capital difficult to raise capital unlimited liability unlimited liability limited to owner’s knowledge limited to owner’s knowledge lack of continuity lack of continuity profits taxed at personal rate profits taxed at personal rate

11. ACCOUNTING Sole Proprietorship no need to allocate equity to different parties no need to allocate equity to different parties simple simple easy to liquefy the business easy to liquefy the business Must ensure business stays separate from the owner’s affairs Must ensure business stays separate from the owner’s affairs

12. GAAP OF THE DAY!

13. GAAP  G.A.A.P. – Generally Accepted Accounting Principles  Rules that all accountants and accounting procedures must follow WHY ARE GAAP’S NECESSARY?

14. Business Entity Concept  The financial information can only be about one individual company  The owner’s financial dealings must remain separate from the business

15. Partnership An unincorporated business owned by more than one individual.An unincorporated business owned by more than one individual. The law does not distinguish between the business and the owners.The law does not distinguish between the business and the owners.

16. Partnership broader management skills broader management skills Advantages ease of formation ease of formation limited regulations limited regulations more capital resources more capital resources

17. Partnership Disadvantages possible disagreements possible disagreements unlimited liability unlimited liability divided authority divided authority difficult to find partners difficult to find partners partners liable for each other partners liable for each other

18. Partnership ACCOUNTING Must allocate equity among partners Must allocate equity among partners Difficult to add and subtract partners Difficult to add and subtract partners

19. Corporation A business which is an individual in the eyes of the law.A business which is an individual in the eyes of the law. The law views the business as a separate entity from the owner(s).The law views the business as a separate entity from the owner(s).

20. Corporation Profits of the corporation are distributed to the shareholders by way of "dividends".Profits of the corporation are distributed to the shareholders by way of "dividends". The more shares one owns, the more dividends they will receive.The more shares one owns, the more dividends they will receive. example Dividends: $1.00 / share Shareholder owns: 1000 shares Shareholder receives: $1,000.00

21. Corporation Advantages possible lower taxation ratepossible lower taxation rate limited liability of shareholders (However, directors and officers can be liable in certain circumstances.)limited liability of shareholders (However, directors and officers can be liable in certain circumstances.) continuity of businesscontinuity of business can sue / be sued in the corporate namecan sue / be sued in the corporate name more prestigemore prestige

22. Corporation Disadvantages losses cannot offset personal incomelosses cannot offset personal income higher start-up costs and greater formalitieshigher start-up costs and greater formalities requires annual maintenance from accountant and lawyerrequires annual maintenance from accountant and lawyer

23. Corporation ACCOUNTING If publicly traded – all can view financial documentsIf publicly traded – all can view financial documents More difficult income distribution, taxesMore difficult income distribution, taxes Books remain relatively unchanged with transfer of ownership or death of ownersBooks remain relatively unchanged with transfer of ownership or death of owners

25. Corporation Structure Executive: (ie. President, Treasurer, Secretary. Run the day to day operations of the business.) Directors: (Hire executive, guide mission, distribute profits between business & shareholders) Shareholders: (provide capital, elect directors, receive dividends)

26. WITH YOUR GROUP  Brainstorm 5 businesses in Brantford for each type of ownership 1)Sole Proprietorship 2)Partnership 3)Corporation