TYPES OF BUSINESS OWNERSHIP

Types of Business Ownership

How is a business defined? How is a business organized? Who is running the business? How many people work at the business?

Sole Proprietorship

A business owned and operated by one person

ADVANTAGES  Keep all the profits Owner makes all the decisions Financial information can be kept confidential Easy to start up and close down Less expensive than other forms of business You don’t have to register your business with

the government

SOLE PROPRIETORSHIP

DISADVANTAGES

Unlimited liability – may lose personal assets

Difficult to get adequate financing Responsible for all aspects of the business

and may not have the expertise to make the best decisions in each area

Requires a lot of commitment Do not have fringe benefits

Partnership A business owned and operated by two or more

people who share the costs and responsibilities of running a business• Will record their partnership terms in a partnership

agreement ADVANTAGES

Easier to get financing than a sole proprietorship Share responsibilities and expertise which can

result in better decision making Can be a limited liability 

Partnership

DISADVANTAGES  Unlimited liability Profits have to be shared Conflicts can arise due to shared

decision-making Difficult to terminate

CORPORATIONS

SHAREHOLDERS

BOARD OF DIRECTORS

EXECUTIVE

EMPLOYEES

• A type of business that is a separate legal entity owned by shareholders, those who own a share of the company

• Ownership divided into shares

• Individuals who buy shares become owners of the company and are called shareholders. The more shares a shareholder owns, the greater the control he or she has. Because there are so many owners, a board of directors is put into place to run the corporation.

CORPORATIONSThere are three types of corporations:

PRIVATE CORPORATION: Only a few people control all the shares, or stock, and , therefore the business. Shares are not listed on the stock exchange.

PUBLIC CORPORATION: Raises money by making shares available to thousands of people through selling shares on the stock exchange. These individuals become owners of the business. People with few stocks have little say in the business.

CROWN CORPORATION: A business operated by the municipal, provincial or federal government. (Examples are CBC, Canada Post, VIA Rail)

CORPORATIONS

ADVANTAGES  Limited liability for the shareholders, you

only lose the amount you invested in shares More financial resources Skilled employees that can result in better

products and more profits Has the ability to raise large amounts of

capital May receive dividends (if the company

earns a profit, some of it may be used to pay out the shareholders)

CORPORATIONSDISADVANTAGES  Subject to government regulations, register

Articles of Incorporation Difficult to close down Employees run the business, lack of personal

contact Must publish an Annual Report which shows

financial information about the company Value of the shares dependent on the stock

market Double taxation- personal and corporate

CO- OPERATIVE A business owned and operated by a group of people who use the products

or services that the business offers. The motive for operating a co-operative is service, not profit.

ADVANTAGES  A board of directors owns shares and run the business Able to offer goods and services at favourable prices DISADVANTAGES  Each member only has one vote no matter how many shares you own Profits are distributed depending on how much you spend in the co-

operative Conflicts can arise due to decision-making Difficult to raise additional funds to expand the business Commitment of members can vary  EXAMPLES  Local Credit Unions, I.G.A. (Independent Grocers Alliance) and I.D.A.

(Independent Druggists’ Association).

Franchise One business, the franchiser, licenses the rights

to its name, operating procedure, designs, and business expertise to another business (the franchisee).

 ADVANTAGES Franchisees can buy a business with a proven

track record and nationally recognized name Franchisor agrees to share training, management,

and financing expertise with the franchisee Sometimes helps to find a suitable location for the

business Brand recognition 

DISADVANTAGES 

Franchisee must meet many requirements like the payment fee, can be expensive to purchase

Pay monthly fees May have to pay for national and local

advertising (roughly 1% of monthly sales) All the supplies for the business have to be

purchased through the franchisor only Rules and regulations that must be followed Extensive training period

Franchise

Workbook Activity : Page 23

Which one would you invest in?

Franchise Analysis Activity