Forms of Business OwnershipForms of Business Ownership~ The Corporation ~~ The Corporation ~

&&~ The Stock Market ~~ The Stock Market ~

CorporationCorporation

Legal entity that exists independently of its owners who Legal entity that exists independently of its owners who are the shareholders.are the shareholders.

Has the same rights and obligations under Has the same rights and obligations under Canadian Canadian law as a natural personlaw as a natural person

It can be found guilty of committing a crimeIt can be found guilty of committing a crime

CorporationCorporation

Brought into existence by drawing up and filing with the Brought into existence by drawing up and filing with the proper government agency a document called the proper government agency a document called the articles articles of incorporationof incorporation

A lawyer and accountant are often needed to prepare this A lawyer and accountant are often needed to prepare this documentdocument

CorporationCorporation

Articles of Incorporation include information Articles of Incorporation include information such as:such as:

Name of corporationName of corporation

Headquarters of corporationHeadquarters of corporation

Type of corporationType of corporation

Number of shares allowed to be issued to Number of shares allowed to be issued to the public for purchasethe public for purchase

Classification of CorporationsClassification of Corporations

1. Non-Profit Corporation1. Non-Profit Corporation

2. Crown Corporation2. Crown Corporation

3. Private Corporation3. Private Corporation

4. Public Corporation4. Public Corporation

Non-Profit CorporationsNon-Profit Corporations

Purpose is to undertake fundraising, to do Purpose is to undertake fundraising, to do research and to lobby for a particular research and to lobby for a particular cause in order to help peoplecause in order to help people

Example: United Way, Museums, Example: United Way, Museums, Religious organizations, athletic and Religious organizations, athletic and artistic organizations.artistic organizations.

Crown CorporationCrown Corporation

Owned by the federal, provincial, or municipal Owned by the federal, provincial, or municipal governmentsgovernments

Function is to provide a special service to the publicFunction is to provide a special service to the public

Examples: Bank of Canada, Royal Canadian Mint, Examples: Bank of Canada, Royal Canadian Mint, Canada Post, Canadian Broadcasting Corp. (CBC)Canada Post, Canadian Broadcasting Corp. (CBC)

Private CorporationPrivate Corporation

Can have up to 50 shareholdersCan have up to 50 shareholders

A single person who incorporates may have only A single person who incorporates may have only one shareholder – him or herself.one shareholder – him or herself.

Usually small but not alwaysUsually small but not always

Eatons now owned by Sears was a private Eatons now owned by Sears was a private corporationcorporation

Public CorporationPublic Corporation

Does not have a restriction on the number Does not have a restriction on the number of shareholders. (unlimited number)of shareholders. (unlimited number)

Shares are bought and sold (traded) on Shares are bought and sold (traded) on the stock exchanges, such as the Toronto the stock exchanges, such as the Toronto Stock Exchange, the Vancouver Stock Stock Exchange, the Vancouver Stock Exchange.Exchange.

Examples include: Tim Hortons, Google, Examples include: Tim Hortons, Google,

Employees

Managers

(Supervise Employees)

Officersi.e. CEO

(Chief Executive Officer)

(set corporate

objectives and hire managers)

Board of Directors

(hire officers)

Owners/Shareholders

(Elect Board of Directors)

STRUCTURE OF A

CORPORATION

Structure of a CorporationStructure of a Corporation

The shareholders elect a board of directors, who The shareholders elect a board of directors, who direct the overall affairs of the corporationdirect the overall affairs of the corporation

The BOD hire the officers (i.e. the President of The BOD hire the officers (i.e. the President of the corporation) who decide on the objectives for the corporation) who decide on the objectives for the company and hire the managers and the company and hire the managers and essentially run the day to day operations of the essentially run the day to day operations of the business.business.

The managers supervise the employees.The managers supervise the employees.

CorporationCorporationAdvantagesAdvantages Owners are only liable for the Owners are only liable for the

amount they invest – Limited amount they invest – Limited liabilityliability

Has more financial resources Has more financial resources to expand and grow (money to expand and grow (money collected from the selling of collected from the selling of shares)shares)

Easier to get a loan from a Easier to get a loan from a bank because it has more bank because it has more assets to use as security assets to use as security (collateral”)(collateral”)

The tax rate is lower than for a The tax rate is lower than for a sole proprietorship.sole proprietorship.

(40-50% versus 23%)(40-50% versus 23%) Ownership is easily Ownership is easily

transferabletransferable

DisadvantagesDisadvantages More complicated to set up due More complicated to set up due

to government regulationsto government regulations Must be registered in every Must be registered in every

province it operatesprovince it operates Time consuming process and Time consuming process and

expensiveexpensive Closing a corporation can be Closing a corporation can be

time consuming and expensivetime consuming and expensive Business is managed by Business is managed by

employees who may or may not employees who may or may not be shareholders.be shareholders.

Must publish an annual report Must publish an annual report outlining the companies financial outlining the companies financial position which can benefit position which can benefit competitorscompetitors

Changes in stock market could Changes in stock market could impact future financial resources impact future financial resources raised through issuing new raised through issuing new stock to sell to the publicstock to sell to the public

Corporations and the Stock MarketCorporations and the Stock Market

Once the company has been incorporated Once the company has been incorporated and the articles of incorporation have been and the articles of incorporation have been approved, the company issues shares to approved, the company issues shares to the general public who may purchase the general public who may purchase them for ownership of the company. them for ownership of the company.

The first time a corporation issues shares The first time a corporation issues shares to the public to purchase is called an IPO.to the public to purchase is called an IPO.

The Initial Public Offering (IPO)The Initial Public Offering (IPO)

A Stock brokerage (business that sells and buys shares on A Stock brokerage (business that sells and buys shares on behalf of other businesses and individuals for a fee) is usually behalf of other businesses and individuals for a fee) is usually hired to handle the sale of shares to the public. hired to handle the sale of shares to the public.

An initial price offering is made the day the market opens An initial price offering is made the day the market opens

For example, when Google went public in 2004, its shares were For example, when Google went public in 2004, its shares were initially offered at $85.initially offered at $85.

Supply and demand for the shares will determine by how much Supply and demand for the shares will determine by how much the initial price of the share increases or decreases.the initial price of the share increases or decreases.

The money collected from the initial shares being offered goes The money collected from the initial shares being offered goes back to the corporation to be used by the business.back to the corporation to be used by the business.

Once a share is purchased, it is now out in the stock market Once a share is purchased, it is now out in the stock market where the shareholder can hold or sell his/her shares to where the shareholder can hold or sell his/her shares to another interested buyer for an agreed price.another interested buyer for an agreed price.

The Stock MarketThe Stock Market

The Stock MarketThe Stock MarketMarket where people come to sell and buy shares/stocks Market where people come to sell and buy shares/stocks of companies.of companies.

Person A wants to sell his/her shares of Google.Person A wants to sell his/her shares of Google.Person B wants to purchase shares of Google.Person B wants to purchase shares of Google.The stock brokers hooks Person A and B together to The stock brokers hooks Person A and B together to make the deal.make the deal.The stock brokers receives a fee for their services from The stock brokers receives a fee for their services from the buyer and seller.the buyer and seller.

The price of the shares will depend on supply and The price of the shares will depend on supply and demand. If more people want to buy then sell, the price demand. If more people want to buy then sell, the price may higher than it was the previous day.may higher than it was the previous day.

The Stock MarketThe Stock Market

How do people make money in the stock market?How do people make money in the stock market?

1. Purchase shares of a company and sell them at a higher price 1. Purchase shares of a company and sell them at a higher price to another interested buyer later on.to another interested buyer later on.Example: In 2004, Google shares issued at $85 a share. In Example: In 2004, Google shares issued at $85 a share. In November of 2006, they were selling at $500+ a shareNovember of 2006, they were selling at $500+ a shareIf you purchased 100 shares at $85 per share and sold them If you purchased 100 shares at $85 per share and sold them for $500 per share, how much money have you made?for $500 per share, how much money have you made?

Purchase price = $85 x 100 = $8 500Purchase price = $85 x 100 = $8 500Selling price = $500 x 100 = $50 000Selling price = $500 x 100 = $50 000

Personal Profit (Return on Your Investment )Personal Profit (Return on Your Investment ) = $50 000 - $ 8500 = $41 500= $50 000 - $ 8500 = $41 500

ROI = (50 000 – 8 500) / 8 500 X 100 = 488% increaseROI = (50 000 – 8 500) / 8 500 X 100 = 488% increase

The Stock MarketThe Stock Market2.2. Shareholders receive dividends on the shares Shareholders receive dividends on the shares

they own. they own.

Board of Directors declare a .50 cent dividend at year end) Board of Directors declare a .50 cent dividend at year end) Each shareholder will receive .50 cents for every share s/he owns Each shareholder will receive .50 cents for every share s/he owns in the company.in the company.Dividends are like interest. A bank pays you a certain % of Dividends are like interest. A bank pays you a certain % of interest (i.e. 2% per year) on the money you have in your savings interest (i.e. 2% per year) on the money you have in your savings account.account.Dividends, however, are not guaranteed to be paid out every Dividends, however, are not guaranteed to be paid out every year, as it depends on how profitable the company has been and year, as it depends on how profitable the company has been and what its cash flow is.what its cash flow is.

Example: You own 100 shares of Google. At the end of a business Example: You own 100 shares of Google. At the end of a business year, Google has made a significant profit and the BOD declares year, Google has made a significant profit and the BOD declares a .50 cent dividend.a .50 cent dividend.

How much money did you make: $.50 x 100 = $50.00How much money did you make: $.50 x 100 = $50.00