Types of Business Organization

Forms of business ownership and types of

businesses help describe how businesses are

organized and ran.

Why may a person choose to establish one

type of business rather than another?

Four main forms of business ownership

Sole proprietorships

Partnerships

Corporations

Co-operatives

You could argue that franchises are also a form of

business ownership

Maybe better described as a hybrid, combining several

characteristics of the other forms of business

ownership.

A business owned by one person (a proprietor).

Money to run the business usually comes from

the owner’s savings, friends, family, or a loan.

If business goes well, the owner enjoys all the

profits.

If business does poorly, owner is responsible for

the losses.

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Sole proprietorship is easy and inexpensive to create.

The owner has complete authority over all business activities.

It is the least regulated form of business ownership.

The business pays no taxes; income is taxed at

personal rate of owner.

Starting the business is easier and less expensive than other

forms of business.

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The owner has unlimited liability.

Raising capital is more difficult.

The business is totally reliant on skills and abilities of owner.

unlimited liability

full responsibility for all debts and actions of a

business

http://www.youtube.com/watch?v=7AS2HDISq84

A business that’s usually operated by two or

more individuals who want to share the costs

and responsibilities of running a business.

They record the terms of their partnership in

a partnership agreement.

http://www.youtube.com/watch?v=qwq1sMA

snZw&list=UUhHnqv51SLSD0Er179_73ZQ

A general partnership is when all partners have

unlimited liability for the firm’s debts.

Unlimited liability – each partner could be held liable

(or responsible) for the other partner’s business-

related debts.

A limited partnership is when partners have

limited liability. Even if the business fails, their

personal savings and other assets cannot be used

to pay the partnership’s debts.

Limited liability – each partner is only responsible for

paying back the amount that they invested in the

partnership.

9

Partnerships are inexpensive to create.

General partners have complete control.

Partners can share ideas.

Partners can share ideas and secure investment capital more

easily and in greater amounts.

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It is difficult to dissolve one partner’s interest without

dissolving the partnership.

There may be personality conflicts.

Partners can be held liable for each others’ actions.

A business that has been granted legal status with rights,

privileges, and liabilities that are distinct from those

people who work for the business.

Can be a small one-person business, or a large

multinational business, and any size in between.

Large corporations are often owned through

shareholders (who own shares or stocks), and the

business is ran by a board of directors that is put in

place.

Share/Stock – a unit of ownership in a corporation. Shared

on a stock exchange.

Board of Directors – A group of individuals who run a

corporation or co-operative and make decisions on behalf

of the shareholders.

Shareholders have limited liability

Great advantage because it encourages the

purchasing of shares.

If the business fails, you only loose the money

you invested in the shares.

If the business profits, you may get a dividend.

Dividend – The part of the corporation’s profit after taxes that

each shareholder receives.

http://www.youtube.com/watch?v=cm86aZcLUAI&list=UUhHnqv5

1SLSD0Er179_73ZQ

Types of Corporations Private Corporation

Only a few people control all the shares, and shares are not listed publically.

Ex: McCain Foods, Home Hardware, etc.

Public Corporation Shares are sold on the stock exchange, and major shareholders

have considerable impact because it gives them a vote on the board of directors.

Ex: Tim Horton’s, Canadian tire, Scotiabank, Bell etc.

Crown Corporation A business operated by the provincial or federal government.

Ex: Nalcor Energy, NL Liquor Corporation, CBC etc.

Towns and cities can be considered Crown Corporations by incorporating themselves to provide services to their citizens.

Co-ops are Different From Private Enterprise.

Liability is limited to the amount of cash injection you put into it.

Owners benefit from use of the co-op’s services. Not seeking a financial return on their investment

Decision making is democratic – one member/vote Not based on number of shares held

Profits are allocated based use of the co-op’s services Not based on number of shares held

A co-ops business assets are owned collectively by local members Cannot be used for private gain

Co-ops have stated social as well as economic goals Profit is not the only concern

http://www.youtube.com/watch?v=qwq1sMAsnZw&list=UUhHnqv51SLSD0Er179_73ZQ

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Types of co-operatives in NL:

Financial - providing banking, investment services

Nfld. & Labrador Credit Union

Retail – groceries, hardware, building supplies

Carol Lake Co-op

Service – health care, housing, childcare

North Shore Central Ambulance Co-op

Advocate Youth Services Co-op

Producer – fishery, farming, filmmaking, crafts

Northeast Coast Sealer’s Co-op

Nfld Independent Filmmakers co-op

In a franchise operation, the franchiser (the

business), licenses the right to its name,

operating procedure, designs, and business

expertise to another business, the Franchisee.

It’s a ready made business – you, as the franchisee,

would pay a certain amount up front, and royalties to

the “mother company” throughout the period of your

licensing agreement.

Very popular because they offer brand

recognition that consumers find appealing.

At first, there is a payment of the franchise payment to the franchiser. Rule of thumb: the most successful a franchise is, the

more expensive the fee!

The franchisee pays a monthly fee for being part of the franchise – often a percentage of their monthly sales. Also have to pay for national and local advertising

Supplies for the franchise has to be purchased through the franchisers Should reduce cost of supplies and provide uniform

quality. http://www.youtube.com/watch?v=wAyF_8RpkR0&list=U

UhHnqv51SLSD0Er179_73ZQ