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 dont 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
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
SHAREHOLDERS
corporation.
BOARD OF DIRECTORS
EXECUTIVE
EMPLOYEES

CORPORATIONS
There 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)

CORPORATIONS
DISADVANTAGES

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

Franchise
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

Workbook Activity : Page 23

Which one would you invest in?

Franchise Analysis Activity