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Bus106 wk5 ch5 forms of business ownership


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BUS106 Forms of Business Ownership

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Bus106 wk5 ch5 forms of business ownership

  1. 1. Week 5, Chapter 5 Forms of Business Ownership
  2. 2. Figure 4.3 Ethical Orientation Questionnaire (see page 88)
  3. 3. What your score means (see page 89)
  4. 4. Ethical Dilemma? A disgruntled employee of your major competitor mails top-secret information or new product samples to you. Do you begin to do a dance on your desktop or do you immediately mail the information back to your competitor? What would you do? Throw the plans or secrets away. Send them to your research department for analysis. Notify your competitor about what is going on. Call the RCMP.
  5. 5. What actually happened. It seems a 3M employee named Philip Stegora mailed samples he stole of a new casting tape to J&J and three other competitors. He offered to meet and explain the technology for a fee of $20,000. None of the contacted companies reported his scheme to 3M. Instead, an outside source contacted 3M who then turned the case over to the FBI. The case could have ended there but in patent-infringement proceedings, 3M found that J&J had done chemical tests on the sample Stegora had sent. 3M sued and was awarded $116.3 million from J&J for infringing on its patent and misappropriating trade secrets. Sounds like someone should have sent the tape back to 3M in the first place. Image sources: ;
  6. 6. Ethical Dilemma? You are the vice president of a beer company in a province which sets the legal drinking age at twenty-one. Your boss asks you to organize a lobbying effort to have the drinking age reduced to eighteen.
  7. 7. Nineteen (it is eighteen in Alberta, Manitoba, and Quebec) to twenty-one year olds represent a huge market for liquor. But, again, the public reaction should be considered. Source:
  8. 8. Learning Objectives List the advantages and disadvantages of: • Sole Proprietorships • Partnerships • Corporations Define and give examples of three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private. Outline the advantages and disadvantages of franchises, and discuss the challenges of global franchising. Describe the role of co- operatives in Canada.
  9. 9. Figure 5.1 Basic Forms of Ownership
  10. 10. Sole Proprietorship One person owning and operating a business, without forming a corporation. In a sole proprietorship, the business and the owner are a single entity. As noted in Figure 5.1, almost 24% of all registered businesses in Canada fall under this form of ownership.
  11. 11. Sole Proprietorship Advantages • Ease of start/end • Be your own boss • Pride of ownership • Leave legacy • Retain profit • No special taxes • Fewer regulations Disadvantages • Unlimited liability • Limited financial resources • Difficulty in mgmt. • Time commitment • Few fringe benefits • Limited growth • Limited life span
  12. 12. Liability - for a business, it includes the responsibility to pay all normal debts.
  13. 13. Unlimited Liability When you work for others, it is their problem if the business is not profitable. When you own your own business, you and the business are considered one. You have unlimited liability; that is, any debts or damages incurred by the business are your debts, and you must pay them.
  14. 14. Main types of partnerships General Partnership Limited Partnership General Partner Limited Partner
  15. 15. General Partnership • A partnership in which all owners share in operating the business and in assuming liability for the business’s debts. Limited Partnership • a partnership with one or more general partners and one or more limited partners. Partnership
  16. 16. Advantages • More financial resources • Shared mgmt. • Longer survival • No special taxes Disadvantages • Unlimited liability • Division of profits • Disagreements among partners • Difficult to terminate Partnership
  17. 17. How to Form a Partnership Choose your partner carefully Get a partnership agreement in writing
  18. 18. Types of Partnerships General Limited Passive Investor Passive InvestorPassive Investor
  19. 19. New Forms of Partnerships Master Limited Partnership • traded publicly • taxed as a partnership Limited Liability Partnership
  20. 20. Corporations Although the word corporation makes people think of big businesses such as the Bank of Montreal or Irving Oil, it is not necessary to be big to incorporate (i.e., start a corporation). Obviously, many corporations are big; however, incorporating may also be beneficial for small businesses.
  21. 21. Advantages • More money for investment • Limited liability • Separation of ownership/mgmt. • Ease of ownership change • Perpetual life • Size Disadvantages • Initial cost • Paperwork • Two tax returns • Termination difficult • Stockholder and board conflict • Double taxation Corporation
  22. 22. To raise money, a corporation can sell ownership (stock) to anyone who is interested. This means that thousands of people can own a part of major companies. Corporation – advantage: more money for investment
  23. 23. Types of Corporations •not traded on any stock exchange - limited to 50 or fewer stockholders. Private •shares are traded on one or more stock exchanges Public •performs public service, has special tax considerations to encourage formation Non- Profit
  24. 24. Other Types of Corporations Professional Corporations Non-resident: has its head office outside of Canada Personal Services: for an athlete or entertainer to take advantage of corporate tax rates
  25. 25. Figure 5.4 How Owners Affect Management
  26. 26. Canada’s Largest Corporations Corporation 2008 Revenue ($Billions) Royal Bank 37.6 Power Corp. of Canada 37.1 Manulife Financial 37.0 George Weston (Loblaws) 32.1 EnCana Corp. 1.2
  27. 27. Figure 5.5 Comparison of Forms of Ownership
  28. 28. Corporate Governance - the process and policies that determine how an organization interacts with its stakeholders, both internal and external. As a result of corporate scandals, board members are under increasing scrutiny to ensure that they are effectively fulfilling their roles and responsibilities to their stakeholders. Be aware that those who serve on boards (both for-profit and non-profit) may be held personally liable for the misconduct of the organization.
  29. 29. Business Regulations and Articles of Incorporation Companies that wish to operate in Canada must follow federal and provincial business laws and regulations. Among other things, this applies to registration and to reporting and information. Articles of incorporation: A legal authorization from the federal or provincial/territorial government for a company to use the corporate format. Image source:
  30. 30. Corporate Expansion: Mergers and Acquisitions A merger is the result of two firms forming one company. An acquisition is one company’s purchase of the property and obligations of another company.
  31. 31. Corporate Expansion: Mergers and Acquisitions A vertical merger is the joining of two firms involved in different stages of related businesses. A horizontal merger joins two firms in the same industry and allows them to or e x p a n d their products. A conglomerate merger unites firms in completely unrelated industries.
  32. 32. Mergers Magna auto parts Ford auto mfg Scarborough Ford/ Lincoln Auto dealership Delta auto parts GM auto mfg Markham Cadillac Auto dealership Magna + Delta? H o r i z o n t a l
  33. 33. Mergers Magna auto parts Ford auto mfg Scarborough Ford/ Lincoln Auto dealership Delta auto parts GM auto mfg Markham Cadillac Auto dealership Magna + the Scarborough dealership? V e r t i c a l
  34. 34. Magna auto parts Ford auto mfg Scarborough Ford/ Lincoln Auto dealership Delta auto parts GM auto mfg Markham Cadillac Auto dealership Scarborough + Ford? V e r t i c a l Mergers
  35. 35. Delta + Henderson? Conglomerate Henderson’s Appliances Magna auto parts Ford auto mfg Scarborough Ford/ Lincoln Auto dealership Delta auto parts GM auto mfg Markham Cadillac Auto dealership Mergers – unrelated industries
  36. 36. Why Mergers Don’t Work Companies overpay to acquire another firm Acquiring company overestimates cost savings and synergies After merger, managers disagree about integrating operations After merger, cost cutting obsession hurts business, costing top employees and customers
  37. 37. Leveraged Buyout - an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing. The funds borrowed are used to buy out the stockholders in the company.
  38. 38. Leveraged Buyout Individual + Loan = Purchase of Company Purchase Loan Company = Collateral
  39. 39. Franchises Some people are not comfortable starting their own business from scratch. They would rather join a business with a proven track record through a franchise agreement. A franchise agreement is an arrangement whereby someone with a good idea for a business (the franchisor) sells the rights to use the business name and to sell a good or service (the franchise) to others (the franchisee) in a given territory. Ource:
  40. 40. Franchises Advantages • Management and marketing assistance • Personal ownership • Recognized name • Financial advice & assistance • Lower failure rate Disadvantages • High start-up costs • Shared profit • Management regulation • Coattail effects • Restrictions on selling • Fraudulent franchisors
  41. 41. Franchise System Image sources:;;;
  42. 42. Figure 5.7 Canadian Franchisors
  43. 43. Franchise Contract Branded Product/Service Performance Monitoring $$$$$ Franchisor
  44. 44. Franchisor Assigns territory May provide financial aid/advice Offers merchandise/ supplies at competitive prices Provides training/support Business expansion using OPM
  45. 45. Franchisee Pays upfront costs Makes monthly payment to franchisor Runs business by franchisor’s rules/procedures Buys materials from franchisor/approved supplier
  46. 46. How to Avoid a Franchise Lemon Research officers & their business experience Get summary of any bankruptcy & litigation Estimate all costs to set up franchise Review franchise contract and three most recent financial statements Image source:
  47. 47. Flexible work hours | Quality lifestyle Doing the work of your choice | Self-motivation Opportunity to expand using technology Benefits of a Home-Based Franchise . Image source:
  48. 48. Franchising & E-Commerce Technology: faster customer service Access to international markets
  49. 49. Co-operatives
  50. 50. Chapter Summary The advantages of sole proprietorships include ease of starting and ending the business, being your own boss, pride of ownership, retention of profits, no special taxes, and less regulation than for corporations. General partners are owners (partners) who have unlimited liability and are active in managing the company. Limited partners are owners (partners) who have limited liability and are not active in the company. Advantages of corporations: more money for investment, limited liability, size, perpetual life, ease of ownership change.
  51. 51. Chapter Summary A merger is the result of two firms forming one company. Franchises: benefits include a nationally recognized name and reputation, a proven management system, promotional assistance, and pride of ownership. Co-operatives are organizations owned by members/customers. Some people form co-operatives to give members more economic power than they would have as individuals.
  52. 52. 54 Homework