Forms of Business Ownership & Organization

1. Forms of Business Ownership & Organization

2. There are four forms of business organization, they are: • Sole Proprietorship • Partnership • Corporation • (Cooperative-not covered) We will look at the first 3.

3. Sole Proprietorship • An unincorporated business owned by a single individual. • The law does not distinguish between the business and the owner. • All that is legally necessary is that the business be registered and the proper licenses obtained. • No legal separation between business and owner.

4. Sole Proprietorship Advantages • requires only registration and licenses • quick, easy and inexpensive to establish • all profits to owner and included with personal income for tax purposes • owner makes all decisions

5. Sole Proprietorship Disadvantages • harder to raise capital than partnership or corporation • unlimited liability • limited to owner’s knowledge • lack of continuity • profits taxed at higher personal rate • limited options for employee compensation

6. Partnership • An unincorporated business owned by more than one individual. • The law does not distinguish between the business and the owners. • Profits divided according to each partners share of the business • Each partner includes share of income in personal taxable income • Can be “general” or “incorporated”. We cover general only.

7. Partnership Advantages • limited regulations • more capital resources • Combines talents & resources of >= 2 people • quick, easy and inexpensive to establish • partners may deduct business losses (share) from other personal income for tax purposes

8. Partnership Disadvantages • possible disagreements • partners assume unlimited liability for business debts and obligations • business income taxed at higher personal rates • sometimes difficult to make decisions (agree) • partners liable for each other

9. Corporation • A business which is a separate legal entity, established by corporate charter • The law views the business as a separate entity from the owner(s). • Like a “person” the corporation can own land/property, enter agreements and hold contracts. • It can be sued, sue others or incur debts. • Ownership represented by shares held.

10. Corporation • Profits of the corporation are distributed to the shareholders by way of "dividends". • The more shares one owns, the more dividends they will receive. • Corporations can issue one share or millions of shares. • Often managed by Board of Directors who appoints executives including President. • Corporations can be public (traded) or private

11. Corporation Advantages • Unlimited life, so business continues uninterrupted if owner(s) die • limited liability of shareholders (However, directors and officers can be liable in certain circumstances.) • Ownership easily transferred

12. Corporation Advantages cont’d. • Contract for employee benefits plans • possible lower taxation rate (profits & dividends)

13. Corporation Disadvantages • Costly to set up due to government fees, name searches, legal fees • Requires annual maintenance from accountant and lawyer for reports and meetings/filings • Losses cannot offset personal income • Owners personal assets can be seized if personal guarantees (collateral) have been signed

14. Links • The following is a link to the Canada-Ontario Business Service Centre. It will help you by giving you more supplementary information about types of business ownership structure as well as act as a comprehensive guide for all aspects of beginning an entrepreneurial venture. • http://www.cbsc.org/servlet/ContentServer?pagename=CBSC_ON%2Fdisplay&lang=en&cid=1085667968842&c=GuideFactSheet • All links on this page are very useful, however for our specific operations needs in this unit the sections you should look at include: • Start-Up • Regulations and Licensing • Taxes • Employing People • Operating a Business • Technology and Innovation • Intellectual Property