Business Organization And Finance

1. Business Organization And Finance Chapter 5

2. Sole Proprietorship • One person owns and operates the business. • Over the 1997 to 2007 period, small firms accounted for 37 percent of all jobs created, on average, in the private sector. Many of these are solely owned. Others are partnerships. • The most common form found in Canada, especially in services such as restaurants, retail, and repair. Advantages Disadvantages - you’re the boss - size is limited - you make all the decisions - you supply financing - you get all the profit - you do all the work - personal satisfaction - unlimited liability - easy to get started. - May not have necessary skills - If you get sick…..

3. Partnership • Two or more individuals as owners • Share profits and losses. • “Articles of Co-partnership” • A formal agreement signed specifying the amount of capital to be provided and the authority of each partner. • Tim Hortons - Wikipedia, the free encyclopedia • Silent partner • Invests in the business, receives a share of the profits but has no say in the running of the business.

4. Easier to raise capital Larger scale Share the work load Share decisions Each partner has a certain expertise, which may compliment each other. Partners may disagree Unlimited liability If a partner leaves or dies the business is dissolved Advantages and Disadvantages

5. Corporations • Exists of its own separate from its owners. • A legal personality with the same rights as a person (incorporated). • Owners are called shareholders. • Have limited liability. If the corporation fails owners are only responsible for the amount they have invested. • A corporation raises money by offering securities for sale. There are three main types:

6. Common Shares Common Shareholders… • Become part owner of the corporation. • Get one vote per share at an AGM . • Shares bought and sold on the stock market. • Make money if… • the corporation makes money and decides to distribute profits to the shareholders in the form of a dividend. • Shareholders sell their shares for more than the purchase price.

7. Preferred shares Preferred Shareholders… • Own stock that has preference over the common share in the payment of dividends. • First to be paid if the corporation goes bankrupt. • Do not have a vote. • More security as an investment than common shares.

8. Stock Exchange – an organized market where listed stocks are bought and sold. • Stock broker – acts as an agent between the exchange and anyone interested in trading shares. • Trader – licensed to buy or sell shares on the stock market floor. The trader fills the clients order. (see pgs. 90-91)

9. Bonds • A written promise to pay a stated sum of money at sometime in the future, including interest. • You are not an owner of the corporation, but a creditor (they borrowed your money). • Must be paid first if the corporation fails.

10. Corporate Control • The shareholders of a corporation ultimately control it. • With one vote per share, they elect a board of directorsat theAGM, (Annual General Meeting). • Voters may arrange to vote by Proxy, transferring their right to vote to someone else.

11. The Board of Directors….. • Appoint the company executives • Decide what is going to be produced • Set policy • Decide how profits will be distributed

12. Profits can be divided by…. • Distributed to shareholders in the form of a dividend. (amount of profit divided by the number of shares equals the dividend per share) • Reinvesting in the corporation. • Paying off debt. • Saving for the future. • Bonuses to the executive.

13. Advantages of a Corporation • Limited liability • Wide range of securities • Raise large amounts of capital • Lasts a long time

14. Disadvantages of a Corporation • Control in the hands of the few • Lack of motivation for management • Expensive to establish • Taxed twice • Stock Exchange – an organized market where listed stocks are bought and sold.

15. Co-ops A cooperative is… • A business run for the benefit of its members, motivated by the desire to save money, not make a profit. • It issues shares to the public but each member only gets one vote, no matter how many shares they own. • Savings in a co-op are based on a Patronage refund.Profits are distributed to the members based on the amount of business or patronage given to the co-op during the year.

16. Three Main Types Of Co-ops 1. Consumer co-ops – providing savings to members on consumer goods. • groceries, bulk items, gas 2. Producer co-ops – help producers save money. • Farmers set up co-ops to purchase fertilizer, seed, insurance and machinery. 3. Credit Unions – members make deposits, which in turned are loaned to other members. • Same services as banks. • Decisions are made by the board of directors.

17. Advantages and Disadvantagesof Co-ops • Patronage refund • Each member has equal say • Difficulty competing in the private sector. • Less aggressive in the marketplace.

18. Public Enterprise • A business run by the government to provide goods and services to the public. • Often compete with the private sector which is seen as an unfair advantage. • However limited by… • government cuts and privatization (selling government assets to the private sector) have evened the playing field. • public’s demand for balanced budgets and a reduction in deficits.

19. Two Types of Public Enterprise • Crown Corporation • owned by the government but expected to run independently. • Ensures competition in the marketplace so that Canadians can afford services deemed essential. (Metro Transit, CBC, Postal Service, NB Power, Hydro Quebec)) • Public Utility • a legal monopoly allowed by government to operate an essential service, such as electricity. • Utilities are controlled by the public utilities board or PUB, which has to approve any raise in basic service fees. (NS Power)