Chapter 2 Types of Businesses Forms of Business

Chapter 2: Types of Businesses Forms of Business Ownership Forms of business ownership and types of businesses describe how they are organized and run. The four main forms of business ownership are listed below. A franchise is a • partnership • sole proprietorship combination, or • co-operatives • corporation hybrid, of the four forms of ownership. Sole Proprietorships A sole proprietorship is a business owned by one person who is known as the proprietor. The proprietor has a wide range of responsibilities including arranging displays and selling to customers to name a few. Funds to run the business usually come from the owner’s savings, friends, family, or from a bank loan. If the business prospers, the owner receives all of the profits. If the business does poorly, the owner is responsible for its losses. This is called unlimited liability. 1

Chapter 2: Types of Businesses Forms of Business Ownership Partnerships A partnership refers to a type of business in which two or more individuals share the costs and responsibilities of owning and operating it. The terms of the partnership are recorded in the partnership agreement. The most common form of partnership is a general partnership. When two individuals form a limited partnership, the partners are only responsible for the funds they both invested in the initial business. This is called limited liability. 2

Chapter 2: Types of Businesses Forms of Business Ownership Corporations A corporation is a business granted legal status with rights, privileges, and liabilities that are distinct from those of the people who work for the business. Corporations can be small such as a one-person business or large such as A multinational that conducts business in several different countries. Small portions of corporate ownership that are owned publicly are called stocks or shares. Individuals who own shares of a corporation are called shareholders and become owners of the business. Shareholders have limited liability. A board of directors runs a corporation that is owned by shareholders. A publicly traded corporation that makes a profit may pay out dividends to shareholders. 3

Chapter 2: Types of Businesses Forms of Business Ownership Types of Corporations • • private corporations Crown corporations • public corporations • municipal corporations Co-operatives A co-operative is owned by the workers or members who buy the products or use the services that the business offers. This type of business is motivated by service and not profit. Adaptations of this business model include consumer, retail, and worker co-operatives. 4

Chapter 2: Types of Businesses Forms of Business Ownership Franchises The franchiser licenses the rights to its name, operating procedure, designs, and business expertise to another business called the franchisee. A franchise agreement can provide the franchisee with • a ready made, fully operational business • brand recognition that is appealing to consumers Requirements before a franchise is awarded may include • paying the franchise fee • agreeing to pay a monthly percentage fee as well as any national or local advertising costs • purchasing all supplies centrally from the franchiser • participating in franchiser standards training 5

Chapter 2: Types of Businesses Going into Business Eight Questions to Ask Before Going into Business 1. Why Start Your Own Business? People who desire to be the boss and take responsibility for making decisions often decide to run their own business. They believe it is the best way for them to achieve financial independence, to allow them to use their skills and knowledge, and to be creative. 2. What Different Types of Businesses Are There? service business retail business not-for-profit organization manufacturing business 3. What Are Your Skills and Interests? Different ideas, skills, and knowledge can be used to start a new business. Two popular ones are home-based or Web-based businesses. 6

Chapter 2: Types of Businesses Going into Business i. Should Your Business Be Home-based? Technology has changed how SOHO (“small office, home-based”) businesses operate. Computers, scanners, and Internet access are a few of the tools that home office businesses use today to be successful. ii. Should Your Business be Web-based? E-commerce (“electronic commerce”) is a marketplace where consumers and sellers meet without face-to-face contact. In the “real world, ” products are tangible. Products and services are sold to us by personal contact with the sellers. In cyberspace or online, we do not interact with products or come face-to-face with the sellers. Our experience with services is limited or non-existent. Consumers are often reluctant to purchase online due to unreliable or dishonest businesses and privacy issues. 7

Chapter 2: Types of Businesses Going into Business 4. 5. Where Can You Find Information About a Business? Businesses require accurate and current information to make good decisions. Important resources to find information include libraries trade associations the Internet existing businesses federal and provincial governments (i. e. , Strategis and Statistics Canada are two helpful government sites or agencies. ) What Are the Start-up Costs? Capital resources to run a business are available through debt financing referred to as borrowing money to run the business. Using your savings or investor savings called equity financing is an alternative way to fund a business. 8

Chapter 2: Types of Businesses Going into Business 6. What Level of Risk Can You Expect? Even with research and planning, business can be risky. Risks or threats beyond and within the owner’s control can put the business in financial difficulty. 7. What Steps Are Involved in Running This Business? Some types of businesses, such as manufacturing, are complex. A complex business requires many people with different skills to successfully start and operate it. 9

Chapter 2: Types of Businesses Going into Business 8. What Resources Will You Need? Forecasting is determining the resources the business requires and how much financing it needs to obtain them. Revenue is the amount of money gained from the sale of products or services. 10

Chapter 2: Types of Businesses International Business Structures A number of different business structures allow businesses to expand into international markets. Joint Ventures A joint venture can match the skills and expertise of two different individuals or businesses to generate more benefits for both parties. International Franchises An international franchise is a way to achieve an international presence by buying the rights to a chain operation from the franchiser. 11

Chapter 2: Types of Businesses Forms of Business Ownership Strategic Alliances Strategic alliances occur when two or more businesses agree to commit particular resources to achieve a common set of objectives. Alliance partners remain separate and entirely independent of each other. Mergers happen when two or more companies join together: one of the businesses usually wants to purchase a controlling interest in the other company, or both business have combined interests. 12

Chapter 2: Types of Businesses Forms of Business Ownership Offshoring relocates some of a company’s operations to another country. Usually this happens to take advantage of lower labour costs, to be closer to large and emerging buyer markets, and to have access to skilled workforces. Multinational Corporations A business enterprise that conducts business in another country or several different countries is a multinational corporation. A multinational corporation offers different benefits to the country it invests in. Some positive benefits include new jobs and training for people. Negative consequences could be less pay and more financial instability for citizens of that country. 13