Forms Of Business Organization Basic Forms of Ownership
Forms Of Business Organization
Basic Forms of Ownership ¡ Sole Proprietorship: a business that is owned, and usually managed by, one person. ¡ Partnership: two or more persons agree to be co-owners of a business. ¡ Corporation: a legal entity with authority to act and have liability separate from its owners. Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Sole Proprietorship Advantages Disadvantages Ease of start/end ¡ o Be your own boss ¡ o Pride of ownership ¡ o Leave legacy ¡ o Retain profit ¡ o No special taxes ¡ Cheapest to Start-up ¡ o o Unlimited liability Limited financial resources Difficulty in management Overwhelming time commitment Few fringe benefits Limited growth Limited life span Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
How to Form a Partnership ¡ ¡ ¡ Choose your partner carefully Get a partnership agreement in writing Types of Partners l l General - unlimited liability; involved in company business Limited - limited liability; not involved in company business Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Partnership Advantages Disadvantages o More financial resources o Unlimited liability o Shared management, knowledge o Division of profits o Longer survival o Disagreements among partners o Shared risk o No special taxes o Difficult to terminate Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Corporations ¡ Private Corporation - shares cannot be sold to the public ¡ Public Corporation - shares are sold to the public and often listed on a stock exchange Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Corporation Advantages o Limited liability o More money for investment o Size-may be larger due to increased resources o long-lasting life o Ease of ownership change o Ease of attracting talented employees o Separation of ownership from management Disadvantages o Extensive paperwork o Double taxation o. Two tax returns o Size-may become too large for new ideas o Termination difficult o Stockholder and board conflict o High initial cost Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Other Types of Corporations Non-resident - has its head office outside of Canada ¡ Personal Services - for an athlete or entertainer to take advantage of corporate tax rates ¡ Non-profit - universities, hospitals, charities, etc. ¡ Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Franchises “ In business for yourself, not by yourself ” ¡ ¡ ¡ Over 1, 100 franchisor companies in Canada Over 60, 000 outlets in Canada Over $90 Billion in sales in Canada “Like a pre packaged dinner” Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Franchises Advantages o Management and marketing assistance o o o Personal ownership o Nationally recognized name Financial advice and assistance Lower failure rate Disadvantages o o o High start-up costs Shared profit Management regulation Coattail effects – your success is tied to the franchisor’s performance Restrictions on selling Fraudulent franchisors Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Franchise Success Versus Independent Business Success Percentage of businesses still operating 97 91 90 100 75 Franchised business 50 62 25 23 18 Independent business 0 r 1 a Ye 5 Y rs a e 10 Y r a e s Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Buying a Franchise ¡ Shop around - do your homework ¡ Get legal and financial advice ¡ Look for financial stability in the franchisor ¡ Analyze the business plan and proforma statements Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Franchise System Ø Franchisor– Owner of parent company who licenses (sells) the rights to operate his/her business to a franchisee. Ø Franchisee - One who purchases the rights to operate an existing company from the franchisor. Ø Franchise Agreement Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Franchisor ü ü Assigns Territory ü Provides Financial Aid/Advice ü Provides Training/Support Offers Merchandise/ Supplies at Competitive Price Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Franchisee ü ü Pays Up-Front Costs Makes Monthly Payment to Franchisor Runs Business by Franchisor’s Rules/Procedures Buys Materials from Franchisor/ Approved Supplier Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
How to Avoid a Franchise Lemon Research them & their business experience ¡ Get summary of any bankruptcy, lawsuits, etc ¡ Estimate all costs to set up franchise ¡ Review franchise contract & three most recent financial statements ¡ Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson
Top 10 Fastest-Growing Franchises for 2008 ¡ ¡ ¡ ¡ ¡ Jan-Pro Franchising Int'l. Inc. 7 -Eleven Inc. Subway Jani-King Dunkin' Donuts Jackson Hewitt Tax Service Bonus Building Care Instant Tax Service Liberty Tax Service RE/MAX Int'l. Inc.
Top 10 Fastest-Growing Franchises for 2009 ¡ ¡ ¡ ¡ ¡ Jan-Pro Franchising Int'l. Inc. Subway Instant Tax Service Stratus Building Solutions Snap Fitness Inc. Dunkin' Donuts Jazzercise Inc. Bonus Building Care Anytime Fitness Vanguard Cleaning Systems
Top 10 Fastest-Growing Franchises for 2011 ¡ ¡ ¡ ¡ ¡ Stratus Building Solutions Jan-Pro Franchising Int'l. Inc. Subway Clean. Net USA Inc. Anago Cleaning Systems Pizza Hut Inc. Liberty Tax Service Vanguard Cleaning Systems Bonus Building Care System 4
Cooperatives ¡ ¡ ¡ Nickels 6 e/Copyright © 2007 Mc. Graw-Hill Ryerson Owned by the members and customers, as opposed by shareholders. Profits are shared amongst the members who pay an annual membership fee. Co-workers, farmers, fishermen, consumers, etc. band together to form “coops” (provides members with goods and/or services).
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