Business

Organization &
Finance
Forms of Business
Organization
The Sole Proprietorship

• Business solely owned by one person

• Owner is:
• Responsible for all debts (unlimited
liability)
• Entitled to all the profits
• Makes all the business decisions
The Sole Proprietorship
• Advantages
• Be your own boss
• Flexibility
• Reap all the rewards
• Very simple process to set up
• Keep your financial, business and
production confidential
• Disadvantages
• Solely responsible for decision
failures
• Bear all responsibility for debt
incurred
• More difficult to establish credit with
creditors – often requiring personal
co-signing
• More challenging to establish
work-life balance
• Not as many tax advantages
• Considered more risky – higher
interest rates
 The Partnership

• Business created by two or more people

• Bound by terms set in a Partnership
Agreement outlining rights and obligations of
each partner
• Can include silent partner who invests money
but has no say in the day to day operations
• Personally liable for business losses
The Partnership
• Advantages
• Pooling of talent and
entrepreneurship
• Spread financial and business risk
• Pool together financial resources
• More equity to establish credit
• Eligible for more favourable
interest rates
• Disadvantages
• Conflicting ideas and goals could
lead to disagreements and
difficulty to reach a consensus
• Profits are divided equally among
partners
• All members are personally
responsible for all business debts
•
The Co-Operative
• Owned and controlled by equal members
who happen to use the same products or
services
• Members share the same goal or purpose
• Can have limited personal liability if co-op
incorporates
• Members form these co-operatives to get
the best prices possible
• Non-profits
• Examples:
• Retail Co-operatives are formed to
provide goods to members at
reduced prices
• Financial Co-operatives are
formed to arrange savings and
loans for members at better rates
than at local banks (i.e. Desjardins)
The Co-Operative
• Advantages
• Pool risk
• Better bargaining power to
achieve greater savings on bulk
orders
• Able to make large purchases as
a group
• Members have equal say
• Limited personal liability
• Disadvantages
• Difficult to attract wealthy
investors
• Difficult to reach consensus with
competing opinions and ideas
• Restricted to conducting business
among members
• Does not generate substantial
profits
The Corporation
• A business firm legally recognized as a separate entity in
its own right – considered an artificial person
• Can be either public or private
• Publicly traded - subject to the provincial securities
commission
• Privately traded – subject to the approval of board of
directors
• Business established by terms set in Articles of
Incorporation
• Shares are distributed to either private/public buyers or
among shareholders (owners)
• Elected board of directors to run business operations
The Corporation
• Advantages
• Reinvest profits to fund business
• Considered a separate entity
from the shareholders (owners)
avoiding most personal liability
• Less risk, access to more
investors
• Can operate on a large scale
• Longevity
• Favourable tax rates
• Disadvantages
• Loss of owner control
• Can sue or be sued, can own
property and incur debts
• Government regulation
• Public disclosure - annual financial
statements and tax returns
Can you think of examples?

Sole Proprietorship Partnership Corporation

Horizontal Integration

• Business takes ownership of another business that is selling the same

product or service
• Consolidate some departments to achieve better economies of scale
• Economies of scale – cost savings as a result of increased production
efficiency
• Access to larger domestic markets and international markets
• i.e . Merger between Mercedes Benz (Germany) and Chrysler (North
America)
Vertical Integration

• Businesses who organize themselves to produce successive stages of the

production process of a product
• i.e. a home builder who does the carpentry, bricklaying, drywall, etc.
• Able to better control the quality and quantity at the various stages of
production
• Better able to deal with adverse effects of decline in one industry