2.1 Types of Businesses and Ownership Structures Flashcards
Types of business
Service
Merchandising
manufacturing
non- profit organizations
A service business provides intangible (can’t touch and hold it) things to a customer
Services are often:
For Accountants: Service businesses tend to …..
not physical ( can’t hold it) you can’t hold an oil change
non durable ( they don’t last) you can’t take the waiter home with you
provided by skilled people - you are paying to utilize a person’s skill. again you don’t get to keep their skill.
…Service businesses tend to have higher labour costs, but don’t have to account for inventory or “goods”
Examples of service businesses
Accounting firm
Catering company
Hair salon
Teacher
Mechanic
Movie theatre
Lawyer
Merchandising Business
A merchandising business sells goods. these tend to be physical items.
Merchandising business buys goods from a manufacturer and sells them to a customer.
For Accountants: Must account for inventory and cost of goods sold. ( has an extra section on income statement)
Manufacturing business
These businesses buy raw materials and use them to manufacture goods.
For Accountants: Like merchandising businesses, Manufacturing businesses hold inventory, but they hold it in a more complicated set of accounts, including raw materials, partially finished goods and finished goods.
Business structures
Sole Proprietorship
Partnership
Corporation
co-operative
franchise
Sole Proprietorship
A business owned by a single person.
Sole = 1
Proprietor = owner
To start his business he needs money from the bank to purchase the land for his store and other things for the business.
Unlimited liability: law doesn’t differentiate between the person owning the business and the business.
OLE PROPRIETORSHIP (disadvantages)
Unlimited liability
Getting money from banks may be difficult
Have to be good at many jobs when it comes to running business (accounting, marketing, production, human resources, etc.)
SOLE PROPRIETORSHIP (Advantages)
No boss to report to
Can make all decisions about the business
Easy to start and end
Don’t have to register with government, and can declare income on regular tax return
All profits go to owner
Partnership
A business that is operated by two or more partners who share costs and responsibilities.
Partnership = 2+ owners
Need partnership agreement (verbal/written)
2 Types of Partnerships
- General Partnership – active partners are both involved in the business (both have unlimited liability)
- Limited Partnership - limited(silent) partners are investors and not involved in the business.
They have
limited liability: not personally responsible for the debts of the business.
Advantages -Partnership
More access to financing (money)
Shared risk
Shared responsibilities and duties
Disadvantages-Partnership
Unlimited liability in general partnership
Have to compromise with partner – can’t make your own decisions
Partners will sometimes disagree
CORPORATION
highly regulated by the provincial and federal government
name must include:
Incorporated, Inc. Corporation, Corp. or Limited, Ltd
Corporation is a business that has been granted…
how many owners? (liability)
A business that has been granted legal status
one or more owners with limited liability
Corporate Ownership
Shares or Stocks:
Business sells small part of itself (a share) to others on a stock exchange
A Stock exchange is where a business can offer its stocks/shares for sale to buyers who then become shareholders
Shares or Stocks:
A business that sells their shares on a stock exchange is called a
publicly traded corporation
Businesses sell their shares to raise money for business so that they can:
grow the business, to purchase new assets (land, buildings, equipment, etc.)
Corporate Management
because they have so many owners…
a ‘Board of Directors’ is put in place to make decisions about running corporation
Corporation -advantages
Limited liability
Easy transfer of ownership
Access to financing
Access to capital by selling stocks
CORPORATIONS
Disadvantages
Time and cost to establish business
Need to answer to many shareholders and to board of directors
Those with few share have little influence on corporate management
COOPERATIVE
Owned and operated by the workers or members who buy the products or use the services that the business offers.
Each person who owns part of the co-op gets one vote when the business needs to elect a new board of directors.
COOPERATIVES-Advantages
Run for benefit of members, may offer savings
Democratic structure-all members have equal vote
COOPERATIVES -disadvantages
Decision-making process can be difficult
May be difficult to meet the needs of all members
