2.1 Types of Businesses and Ownership Structures

Question 1

Types of business

Answer 1

Service
Merchandising
manufacturing
non- profit organizations

Question 2

A service business provides intangible (can’t touch and hold it) things to a customer
Services are often:

For Accountants: Service businesses tend to …..

Answer 2

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”

Question 3

Examples of service businesses

Answer 3

Accounting firm
Catering company
Hair salon
Teacher
Mechanic
Movie theatre
Lawyer

Question 4

Merchandising Business

Answer 4

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)

Question 5

Manufacturing business

Answer 5

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.

Question 6

Business structures

Answer 6

Sole Proprietorship
Partnership
Corporation
co-operative
franchise

Question 7

Sole Proprietorship

Answer 7

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.

Question 8

OLE PROPRIETORSHIP (disadvantages)

Answer 8

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.)

Question 9

SOLE PROPRIETORSHIP (Advantages)

Answer 9

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

Question 10

Partnership

Answer 10

A business that is operated by two or more partners who share costs and responsibilities.

Partnership = 2+ owners
Need partnership agreement (verbal/written)

Question 11

2 Types of Partnerships

Answer 11

1. General Partnership – active partners are both involved in the business (both have unlimited liability)
2. 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.

Question 12

Advantages -Partnership

Answer 12

More access to financing (money)

Shared risk

Shared responsibilities and duties

Question 13

Disadvantages-Partnership

Answer 13

Unlimited liability in general partnership

Have to compromise with partner – can’t make your own decisions

Partners will sometimes disagree

Question 14

CORPORATION

Answer 14

highly regulated by the provincial and federal government
name must include:

Incorporated, Inc. 
Corporation, Corp. 
or Limited, Ltd

Question 15

Corporation is a business that has been granted…

how many owners? (liability)

Answer 15

A business that has been granted legal status

one or more owners with limited liability

Question 16

Corporate Ownership

Answer 16

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

Question 17

Shares or Stocks:
A business that sells their shares on a stock exchange is called a

Answer 17

publicly traded corporation

Question 18

Businesses sell their shares to raise money for business so that they can:

Answer 18

grow the business, to purchase new assets (land, buildings, equipment, etc.)

Question 19

Corporate Management
because they have so many owners…

Answer 19

a ‘Board of Directors’ is put in place to make decisions about running corporation

Question 20

Corporation -advantages

Answer 20

Limited liability

Easy transfer of ownership

Access to financing

Access to capital by selling stocks

Question 21

CORPORATIONS
Disadvantages

Answer 21

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

Question 22

COOPERATIVE

Answer 22

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.

Question 23

COOPERATIVES-Advantages

Answer 23

Run for benefit of members, may offer savings

Democratic structure-all members have equal vote

Question 24

COOPERATIVES -disadvantages

Answer 24

Decision-making process can be difficult

May be difficult to meet the needs of all members

Question 25

FRANCHISE

Answer 25

A franchise is a business also called the franchiser (seller), that allows the franchisee (buyer) to use its name, operating procedure, designs, and business expertise

Question 26

Franchisor (seller) and franchisee (buy) under a

Answer 26

franchise agreement

Question 27

Franchise:

Answer 27

the rights to a business’ name, operating procedures, designs, and business expertise are licensed to another individual.

Question 28

Requirements before a franchise is given to the franchisee may include:

Answer 28

paying the franchise fee
agreeing to pay a monthly percentage fee
paying plus national/local advertising costs
purchasing all supplies from the franchiser
participating in franchiser standards training

Question 29

FRANCHISE-Advantages

Answer 29

Easy start-up because buying existing business

Brand recognition

Shared administration, marketing and purchasing

Grow business without risks and difficulties of building a chain

Question 30

FRANCHISE
Disadvantages

Answer 30

Decisions may be made at level outside of control

Initial franchise fee

On-going fees

Requirements to purchase through franchiser