CH3- Business Formation

Question 1

What is a Sole proprietorship?

Answer 1

Single person or married couple runs a business, an extension of you as a person.

Question 2

What are the advantages of a sole proprietorship?

Answer 2

Easy formation (less paper work)
Control (less conflit)
Retention of profits (all profit goes to you)
Tax advantages (earnings taxed only as income of the proprietor)

Question 3

What are the disadvantages of a sole proprietorship?

Answer 3

Limited financial resources (raising money can be tough)
Unlimited liability (extension of it’s owner, personal wealth can be seized)
Limited ability to attract and keep talent (unable to pay high salaries and offer growth)
Heavy workload and responsibilities
Impermanent (once you die so does your business.)

Question 4

What is a partnership?

Answer 4

More than one owner, more profitable than sole proprietorship

Question 5

What are the types of partnerships?

Answer 5

General partnership
Limited partnership
Limited liability partnership

Question 6

What is a general partnership?

Answer 6

Everyone is equal

A typical partnership agreement : initial financial contribution, duties and responsibilities, how to share loss/profit, how to settle disagreement.

Question 7

What are the advantages of a general partnership?

Answer 7

Better financial pool (more people investing)
Shared responsibilities (shared burden)
Ease of formation
Tax advantages

Question 8

What are the disadvantages of a general partnership?

Answer 8

Unlimited liability (also liable for your partners mistakes)
Potential disagreements (confit and delay in decision making if cant agree)
Difficulty withdrawing
Lack of continuity

Question 9

What is a limited partnership?

Answer 9

At least one general partner

At least one limited partner

Question 10

What are the advantages of a limited partnership?

Answer 10

Limited liability

Question 11

What are the disadvantages of a limited partnerships?

Answer 11

No management input

Risk to general partner

Question 12

What is limited liability partnership?

Answer 12

Only available to certain professional groups

Question 13

What are the advantages of limited liability partnership?

Answer 13

Limited liability

Tax advantages

Question 14

Who are the owners of a corporation?

Answer 14

Shareholders

Question 15

What is a public corporation?

Answer 15

Shares and stocks can be bought by the public

Question 16

What is a private corporation?

Answer 16

Shares and stocks are not trades publicly (few holders)

Question 17

What are the advantages of a corporations?

Answer 17

Limited liability 
Easy funding
Specialized management
Permanence
Ease of ownership transfer

Question 18

What are the disadvantages of a corporation?

Answer 18

Double taxation
More paperwork and regulation
Complexity of formation and operation
Operating in more than one province

Question 19

Horizontal merger?

Answer 19

Combinaison same industry

Question 20

What is a vertical merger?

Answer 20

Combinaison different stage of production (buyer and seller relationship)

Question 21

What are the conglomerate merger?

Answer 21

Combinaison unrelated industries

Question 22

What is a cooperative?

Answer 22

Every member owns equal part formed to meet common need

Question 23

What are the advantages of a cooperative?

Answer 23

Limited liability
Owner continuity
One vote per member
Tax only at individual member level

Question 24

What are the disadvantages of a cooperative?

Answer 24

No incentive to invest

Question 25

What are the two type of franchising agreements?

Answer 25

Distributorship

Business format

Question 26

What is the distributorship agreement?

Answer 26

Franchisor makes a product and grants distributors a license to sell it

Question 27

What is a business format franchise?

Answer 27

Franchisor grants the franchisee the right to both make and sell its goods or services

Question 28

What are the elements of the franchising agreement?

Answer 28

Terms and conditions
Fees and other payments
Training and support
Operational requirements
Conflict resolution
Assigned territory

Question 29

What are the advantages of franchising for the franchisor?

Answer 29

Rapid growth
Shared advertising cost
Increased investment money
Development of motivated sales team
Increased revenue
No need to deal with local business issues

Question 30

What are the advantages of franchising for franchisee?

Answer 30

Low failure rate
Management expertise
Profit
Financial assistance
Economies of scale in buying supplies
Training provided
Well developed brand