Chapter 5 Flashcards
Review of Chapter 5
Sole proprietorships
Sole proprietorships – businesses owned and usually managed by a single individual
Partnerships
Partnerships –
voluntary agreements where two or more people act as co-owners; there are
several types
Corporations
Corporations – legal entities, separate from their owners
Sole Proprietorships: Advantages
- Retention of control
- Pride of ownership
- Retention of profits
- Possible tax advantage
Sole Proprietorships: Disadvantages
- Limited financial resources
- Unlimited liability
- Limited ability to attract and retain talented employees
- Heavy workload and responsibilities
- Lack of permanence
General Partnerships – Advantages
- Pooled financial resources
- Shared responsibilities
- Ease of formation
- Tax advantages
General Partnerships – Disadvantages
- Unlimited liability
- Disagreements
- Difficulty in withdrawing from partnership
- Lack of continuity
General partnership
General partnership – all partners have
the right to participate in the management
of the firm, and all share unlimited liability
Limited partnership
Limited partnership –
includes at least one general partner and at least one limited partner (who has limited liability)
Limited liability partnership
Limited liability partnership – all partners are actively involved but they have some form of limited liability, which varies by jurisdiction
What makes corporations different from partnerships and sole proprietorship?
- A corporation is a legal entity, separate and distinct from its owners.
- Corporations are owned by shareholders.
- The board of directors establishes the mission and objectives.
- The board is elected by the shareholders to represent their interests, but rarely gets involved in day-to-day management.
Corporations – Advantages
- Limited liability
- Permanence
- Ease of transfer of ownership
- Ability to raise capital
- Specialized management
Corporations – Disadvantages
- Expense/complexity of formation and operation
- Complications if operating across jurisdictions
- Double taxation
- Paperwork/regulation
- Conflicts of interest
Acquisitions
Acquisitions – when one firm buys another
Mergers
Mergers – two companies agree to become one
Corporations look for?
Corporations look for – growth opportunities, operational efficiencies, and competitive advantages
Divestitures
Divestitures allow a firm to streamline
operations and focus
- Spin-off
- Carve-out
Spin-off
Spin-off – setting up the division or part of the business as a separate entity (sell shares to existing shareholders)
Carve-out
Carve-out – setting up a separate business from an operation (sell shares to outside investors)
What are the different types of corporations?
Traditional/Regular
Cooperatives
Not-for-profit or non-profit
Crown corporations
Cooperatives
Owned by members
Formed to meet common needs of members
Each member has equal ownership and an equal voice on managing the co-op
May be for-profit or not-for-profit
Profits are distributed to members through patronage dividends
Who makes decisions in a cooperative?
Each member has equal ownership and an equal voice on managing the co-op.
Who owns a cooperative?
Owned by members
Is a cooperative for-profit or not-for-profit?
Either, may be for-profit or not-for-profit
How are profits distributed?
Profits are distributed to members through patronage dividends
Not-for-Profit (or Non-Profit)
Operate in both public and private sectors
Crown Corporations
- Government-owned but most operate at arm’s length from government
- Provide services to Canadians where private industry cannot
Franchising
Franchising – not a form of ownership but an operation option; the franchisee uses the brand name, trademark, and practices of the franchisor
What businesses are franchises?
Tim Hortons, Canadian Tire, M&M Food Market, RONA, etc.
Franchising – Advantages
- Less risk
- Training and support
- Brand recognition
- Access to funding
Franchising – Disadvantages
- Costs
- Lack of control
- Negative halo effect
- Growth challenges
- Restriction on sale
- Poor execution
What should you consider when entering into a franchise agreement?
- Terms and conditions
- Fees and other payments
- Training and support
- Specific operational - requirements
- Conflict resolution
- Assigned territory
