Lecture 2B Canadian forms of business

Question 1

What are the 4 types of business structures?

Answer 1

1. Sole Proprietorship
2. Partnerships
3. Corporations
4. Cooperatives

Question 2

What is sole proprietorship?

Answer 2

-you would be fully responsible for all debts and obligations related to your business
– all profits would be yours alone to keep
– As a sole owner of the business, a creditor can make a claim against your personal or business assets to pay off any debt

Question 3

What are the advantages of sole proprietorship?

Answer 3

• Easy and inexpensive to set up (just need to register)
• Tax advantage
• ALl profits go to you directly.

Question 4

Disadvantages of Sole proprietorship

Answer 4

• UNLIMITED LIABILITY (you have debts, etc, and your own personal personal assets will be used to pay off
• Hard to raise your own capital
• Income is taxable at your own personal rate.

Question 5

Partnerships

Answer 5

• COmbine financial resources with your partner into the business
• ## Goal to divide risk and financial resources and management.

Question 6

Advantages of partnership

Answer 6

Easy to start up
- Equal share in managemnt, profit and assets.
- Tax advantage just like sole proprietor ship (lower income -> less tax)

Question 7

Disadvantages of partnership

Answer 7

• Unlimited liability.
• Possible conflicts between you and partner.

Question 8

What are corporations

Answer 8

• Considred to be a legal entity that is separate from the owners and shareholders.
• Shareholder is not liable for debts, obligations and acts of the corporation.

Question 9

Advantage of Corporations

Answer 9

Limited liability: debts and obligations are limited to the corporation’s assets.
- Ownership is transferable.
- Easier to raise capital.

Question 10

Disadvantage of corporatons

Answer 10

• Closely regulated
• More expensive to incorporate than a partnership/sole proprietorship.
• Extensive corporate records are required, including shareholder and director meetings, and documentation filed anually with the government.
• Possible conflicts between shareholders and directors.

Question 11

What is a cooperative

Answer 11

• Business that is owned by an association of members.
• Appropriate when a group of people/businesses decide to pool their resources to provided access to common needs.

Question 12

Advantage of cooperatives

Answer 12

• Onwed and controlled by members
• Democrativally controlled
• Limited liability of owners.
• Porfit distribution
• not double taxation unlike corporations

Question 13

Disadvantage of cooperatives

Answer 13

-possible conflics between members.
-Longer decision making process
-Participation of members needed for succcess.
- Less incentive to invest additional capital.