Forms of Business Ownership

1
Forms of Business Ownership Organization
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There are four forms of business organization,
they are

• Sole Proprietorship

• Partnership

• Corporation

• (Cooperative-not covered)

We will look at the first 3.
3
Sole Proprietorship

• An unincorporated business owned by a single
  individual.

• The law does not distinguish between the business
  and the owner.

• All that is legally necessary is that the
  business be registered and the proper licenses
  obtained.

• No legal separation between business and owner.

4
Sole Proprietorship
Advantages

• requires only registration and licenses

• quick, easy and inexpensive to establish

• all profits to owner and included with personal
  income for tax purposes

• owner makes all decisions

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Sole Proprietorship
Disadvantages

• harder to raise capital than partnership or
  corporation

• unlimited liability

• limited to owners knowledge

• lack of continuity

• profits taxed at higher personal rate

• limited options for employee compensation

6
Partnership

• An unincorporated business owned by more than one
  individual.

• The law does not distinguish between the business
  and the owners.

• Profits divided according to each partners share
  of the business

• Each partner includes share of income in personal
  taxable income

• Can be general or incorporated. We cover
  general only.

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Partnership
Advantages

• limited regulations

• more capital resources

• Combines talents resources of gt 2 people

• quick, easy and inexpensive to establish

• partners may deduct business losses (share) from
  other personal income for tax purposes

8
Partnership
Disadvantages

• possible disagreements

• partners assume unlimited liability for business
  debts and obligations

• business income taxed at higher personal rates

• sometimes difficult to make decisions (agree)

• partners liable for each other

9
Corporation

• A business which is a separate legal entity,
  established by corporate charter

• The law views the business as a separate entity
  from the owner(s).

• Like a person the corporation can own
  land/property, enter agreements and hold
  contracts.

• It can be sued, sue others or incur debts.

• Ownership represented by shares held.

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Corporation

• Profits of the corporation are distributed to the
  shareholders by way of "dividends".

• The more shares one owns, the more dividends they
  will receive.

• Corporations can issue one share or millions of
  shares.

• Often managed by Board of Directors who appoints
  executives including President.

• Corporations can be public (traded) or private

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Corporation
Advantages

• Unlimited life, so business continues
  uninterrupted if owner(s) die

• limited liability of shareholders (However,
  directors and officers can be liable in certain
  circumstances.)

• Ownership easily transferred

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Corporation
Advantages contd.

• Contract for employee benefits plans

• possible lower taxation rate (profits dividends)

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Corporation
Disadvantages

• Costly to set up due to government fees, name
  searches, legal fees

• Requires annual maintenance from accountant and
  lawyer for reports and meetings/filings

• Losses cannot offset personal income

• Owners personal assets can be seized if personal
  guarantees (collateral) have been signed

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Links

• The following is a link to the Canada-Ontario
  Business Service Centre. It will help you by
  giving you more supplementary information about
  types of business ownership structure as well as
  act as a comprehensive guide for all aspects of
  beginning an entrepreneurial venture.

• http//www.cbsc.org/servlet/ContentServer?pagename
  CBSC_ON2Fdisplaylangencid1085667968842cGui
  deFactSheet

• All links on this page are very useful, however
  for our specific operations needs in this unit
  the sections you should look at include
• Start-Up
• Regulations and Licensing
• Taxes
• Employing People
• Operating a Business
• Technology and Innovation
• Intellectual Property