Chapter 5: Business Organization and Finance

Chapter 5: Business Organization and Finance

Chapter 5: Business Organization and Finance

Organization of Business

  1. Sole Proprietorships

One person owns and operates the business

Most common type of business organization

Advantages

a)Sole decision maker

b)Keep all the profits

c)Easy to start

Disadvantages

a) Limited money (capital) to start investment

b) No specialization which means a lot of work for owner

c)Severe financial risk with unlimited liability

d)Hard to attract workers looking for permanent work because long term future unsure

Appropriate for small market where good / service is not mass produced (e.g. accounting, dentistry, engineering)

  1. Partnerships

Two or more people enter a business as owners and share the profits / losses based upon an oral or written agreement specifying the money, skills, workload and authority of each partner

Advantages

a) More capital can be raised

b) Workload shared allowing for vacations and specialization

c)Sounder business decisions can be made

Disadvantages

a) Partners can have disagreements

b) Unlimited liability for debt can hurt partner who is not responsible for

poor business decisions

c) When one partner dies or leaves a new partnership agreement must be

made

Commonly found in farming, the professions (e.g. law), restaurants, construction and repair work

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  1. Corporations

Has an existence of its own separate from those who created it or own it

Two main types: Crown-owned or controlled by the government (e.g. CBC) & Business-owned and controlled by private individuals (e.g. Bell Canada Enterprises)

Weaknesses of sole proprietorships and partnerships led to corporations being formed

Advantages

a)Limited liability which means only personally liable for the amount of money you have invested in the company

b)Easier to raise capital for the business (e.g. retained earnings, securities like preferred & common shares, bonds)

c)Longevity

d)Specialization through mass production

Disadvantages

a) Unaccountable management may act selfishly against the best interests

of the shareholders

b)Management less motivated to be successful if they don’t have

ownership stake in company

c)Expensive to establish

d)Double taxation

Stock Market is an organized market where corporations can sell shares or ownership in their company

  1. Cooperatives

Organized with the aim of benefiting its owners through lower prices and / or distribution of surpluses at the end of the year

Like a corporation with shares sold but unlike a corporation despite how many shares you own only one vote per person

Advantages

a) democratic and fair

Disadvantages

a) little motivation to work harder than others

  1. Public / Government Enterprises

Federal, provincial, and municipal governments produce a wide array of goods and services in Canada from garbage disposal to medical services

Crown corporations are semi-independent (e.g. Canada Post)

Produces goods and services that are essential to a community at a reasonable price

To reduce debt and inefficiency crown corporations have been sold off to the public i.e. privatization (e.g. Air Canada, 407)