Chapter 5 - Study Guide PDF

**CHAPTER 5 -- STUDY GUIDE** **Small Business and the Legal Forms of Business Ownership** *Instructions: Fill in the Study Guide as you read the chapter and in class.* Small businesses are: - Canada revenue agency: - An income (revenue-expenses) making 500k or less - Industry Canada...

**CHAPTER 5 -- STUDY GUIDE** **Small Business and the Legal Forms of Business Ownership** *Instructions: Fill in the Study Guide as you read the chapter and in class.* Small businesses are: - Canada revenue agency: - An income (revenue-expenses) making 500k or less - Industry Canada - Fewer than 100 employees - Revenues under 2million - U.S. Small Business Administration - No more than 1500 employees - Revenues under 40m. Contributions of Small Businesses to the Economy: Small businesses often fail due to: **Business Plans:** What is a business plan? - Give an organization a sense of purpose What sections are included in a business plan? What elements are included in a business plan? **Business ownership:** +-----------------+-----------------+-----------------+-----------------+ | | **Sole | **Partnership** | **Corporation** | | | Proprietorship* | | | | | * | | | +=================+=================+=================+=================+ | What is is? | - Owned and | - Similar to | - A legal | | | operated by | sole, | entity that | | | one person. | except | exists | | | Just one. | there is | independent | | | | more than | ly | | | - One person | one person. | of its | | | responsible | 2+ people | owners: A | | | for all | | SEPARATE | | | actions and | | LEGAL | | | risks or | | ENTITY | | | the | | | | | business. | | - Owners are | | | | | called | | | - Most common | | shareholder | | | because | | s | | | it's the | | or | | | easier to | | stockholder | | | set up. | | s. | | | | | | | | - Example: | | | | | Avon, multi | | | | | level | | | | | marketing. | | | | | Cleaning | | | | | lady. | | | +-----------------+-----------------+-----------------+-----------------+ | What are the | 1. Almost no | - Combining | - They have | | advantages? | registratio | resource: | limited | | | n | skills | liability | | | required to | | for the | | | start one | - Share | debts of | | | | responsibil | the | | | 2. Owners | ities: | corporation | | | makes all | sharing who | and share | | | decisions | does what | the | | | | | profits. | | | 3. Owners is | - Greater | | | | own boss | financial | - If the | | | | resource | company | | | 4. All | than sole. | defaults on | | | financial | | the debt: | | | info can be | - Share | the | | | kept secret | business | shareholder | | | | losses | s | | | 5. Flexibility | | don't have | | | | - Share time | to pay | | | 6. Tax | commitment | personally. | | | advantages- | | | | | because a | - Tax | - Usually | | | sole | advantages: | shareholder | | | proprietors | partnership | s | | | hip | is not a | do not | | | is not a | separate | operate the | | | corporation | legal | company- | | | , | entity; | they hire | | | it means | where each | employees | | | the money | share is | to do so: | | | you get | part of the | Mcdonalds | | | goes on you | person. | shareholder | | | personal | Partnership | s. | | | tax return. | income is | | | | If your | split based | - Can be | | | company | on | easier to | | | does not | agreement. | raise | | | make any | | funds: you | | | money (a | - Decreases | can go to | | | loss), that | competition | the bank | | | goes on | : | and the | | | your tax | in case | company can | | | return. | they would | get a loan | | | That is a | have | without | | | good thing | competed | looking at | | | because it | against | personal | | | will make | you. | owners | | | your | | financial | | | overall | | records | | | taxes | | | | | smaller. | | - Lower tax | | | You can use | | rates; | | | your losses | | especially | | | against | | small ones. | | | other | | | | | incomes. | | - Corporation | | | | | can exist | | | 7. Ability to | | after the | | | act quickly | | death of | | | and make | | its owners | | | decisions. | | | | | | | - Can defer | | | 8. Easy to | | personal | | | start or | | tax to | | | close | | future | | | | | years. | | | | | Rather than | | | | | having to | | | | | pay taxes | | | | | on revenue | | | | | right away. | | | | | They can | | | | | leave the | | | | | money in | | | | | the company | | | | | meaning | | | | | they'd | | | | | still have | | | | | to pay | | | | | corporate | | | | | tax but | | | | | they can | | | | | defer the | | | | | personal | | | | | tax: if yo | | | | | have a | | | | | company, | | | | | you can | | | | | defer | | | | | personal | | | | | tax on that | | | | | money until | | | | | you are | | | | | ready to | | | | | use it. | | | | | | | | | | - Easy to | | | | | transfer | | | | | ownership | | | | | to another | | | | | party. | +-----------------+-----------------+-----------------+-----------------+ | What are the | - When the | - Partners | - Dual | | disadvantages? | business | still bear | taxation: | | | needs to | all risks | at the | | | take a loan | because its | corporate | | | out, it is | not a | level, and | | | on the | separate | then at the | | | owner. | legal | individual | | | Responsible | entity | | | | for debt | | - More | | | | - Partners | difficult | | | - Responsible | have | to form and | | | for all | unlimited | operate: | | | aspects of | person | lawyer is | | | the | liability | needed. | | | business: | for all the | Willing to | | | lawsuits | other | pay | | | for faulty | partners | 1500-2000 | | | products. | | | | | | - Partners | - Annual | | | - Funding can | may have | lawyer | | | be | conflicts | filings | | | difficult | | every year | | | to obtain | - Share | for them to | | | | profits | update | | | - taxed all | | government | | | income of | - More | on info | | | the | difficult | about what | | | business in | to close | happening | | | the year | down; you | in the | | | earned. | might have | business | | | | to buy out | | | | - No fringe | the other | - Employees | | | benefits in | partner, | who are not | | | comparison | would have | owners may | | | to what an | all of this | not be | | | employer | documented. | committed | | | would | | to the | | | provide. | - Uncertain | business. | | | | transferabi | | | | - If you are | lity: | | | | doing a | if one | | | | great job | partner | | | | at selling | dies, its | | | | Tupperware, | unsure what | | | | then the | happens to | | | | income gets | the | | | | added and | business. | | | | increases | | | | | personal | - One partner | | | | taxes. | mistake is | | | | | the | | | | - If you have | responsibil | | | | high | ity | | | | chances of | of all | | | | sole | partners | | | | proprietors | | | | | hips | | | | | (chances of | | | | | people | | | | | getting | | | | | hurt | | | | | because of | | | | | you) | | | +-----------------+-----------------+-----------------+-----------------+ | How do you | No special | - Municipal | - Must file | | start one? | form, you just | license | articles of | | | might need to | | incorportio | | | get a municipal | - You would | n | | | license. | want to | with the | | | | draw | province | | | | partnership | | | | | agreements | - Must be | | | | (with | done with a | | | | lawyer) | lawyer. | | | | about: | | | | | capital | | | | | contributio | | | | | ns, | | | | | death, | | | | | sharing | | | | | profits, | | | | | addition of | | | | | partners, | | | | | etc. | | +-----------------+-----------------+-----------------+-----------------+ What is the difference between private and public companies? **Public**: Corporation is public if it Is listen on a public stock exchange - a company can make money by selling shares on a public stock exchange. - After people buy their shares; the shares and losses after that are a problem of the shareholders. Secondary sales don't involve them. - Not all corporations are public - Usually big: you can only list on a stock exchange if you prove to be big enough. **Private:** - Privately owned and shares aren't traded. - Loblaws What is a franchise? - You can buy one as a sole proprietorships - Buying a businesses out of the box: already set up for you. \] - A business in which a franchisor sells to another person (franchisee). What the advantages of owning a franchise? - Already set up for you: no training manual What are the disadvantages of owning a franchise? - A franchise is expensive - If your franchise fails, then you also fail - Many rules to follow How do you start one? - You have to pass an interview: prove you have efficient money: pass exams, undergo their training. - Sign something which needs to get renewed often. What is a not-for-profit? - Charities; do not have shareholders, nobody owns them. - Have a Board of directors - Exist for a broader social goal. - They have to meet regulatory examinations to prove they are no for profit What is a cooperative? - Not common in Canada - Whole bunch of people own shares in a specific asset for a specific purpose - Legally incorporated owned and controlled by its members. **In-Class Activity 1:** **Scenario 1:** Luke, Austin, and RJ: the computer geeks - Type of organization? - A partnership - Why? - They're coming with equal amounts of money - Skills; nice way to divide their skill assets - Corporations are expensive and they might not want to use up that money - Easier to set up; and scope isn't messy. **Scenario 2: Tyler and his Carpenter Dilemma** - Type of organization? - Sole proprietorship: corporation - Why? SP - Losses at the beginning will be deducted - Being his own boss - Why? C - Can postpone taxations - Easier to get loans from the bank - Limiting risk and liability is especially important in his case. **Scenario 3: Troy and Tristan- Dance company** - Type of organization? - Partnership - Corporation - Why? - Low start up cost - Concerned around success: so better to limit their investment. - Risk related to liabilities and insurance - Can take loans out of the bank easier **In-Class Activity 2:** Benefits to a corporation for Misty: Drawbacks to a corporation for Misty: Benefits of a partnership for Misty: Drawbacks of a partnership for Misty: Benefits of a sole proprietorship for Misty: Drawbacks of a sole proprietorship for Misty: