Chapter 2: Types of Businesses

Forms of Business Ownership

Forms of business ownership and types of businesses describe how they

are organized and run. The four main forms of business ownership are
listed below.
• sole proprietorship • partnership  A franchise is a
• corporation • co-operatives combination, or
hybrid, of the four
forms of ownership.
Sole Proprietorships
A sole proprietorship is a business owned by one person who is known
as the proprietor. The proprietor has a wide range of responsibilities
including arranging displays and selling to customers to name a few.
Funds to run the business usually come from the owner’s savings,
friends, family, or from a bank loan. If the business prospers, the owner
receives all of the profits. If the business does poorly, the owner is
responsible for its losses. This is called unlimited liability. 1
Chapter 2: Types of Businesses
Forms of Business Ownership

Partnerships
A partnership refers to a type of business in which two or more
individuals share the costs and responsibilities of owning and
operating it.

The terms of the partnership are recorded in the partnership

agreement. The most common form of partnership is a general
partnership. When two individuals form a limited partnership, the
partners are only responsible for the funds they both invested in the
initial business. This is called limited liability.

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 Chapter 2: Types of Businesses
Forms of Business Ownership

Corporations
A corporation is a business granted legal status with rights, privileges, and
liabilities that are distinct from those of the people who work for the business.
Corporations can be small such as a one-person business or large such as
A multinational that conducts business in several different countries.

Small portions of corporate ownership that are owned publicly are called
stocks or shares. Individuals who own shares of a
corporation are called shareholders and become
owners of the business. Shareholders have
limited liability. A board of directors runs
a corporation that is owned by shareholders.

A publicly traded corporation that makes a profit may pay out dividends to
shareholders. 3
Chapter 2: Types of Businesses
Forms of Business Ownership

Types of Corporations
• private corporations • public corporations
• Crown corporations •municipal corporations

Co-operatives
A co-operative is owned by the workers or members who buy the
products or use the services that the business offers. This type of
business is motivated by service and not profit. Adaptations of this
business model include consumer, retail, and worker
co-operatives.
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Chapter 2: Types of Businesses
Forms of Business Ownership

Franchises
The franchiser licenses the rights to its name, operating procedure,
designs, and business expertise to another business called the
franchisee.

A franchise agreement can provide the franchisee with

• a ready made, fully operational business
• brand recognition that is appealing to consumers

Requirements before a franchise is awarded may include

• paying the franchise fee
• agreeing to pay a monthly percentage fee as well as any national
or local advertising costs
• purchasing all supplies centrally from the franchiser
• participating in franchiser standards training
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Chapter 2: Types of Businesses
Going into Business

Eight Questions to Ask Before Going into Business

1. Why Start Your Own Business?
People who desire to be the boss and take responsibility for
making decisions often decide to run their own business. They
believe it is the best way for them to achieve financial
independence, to allow them to use their skills and knowledge, and
to be creative.
2. What Different Types of Businesses Are There?
service business retail business
not-for-profit organization manufacturing business

3. What Are Your Skills and Interests?

Different ideas, skills, and knowledge can be used to start a new
business. Two popular ones are home-based or Web-based
businesses.
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Chapter 2: Types of Businesses
Going into Business

i. Should Your Business Be Home-based?

Technology has changed how SOHO (“small office, home-based”)
businesses operate. Computers, scanners, and Internet access
are a few of the tools that home office businesses use today to be
successful.

ii. Should Your Business be Web-based?

E-commerce (“electronic commerce”) is a marketplace where
consumers and sellers meet without face-to-face contact. In the
“real world,” products are tangible. Products and services are sold
to us by personal contact with the sellers. In cyberspace or
online, we do not interact with products or come face-to-face with
the sellers. Our experience with services is limited or non-existent.
Consumers are often reluctant to purchase online due to
unreliable or dishonest businesses and privacy issues.

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Chapter 2: Types of Businesses
Going into Business
4. Where Can You Find Information About a Business?
Businesses require accurate and current information to make good decisions.
Important resources to find information include

libraries
trade associations
the Internet
existing businesses
federal and provincial governments
(i.e., Strategis and Statistics Canada are
5. two helpful government sites or
What Are the Start-up Costs?
Capital resources to run agencies.)
a business are available through
debt financing referred to as borrowing money to run the business. Using your
savings or investor savings called
equity financing is an alternative way to fund a business.

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Chapter 2: Types of Businesses
Going into Business

6. What Level of Risk Can You Expect?

Even with research and planning, business
can be risky. Risks or threats beyond and
within the owner’s control can put the
business in financial difficulty.

7. What Steps Are Involved in Running This

Business?
Some types of businesses, such as
manufacturing, are complex. A complex
business requires many people with different
skills to successfully start and operate it.

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Chapter 2: Types of Businesses
Going into Business

8. What Resources Will You Need?

Forecasting is determining the
resources the business requires and
how much financing it needs to obtain
them.

Revenue is the amount of money

gained from the sale of products or
services.

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Chapter 2: Types of Businesses
International Business Structures

A number of different business structures

allow businesses to expand into
international markets.

Joint Ventures
A joint venture can match the skills and
expertise of two different individuals or
businesses to generate more benefits for
both parties.

International Franchises
An international franchise is a way to
achieve an international presence by
buying the rights to a chain operation from
the franchiser.
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Chapter 2: Types of Businesses
Forms of Business
Ownership

Strategic Alliances
Strategic alliances occur when two or more businesses agree to
commit particular resources to achieve a common set of objectives.
Alliance partners remain separate and entirely independent of each
other.

Mergers
Mergers happen when two or more companies join together: one of the
businesses usually wants to purchase a controlling interest in the other
company, or both business have combined interests. 12
Chapter 2: Types of Businesses
Forms of Business Ownership

Offshoring
Offshoring relocates some of a company’s operations to another
country. Usually this happens to take advantage of lower labour costs, to
be closer to large and emerging buyer markets, and to have access to
skilled workforces.

Multinational Corporations
A business enterprise that conducts business in another country or
several different countries is a multinational corporation. A
multinational corporation offers different benefits to the country it invests
in. Some positive benefits include new jobs and training for people.
Negative consequences could be less pay and more financial instability
for citizens of that country.

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