Chapter 2:

Types of
Businesses
Forms of Business Ownership
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
• Corporation
• Partnership
• Co-operatives
• Franchise
 Is a 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.
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.
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.
Corporations Cont’d
 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.
Types of Corporations
Four types of corporations:
 Private Corporations
 Crown Corporations
 Public 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.
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
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.
Going into Business
Eight Questions to Ask Before Going into
Business:
2. What Different Types of Businesses Are
There?
 Service Business
 Retail Business
 Not-For-Profit Organization
 Manufacturing Business
 Manufacturing Business
Going into Business
Eight Questions to Ask Before Going into
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.
Going into Business
Eight Questions to Ask Before Going into
Business:
 Should Your Businesses 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.
Going into Business
Eight Questions to Ask Before Going into
Business:
 Should Your Businesses 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.
Going into Business
Eight Questions to Ask Before 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 two
helpful government sites or agencies.)
Going into Business
Eight Questions to Ask Before Going into
Business:
5. What Are Start-up Costs?
 Capital resources to run 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.
Going into Business
Eight Questions to Ask Before 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
Going into Business
Eight Questions to Ask Before Going into
Business:
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.
Going into Business
Eight Questions to Ask Before Going into
Business:
8. What Resource 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.
International Business
Structures
A number of different business structures
allow businesses to expand into
international markets.
 Joint Ventures
 A joint ventures can match the skills and
expertise of two different individuals or
businesses to generate more benefits for
both parties.
International Business
Structures
 International Franchise
 An international franchise is a way to
achieve an international presence by
buying the rights to a chain operation from
the franchiser.
Forms of Business Ownership
 Strategic Alliances
 Strategic alliances occur when tow 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 businesses have
combined interests
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.
Forms of Business Ownership
 Multinational Corporations
 A business enterprise that conducts business
in another country or several countries in a
multinational corporation. A multinational
corporation offers different benefits to
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.