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Lecture 4

MGM101H5 Lecture 4 - Book+Lecture notes.pdf

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Dave Swanston

Lecture 4 October-04-13 12:02 PM So, you want to start a business • What business form make the most sense? • Consider issues of cost, risk, control, legal, administration and flexibility Owner Corporation (69%) (legal entity) - A company that has legally incorporated (separate legal entity ) - By creating a separate entity, the companyhas their own revenues - It can have a single owner or MORE - Business stands on its on, has a limited liability - It is expensive to set up Advantages 1. More money for investment 2. Limited liability 3. Separation of ownership/management 4. Ease of ownership change 5. Perpetual life 6. Size 7. Ease of drawing talented employees Disadvantages 1. Size 2. Initial cost 3. Double taxation in income 4. Extensive paper work 4. Extensive paper work 5. Two tax returns 6. Difficulty of termination 7. Conflict with stockholderand board of directors 8. Double taxation Types of corporations - Private: not traded on any stock exchange ○ Limited to 50 or fewer stockholders - Public: shares are traded on one or more stock exchanges ○ Shareholders invest in a company,and depending in shares can have an influence in the corporation. But they are not involved in the day to day decisions - Non-profit: performs public service, has special tax considerations to encourage formation Ex: Chapman's Ice Cream is a private corporation started in 1973 by David and Penny Chapman. Other Types of Corporation • Professional Corporations: Canadian-controlled private corporation engaged in providing professional services (accountants, architects, lawyers, dentist…) • Non-resident Corporations: has head office outside of Canada • Non-profit Corporations: no owners/stockholders(religious institution, hospital, college....) • Crown corporation- only the federal or provincial governmentcan set up How owners affect management Canada's largest corporations 2012 Revenue (Billions) 1. Suncor Energy (De12) 38.79 2. Royal Bank of Canada (Oc12) 34.51 3. PowerCorp. of Canada (De12) 33.03 4. George Weston Ltd. (De12) 32.87 5. Imperial Oil (De12) 31.19 6. Magna International (De12) 31.00 7. Toronto-DominionBank (Oc12) 30.33 8. Great-WestLifeco (De12) 30.12 9. Manulife Financial (De12) 30.04 9. Manulife Financial (De12) 30.04 10. Onex Corp. (De12) 27.51 Corporate Governance • Corporate governancerefers to the process and policies that determine how an organization interacts with its stakeholders,both internal and external. • Corporate governanceis necessary because of the evolutionof public ownership. • As a result of corporate scandals, board members are under increasing scrutiny to ensure that they are effectivelyfulfilling their roles and responsibilities to their stakeholders • Be aware that those who serve on boards (both for-profit and non-profit) may be held personally liable for the misconduct of the organization. Sole proprietorship (24%) - is one person owning and operating a business, without forming a corporation - You don’t have to file taxes - starting your business is not costly - You make your own decisions. The risk is you take your own risk! The loss will be coming out from your own pocket. If you die, the business dies with you unless someonetakes over the business. - Corporation(Legal entity) + Owner = Combined personal and business Advantages 1. Ease of starting and ending the business 2. Being your own boss 3. Pride of ownership 4. Leave legacy 5. Retain profit 6. No special taxes 7. Fewer regulations Disadvantages 1. Unlimited liability 2. Limited financial resources 3. Difficult in management 4. Time commitment 5. Few fringe benefits 6. Limited growth 7. Limited life span Partnership (4.5%) - legal form of business with two or more parties - Risk is limited to what the partners put into it - same as sole proprietorship - You have access to expertise, financial resources, reduce personal risks - You still have unlimited liability - You reduce control in the business because partners will be sharing decisions - What happens when partners do not get along?
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