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Midterm

COMMERCE 1B03 Study Guide - Midterm Guide: Sole Proprietorship, Canadian Auto Workers, Industrial Unionism


Department
Commerce
Course Code
COMMERCE 1B03
Professor
Rita Cossa
Study Guide
Midterm

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Commerce 1B03 Midterm 2 Notes
Chapter 6:
Organization Types:
Sole Proprietorship
~ A business that is owned and usually managed by one person
~ You and the business are considered one = Unlimited Liability
Advantages:
- No arguing you make all the decisions
- Have the ease of starting and ending the business
- You are your own boss decide when you want to work
- Pride of ownership deserve all the credit for starting own business and
taking those risks leave a legacy
- Retention of company profit all profits are yours
- No special taxes all profits are taxed as the personal income of the owner
- Less regulation less regulated than corporations, administration is less
costly than a corporation
Disadvantages:
- Unlimited liability the risk of personal losses ~ any debts or damages
experienced by the business are your debts and you must pay them
- Limited financial resources funds available to the business are limited to the
funds that the one owner can gather
- Management difficulties hard to find good workers willing to be paid what the
owner is offering because they cannot compete with the salary and benefits
offered by larger companies
- Overwhelming time commitment if you aren’t working, business is not
producing
- Few fringe benefits no benefits that some companies would give out; no paid
health insurance, no sick leave or vacation pay
- Limited growth slow expansion since everything depends on the sole proprietor
- Limited lifespan if the sole proprietor dies, the business no longer exists
- Possibly pay higher taxes if the business is profitable it may be paying higher
taxes than if it was incorporated as a Canadian Controlled Private Corporation
o Tax rates are more beneficial if the business is incorporated
Partnership
~ A business with two or more parties
General Partnership all owners share in operating the business and in assuming
liability for the business’s debts
Limited Partnership partnership with one or more general partners and one or
more limited partners
Advantages:
- More financial resources two or more people pool their money and credit, it is
easier to pay all the bills
- Shared management and complementary skills/ knowledge easier to manage
with carefully chosen partners
- Longer survival
- Shared risk

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- No special taxes
- Less regulation less regulated than a corporation
Disadvantages
- Unlimited liability each general partner is liable for the debts of the firm no
matter who was responsible for causing those debts
- Division of profits
- Disagreement among partners for example over money ~ can break down due
to conflict
- More difficult to terminate
- Possible pay higher taxes ~ same as a sole proprietorship
~ Partnership agreement: legal document that specifies the rights and responsibilities of
each partner
Corporation
~ is a federally or provincially chartered legal entity with authority to act and have
liability separate from its owners
~ generate the majority of revenue
~ company ownership is through stocks/ shares
Private Corporations shares are owned by fewer than 50 and are not available for
general public sale
- pay a lower rate of income tax than public corporations
- many are subsidiaries of multinationals or are family- owned
- often ranked by revenue, the one significant financial measure they disclose
Public Corporations shares are widely held and available for general public sale
You cannot change to a corporation status if you are trying to avoid paying sole
proprietorship or partnership debts
Advantages:
- Limited liability owners are responsible for losses only up to the amount they
invest
- Ability to raise more money for investment a corporation can sell ownership
(stock) to anyone who is interested
o Can also borrow money from individual investors by issuing bonds which
are promises to repay the loan in the future with interest
- Size corporations can build modern factories or software development facilities
due to the amount of money they can raise
- Perpetual life the death of one or more owners does not terminate the
corporation
- Ease of attracting talented employees can attract skilled employees by offering
benefits such as a pension plan, dental plan and stock options
o To be competitive; sole proprietorships and partnerships may offer money
or other benefits to compete
- Separation of ownership from management corporations are able to raise
money from many different owners/ shareholders without getting them involved
in management
Disadvantages
- Costly
- Extensive paperwork must keep detailed financial records

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- Double taxation corporate income is taxed twice
- Two tax returns must file both a corporate tax return and an individual tax
return
- Size may become too tied down to respond to market changes and their
profitability can suffer
- Difficulty of termination since legal procedures are costly and more complex
than for unincorporated companies
- Possible conflict with shareholders and board of directors
Corporate Governance
- the process and policies that determine how an organization interacts with its
stakeholders, both internal and external
- it is necessary because of the evolution of public ownership
- In public corporations, there is a separation between ownership and
management, unlike other forms of organizations
- As a result, the board of directors was created to represent the best interests of
stockholders
~ A Crown corporation is one that only the provincial or federal government can set up
~ A domestic corporation conducts business in its home country
~ Multinational corporation is a firm that operates in several countries
~ Non- profit corporation is one that does not seek personal profit for its owners
~ Non- resident corporation conducts business in Canada but has its head office outside
of Canada
~ Private corporation is one whose stock is held by a few people and is not available to
the general public
~ Professional corporation is a private corporation whose owners provide professional
services
Public corporation sells stock to the general public
How Owners Affect Management:
Owners have an influence on how business is managed by electing a board of
directors. The board hires the top managers. It also sets the pay for top managers. Top
managers then select other managers and employees with the help of the human
resources department.
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