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Commerce 1B03 Midterm 2 Notes.docx

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McMaster University
Rita Cossa

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 - 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 - 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. Corporate Expansion - Acquisition – one firm purchases the property and assumes the obligations of another firm - Merger – two firms forming one company o Horizontal – same or similar industry  Soft drink company + Mineral water company o Vertical – different stages of related businesses  Soft drink company + Artificial sweetener company o Conglomerate – join firms in completely unrelated industries  Soft drink company + snack food company Franchising - a franchise can be formed as a sole proprietorship, partnership, or corporation - franchising is a method of distributing a good or service, or both, to achieve a maximum market impact with a minimum investment - Success is based on convenience and a predictable level of service  Advantages: - Management and marketing assistance – assistance in all phases of promotion and operation - Personal Ownership - Nationally recognize name – instant recognition and support from a product group with established customers around the world - Financial advice and assistance – receive assistance and advice from people with expertise in these areas - Lower failure rate - Less risk  Disadvantages: - Large start- up costs - Shared profit - Management regulation - Coattail effects – the actions of other franchises have an impact on your future growth and profitability; you could be forced out of business even if your particular franchise has been profitable - Restrictions on selling - Fraudulent franchisors – before buying a franchise, check out the facts fully Co- Operatives - organization that is formed and operated by its owners to provide benefits in the form of reduced prices and/ or the distribution of surpluses at year end - there are more than 9000 co- operatives in Canada that employ over 155, 000 people o examples include producer (i.e. fishermen), consumer (i.e. food), financial, insurance, housing Co- Operative Differences - Different Purpose – the primary purpose of co- ops is to meet the common needs of their members. Most investor- owned businesses have a primary purpose to maximize profit for their shareholders - Different Control Structure – co- ops use the one- member/ one0 vote system, not the one vote per share system used by most businesses. This helps the co- op serve the common need rather than the individual need - Different Profit Allocation – co- ops share profits among their member- owners on the basis of how much they use the co- op, not on how many shares they hold. Profits tend to be invested in improving services for the members Chapter 7: Entrepreneurship - is accepting the challenge of starting and running a business Entrepreneurship vs. Small Business 1. Amount of Wealth Creation – rather than simply generating an income stream that replaces traditional employment, a successful entrepreneurial venture creates substantial wealth, typically in excess of several million dollars of profit 2. Speed of Wealth Creation – while a successful small business can generate several million dollars of profit over a lifetime, entrepreneurial wealth creation often is rapid ~ for example this may occur within 5 years 3. Risk – risk of entrepreneurial venture must be high, otherwise many people would pursue the idea of entrepreneurship making business ventures impossibly competitive 4. Innovation – entrepreneurship often involves substantial innovation beyond what a small business might exhibit. This innovation gives the venture the competitive advantage that results in wealth creation ~ innovation may be in new products, new production methods, new markets and new forms of organizations What does it take to be an Entrepreneur? - action- oriented - highly energetic - tolerant of uncertainty - able to learn quickly and learn from mistakes Why start a business? - new idea, process, or product - independence - challenge - profit potential What is a small business? - a business that is independently owned and operated, is not dominant in its field, and meets certain standards of size in terms of employees or annual revenues Who is self employed? - people who earn income directly from their own business, trade or profession rather than earn a specified salary or wage from an employer  SME (Small and Medium- Sized Enterprise) is a term used to refer to all businesses with fewer than 500 employees, while firms with 500 or more employees are classified as large Importance of Small Businesses - help maintain the Canadian identity and Canadian economic independence How long do small businesses survive? - survival is defined as the percentage of new firms that continue to operate when they reach a given age - survival rates for small and medium businesses decline over itme - survival is influenced by many factors including: o the business’ geographic location o the industry in which the business operates o the size and age of the business o changes in the marketplace (i.e. economic conditions, number and size of competitors and new entrants)  Challenges with Home- Based Businesses - getting new customers - managing time - keeping work and family tasks separate - abiding by city ordinances - managing risk  Learning about Small Business Operations - start your own business o learn from others o get some experience – three years in a comparable business o buy an existing business o buy a franchise unit  Managing a Small Business o Begin with planning and writing a business plan  Describe the nature of the business, the target market, the advantages the business will have in relation to competition, and the resource and qualifications of the owner o Getting money to fund a small business  Half of all SMEs rely on financial service firms  Venture capitalists – exchange for partial ownership  Angel investors – private individuals investing own money o Knowing your customers  Market o Managing employees  Marketing; human resources o Keeping records  Accounting o Looking for help  Legal, tax, and accounting Small Business – International Prospects Positives: 1. World Market 2. Absorb excess inventory 3. Soften economic downturns 4. Extend product life Negatives: 1. Financing difficulties 2. How to get started? 3. Lack of cultural understanding 4. Paperwork Chapter 12: HR Challenges - shortage of people trained to work in the growth areas of the future such as biotechnology, robotics, and the sciences - the growing number of skilled and unskilled workers from declining industries, such as steel, automobiles, and garment making who are unemployed or underemployed and who need training - the challenge of creating an environment where workplace diversity is respected - Canadian executives identified other critical challenges o Managing o Improving leadership development o Managing work o Transforming HR into a strategic partner - To create people advantage and overcome some of the HR challenges identified, the report suggested 5 major steps to be take by companies 1. Understand the External Environment 2. Understand the Internal Environment 3. Select the most critical human resource topics and set priorities 4. Initiate projects with dedicated teams 5. Secure support from top management Determining your HR Needs 1. Preparing a human resource inventory of the organization’s employees – this should include the background of the person 2. Preparing a job analysis a. Job description – summary of the objectives of the job, the type of work to be done, the responsibilities and duties, the working conditions and the relationship of the job to other functions b. Job specification – written summary of the minimum qualifications required of workers to do a particular job, which includes a job description and job specifications 3. Assessing future human resource demand – due to rapid increase in technology, need to be on point about having trained employees ready on hand 4. Assessing future supply – the labor force is constantly shifting; getting older, more technically oriented, attracting more women. In the future computer and robotic repair workers will be scarcer and assembly- line workers will be oversupplied 5. Establishing a strategic plan a. Recruiting b. Selecting c. Training and development d. Appraising e. Compensating f. Scheduling the workforce Recruitment:  Is the set of activities used to obtain a sufficient number of the right people at the right time Selection:  Process of gathering information and deciding who should be hired, under legal guidelines, for the best interests of the individual and the organization o Obtaining complete application forms o Conducting initial and follow up interviews o Giving employment tests o Confirming background information o Establishing trial (probationary) periods  Hiring contingent workers – workers who do not have full- time employment Training and Developing Employees  All attempts to improve productivity by increasing an employee’s ability to perform  Training focuses on short term skills whereas development focuses on long term abilities  Employee orientation – activity that introduces new employees to the organization; to fellow employees; to their immediate supervisors; and to the policies, practices, values, and objectives of the firm  On- the – job- training – employee immediately begins his or her tasks and learns by doing, or watches others for awhile and them imitates them, all right at the workplace  Apprentice programs – training programs involving a period during which a learner works alongside an experienced employee to master the skills and procedures of a craft  Off- the- job- training – training occurs away from the workplace and consists of internal or external programs to develop any of a variety of skills or to foster personal development  Online training – employees attend classes via internet  Vestibule training – done in schools where employees are taught on equipment similar to that used on the job  Job simulation – use of equipment that duplicates job conditions and tasks that trainees can learn skills before attempting them on the job  Management Development – process of training and educating employees to become good managers and then monitoring the progress of the their managerial skills over time Evaluating Employee Performance - a performance appraisal is an evaluation in which the performance level of employees is measured against established standards to make decisions about promotions, compensation, additional training or firing 1. Establish performance standards – standards must be met 2. Communicating standards – never assume anything; make expectations and standards clear with everyone 3. Evaluate performance – evaluate the employee’s behavior to see if it matches standards 4. Discussing results – discuss results with employees 5. Take corrective action 6. Use the results to make decisions a. Promotions b. Compensation c. Additional training d. Firing  Compensating Employees - attract the right employees - provide effective employees incentives - keeping valued workers from leaving - maintaining a competitive position in the marketplace - providing employees with financial security  Pay Equity – equal pay for work of equal value  Gender wage gap – the difference between wages earned by men and wages earned by women  Pay systems – systems that compensate employees fairly  Compensating teams as a whole as well as the employees as individuals  Fringe benefits – benefits such as sick leave pay, vacation pay, pension plans, and health plans that represent additional compensation to employees beyond base wages Three Categories of Fringe Benefits - federal or provincial legislation that requires compulsory deductions from employees’ pay cheques, employer contributions, or both - legally required benefits o vacation pay, holiday pay, unpaid maternity leave - Voluntary employee programs or from employer – union contracts o bonus, company pension plan and group insurance Scheduling Employees - Flextime Plan – gives employees some freedom to choose when to work, as long as they work the required number of hours - Core Time – the period when all employees are expected to be at their job stations - Compressed Workweek – allows an employee to work a full number of hours per week but in fewer days - Job- Sharing Plans – lets two or more part0 time employees share one- full time job Moving Employees Up, Over and Out - promoting or reassigning employees - terminating employees - retiring employees - losing employees o turnover rate Laws Affecting HR Management - Employment Insurance – Federal government (F) - Minimum Wage – Provincial government (P) - Banks – F - Hours Worked – P - Railway companies – F - Overtime – P - Discrimination in the workplace – P - Employment of people < 18 years of age – P  Canadian Charter of Rights and Freedom  Employment Equity o Reverse discrimination  Laws that protect the disabled  Laws that protect older employees Points to remember: - The number one human resource challenge worldwide is managing talent - The most important advantage in using internal sources when hiring from within a firm is that hiring from within helps maintain employee moral - The information contained in performance appraisals helps managers make decisions about promotions, compensation, training and firing Chapter 13: Trade Unions in Canada - Organized labor began in the early 1800s on the wharves of Halifax, St. John’s and Quebec to profit from labour security - Unions were illegal until 1872 o It was a long and bloody road and some strike leaders were beaten, jailed, or shot - Craft unions were formed in the 1830s to protect pay, hours, conditions and job security while industrial unions were created to represent certain workers that were unskilled and semi- skilled in mass production industries such as automobile manufacturing and mining - Benefits that we see today as a result of trade unions include minimum wage, vacations, holidays and pension plans Union Types  Union – an employee organization that has the main goal of representing members in employee- management bargaining over job related issues  Craft – organized by trade, usually skilled workers  Industrial – organized by industry, usually semi- skilled or unskilled  National or local unions  International – members in more than one country  Independent local union – not formally affiliated with any labor organization ( association) The Canadian Labour Congress (CLC) - the CLC is the national voice of the labor movement - While it represents over 3 million worker members, it also speaks on behalf of those who don’t belong to a union and need to be represented - Promotes decent wages and working conditions and improved health and safety laws - Lobbies the government for fair taxes and strong social programs, including childcare, medicare and pensions The Canadian Union of Public Employees (CUPE) - is Canada’s largest union - represents workers in health care, education, municipalities, libraries, universities, social services etc. The Canadian Auto Workers (CAW) - ONE OF the largest private- sector unions in Canada Unifor - is Canada’s LARGEST private- sector union - “unity” and “forward- looking” - reflecting the goal of modernizing the movement and moving forward is the result of the merger between the CAW and the communications, energy and paperwork’s union of Canada Legislation in Canada - the growth and influence of organized labor has depended primarily on two major factors – the law and public opinion - due to the nature of confederation in Canada under the Constitution Act, power and authority was divided among the provinces and the federal government - Federal government activities apply to approximately 10% of Canadian workers o Federal legislation – via the Canada Labor Code – applies to unions and labor- management relations for these workers o Provincial governments oversee the other areas, including Workmen’s Compensation, human rights, labor standards, and the Trade Union Act The Collective Bargaining Process - process whereby union and management representatives negotiate a contract for workers - determines how unions are selected, actions that are allowed during the period prior to certification and ongoing contract negotiations - determines behavior while a contract is in force during a breakdown in negotiations for a contract renewal as well as decertification - certification – formal process where a union is recognized by the LRB as the bargaining agent for a group of employees - decertification – process by which workers can take away a union’s right to represent them * In Ontario, doctors, dentists, teachers and police officers are all not represented by a union/ association. Union Facts - Union Density – measures the percentage of workers who belong to a union - Approximately 4.7 million employees (approx. 31%) as of Sept 2013 belonged to a union - When unions were most powerful in 1984, they represented 41.8% of all workers - While union membership has been increasing, this has not always been reflected
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