Chapter 6 BUISNESS ORGANIZATION AND FINANCE
Types of Industries • Primary Industries • resource extraction • E.g. Fishing, Hunting, Farming, Mining, Forestry… • Secondary Industries • manufacturing • E.g. Mills, Assembly Plants, Factories, Breweries… • Service Industries • Services • E.g. Medical Clinics, Public Transport, Schools, Legal Offices…
Types of Companies The Sole Proprietorship • A business owned and operated by a single person. • Though other people may be employed all decision are made by the owner. • Proprietors are sorely responsible for all debt • There is unlimited personal liability on the owner. -Which means the proprietors personal assets can be seized to pay outstanding business debt. • Often find it difficult to raise money or obtain loans.
Types of Companies Continued The Partnership • A business owned and operated by two or more people. • All partners are bound by a partnership agreement. • Usually all partners partake in management. • All partners are subject to unlimited personal liability for business losses, however the liability is both joint and several. -Joint Liability entails that all partners are together liable for debt. -Several Liability entails that if one partner fails to pay debt, the other partner(s) would be held liable. • Advantages include: pooling talent, pooling resources and capital as well as sharing burdens. • Usually easier for a partnership to obtain loans and raise money
Types of Companies Continued The Corporation or Limited Company • All assets are divided equally into units called shares and owners are known as shareholders. • There are private and public corporations -The shares of a private corporation may only be sold or traded if approved by the corporations board of directors. - The shares of a public corporation may be sold or traded freely within the supervision of th provincial securities commission or corresponding government. • Any given corporation can only have a few thousand share holders. • Profits that are not reinvested into the company are distributed to the share holders in the form of dividends. • Shareholders benefit from limited personal liability, which is restricted to the amount they have invested in the company. • Substantially larger government fees are imposed on corporations.
Types of Companies Continued The Government Enterprise • Owned by the federal, municipal or provincial government. • Offer service that the private sector won’t due to low profitability. • May be set up to increase, employment or competition. • Canada has more government owned businesses that the U.S.
Types of Companies Continued The Co-operative Enterprise • Owned equally by it’s members. • Need to have a common goal relationship or economic purpose. • There are Marketing, Retail, Financial and Service co-operatives. - A Marketing Co-operative is created to sell the products of members at the best possible price - A Retail Co-operative is created to provide goods to members at reduced prices. - A Financial Co-operative is created to arrange saving and loans to its members at above average rates. - A Service Co-operative is created to provide special services. (e.g. medical insurance or housing) • There is a limited ability to raise capital • Profits not reinvested in the company are paid to the members in the form of a patronage
Types of Companies Continued The Non profit and Charitable Organization • Must be registered as a non-profit or Charitable organization • Not Permitted to generate profit • Gain income and tax exemptions from the government • Must raise money to cover operating cost
Assortments of Business Small Businesses • Very limited in the size and scope of their operations • Remain efficient through completion • The CFIB (Canadian Federation of Independent Business) defines a small business as having less than 50 employees Medium Businesses • Less Limited in there operations • The CFIB defines a medium business as having 50-499 employees Large Businesses • Defined by the CFIB as having 500+ employees • Very little limitation in the scope of their operations
Business Operations • Horizontal Integration • Purchasing or merging with a firm working in the same type of product or service. • E.g. Chrysler Corporation merged with Daimler-Benz to form DailmerChrysler AG in 1998 • Vertical Integration • Purchasing or merging with a firm that in successive stages of production or consumption. • E.g. Rogers Communications bought the Toronto Blue Jays
Business Operations Continued • Corporate Alliances • Firms collaborating on projects or developments. • E.g. Dell Computer Corp. made an alliance with IBM, in which they share technology and integration software. • Corporate Concentration • Large amounts of business activity concentrated into a handful of corporations. • Also include holding companies, whose sole purpose is to acquire large blocks of shares in order to influence or control them. • E.g. The most recognized holding company in Canada, Argus Corporation headed by Conrad Black
Multinational Corporations in Global Economy • Throughout growth and expansion these companies have sold a portion of their output abroad, licenses foreign companies to use their manufacturing process or established branches or plants • Manager base their financial, production and marketing decisions based on global concerns. • Become capable of exploiting cheap labor, cheap resources and low environmental standards in other countries to lower operating costs. • Gives them free access to other markets. • Stability is greatly increased by geographic diversity. E.g. Political upheavals or market fluctuations don’t effect them as badly. • It is argued that drain of expertise (brain drain) has a disruptive effect on an economy.
Different forms of securities Bonds • Corporate bonds are fixed debt which are usually paid back in 10, 15 or 20 year. The buyer get regular interest payments. • Bondholders are not considered partial owners. • Bond can be resold at any time. Shares • Companies can issue additional shares to raise funds. Though it lowers the value of the companies shares • The book value of a share is the value at which it was originally issued. • The market value is the price or value that a share an be sold for in the market.
Securities market and trading • Publicly traded stock are sold in the stock market. • The building they are traded in is the stock exchange. • The largest stock exchanges in the world are in New York, Tokyo and London. • The NASDAQ (National Association of Securities Dealers Automated Quotation) founded in 1971, is one of the largest stock markets in the world. • NASDAQ brokers, called market makers, trade stocks on behalf of their clients. • The TSX (Toronto Stock exchange) has stockbrokers who act on behalf of their clients making investments and trades. • Mutual Funds are amassed and managed by expert fund managers on behalf of the client without him/her needing to get involved.
Commodities Market • A commodity market is a place in which commodities, either processed or raw, are traded in bulk. • There are spot markets and future markets. • Spot Markets involve goods being traded immediately. • Future markets involve the purchase of good that haven’t been grown, mined or produced yet at prices fixed in advance.
Understanding Stock Market Indicators • The Dow Jones Industrial Average is the most widely quoted indicator in th U.S • The Dow is calculated daily based on the closing prices of 30 blue chip (safe or stable) companies, which represent all key sectors of the economy. • The TSX incorporates the Standard & Poor’s Global Classification, giving investors an accurate comparison of the performance of Canadian indices with those around the world.