Business An Integrative Framework

1
Planning
Organizing
Critical Success Factors
Stakeholders
Marketing
Economic
Top Management
INTERNAL
Vision
Operations
Finance
EXTERNAL
Social
Political
Mission
Human Resources
Technological
Strategy
Middle Management
First-Line Management
Controlling
Directing
2
Planning
Organizing
Critical Success Factors
Stakeholders
Marketing
Economic
Top Management
INTERNAL
Vision
Operations
Finance
EXTERNAL
Social
Political
Mission
Human Resources
Technological
Strategy
Middle Management
First-Line Management
Controlling
Directing
3
P.E.S.T. Model

• Political Forces
• Government and Legal System
• Fiscal and Monetary Policy
• Regulatory - Forms of Business Ownership
• Economic Forces
• Competition and Globalization
• Capital Markets and Investing

• Social Forces
• Social Patterns and Demographic changes
• Ethics and Corporate Responsibility
• Technological Forces
• information
• e-Commerce

4
The Political Environment

• Forms of Business Ownership

• Traditional forms of ownership
• Sole Proprietorship
• Partnership
• Corporation
• Public vs. Private Corporations
• Tax on business income
• Other forms
• Franchising
• Co-operatives
• Corporate Structure

1.2
5
Traditional Forms of Business Ownership

• Sole Proprietorship

• Partnership

• Corporation

6
Which form is the most common?
7
BUT which has the largest sales?
8
Form of Ownership vs. Size of BusinessWhat is a
Small Business?

• a business that is independently owned and
  operated and not dominant in its field.
• Stats Canada defines small business as
• lt2 million in annual sales and
• lt50 employees
• 99 of Canadian companies are small!
• mostly in construction and retail

2.5
9
Sole Proprietorship

• ADVANTAGES
• Easy to form and to dissolve
• Secrecy and simplicity
• Control of profits and decisions
• Government support (small business)
• DISADVANTAGES

10
Types of Partnerships

• General partnership
• all partners have joint and several liability
• joint liability
• several liability
• Limited partnership

11
Types of Partners

• general partner -
• limited partner -
• silent partner -
• secret partner -
• dormant partner -
• senior partner
• junior partner -

12
Partnership

• ADVANTAGES
• Easy to form
• Profit incentive
• More owners - capital and management
• DISADVANTAGES

2.15
13
(Large) Public Corporation- shares traded openly
in captial markets

• ADVANTAGES
• Perpetual life -
• Limited liability
• DISADVANTAGES
• Double Taxation
• Government regulations

2.16
14
(Small) Private Corporation- shares not sold to
public, lt50 shareholders

• ADVANTAGES
• Perpetual life - continuity of ownership
• Limited liability?
• Ease of raising capital?
• Professional management?/separate from owners?
• DISADVANTAGES
• Double Taxation
• Government regulations?
• Difficult and expensive to form?
• Secrecy

15
Large Public vs. small private corporations
Small private Large public
16
Tax on Business Income

• Unincorporated vs. Incorporated businesses
• Personal Income vs. Business Income
• when to incorporate?
• Small Business Tax Deduction

17
Corporate Tax Rates - 2004
18
Example - 750,000 net business
incomeLarge/public corporation

• Large Corporation

19
Small Business Tax Rate RULES

• must be Canadian controlled corporation
• must be privately held
• must retain earnings to retain savings (money
  withdrawn from business for personal use is taxed
  as dividends or personal income)
• applies to first 400,000
• Ontario government claw back
• 4.67 surtax on taxable income over 400,000 up
  to maximum of deduction taken

20
Corporate Tax Rates For Small Canadian Private
Corporations - 2003
21
Example - 750,000 net business incomePrivate
Small Canadian Corporation

• federal tax
• provincial tax
• Total corporate tax

22
Comparing Forms of Ownership
23
Other Forms of Business/Ownership

• Non-resident corporation
• Personal service corporation
• Non-profit corporation
• Crown corporation
• Quasi-government corporation
• Joint venture/Strategic alliance
• Franchise
• advantages, disadvantages
• Cooperative/Co-op
• producer, consumer, financial

24
Corporate Structure

• Shareholders Rights
• prorata rights
• pre-emptive right
• annual report
• Board of Directors Responsibilities

25
Reality! - NOT Democratic

• Underlying strength of democracy - freedom to
  vote as you see fit - seldom exercised
• votes cast represent larger percentage of total -
  mgmt. needs smaller for majority
• most use designated names on proxy
• wording of proxy - discretionary/ withhold

26
Shareholder Recourse

• Attend meeting and Vote
• Cumulative vs. Majority voting system
• votes/share
• allocation of votes
• voted on ballot or separately
• Proxy Battle
• cost
• names
• apathy

27
Cumulative vs. Majority Voting
Example 1,000 shares outstanding, 60 dont
vote 450 votes cast, management controls 2/3 by
proxy 300 votes controlled by mgmt., 150
controlled by shareholders assume 3 positions
available, 6 nominees A,B,C D,E,F