assign2

Unit 2: The Business Formation and Entrepreneurship

Next:  Topic 1: Entrepreneurship and Types of Entrepreneurs ▶︎

Overview

Commentary throughout Unit 2 adapted from:

Gitman, L. J., McDaniel, C., Shah, A., Reece M., et al. (2019).  Introduction to Business . Victoria, BC: BCcampus.

(Attribution: Copyright Rice University, OpenStax, under  CC BY 4.0 license.)

In this second unit, we explore the topics of entrepreneurship, business formation and business planning. You have heard the names of Steve Jobs, Bill Gates, and Richard and Maurice McDonald and their big companies like Apple Computers, Microsoft, and McDonald’s restaurants. These people started very small from their apartments, basements, or garages. They are called entrepreneurs. This is not to say that anyone who starts small is an entrepreneur. Entrepreneurship adds an innovation flavour to the business. Entrepreneurs identify opportunities and come up with novel ideas to fill a niche in the marketplace that has been largely unexplored before.

One of the decisions that entrepreneurs make is to choose the form of business that fits with the vision they have for realizing their ideas. Choosing this form affects every aspect of the business, starting with the cost of establishing and operating the business, daily decision making, taxes and the potential for profits. Businesses in Canada are generally owned and operated under one of three business forms: a sole proprietorship, a partnership or a corporation. Each form has its pros and cons. The proprietorship is represented by a single owner, who has rights to all profits and control of the business. In the partnership, two or more partners co-own the assets and share in the profits. Ownership of a corporation is represented through the sale of stock in the corporation. Other forms such as cooperatives, franchises, and joint ventures also exist.

One document that is important for establishing and financing any business is the business plan. The business plan basically documents the roadmap for an entrepreneur and is required by most banks to finance a business.

Businesses can also organize as limited liability companies, cooperatives, joint ventures, and franchises. In addition, many companies grow through involvement in mergers (in which two companies combine to form one company) and acquisitions (in which one company or investor group buys another).

Unit 2 deals with the concepts of entrepreneurship, business planning and business formation.

Topics

Unit 2 is divided into these  six topics:

· Topic 1: Entrepreneurship and Types of Entrepreneurs

· Topic 2: Business Planning and Financing

· Topic 3: Business Formation: A Sole Proprietorship

· Topic 4: Business Formation: A Partnership

· Topic 5: Business Formation: A Corporation

· Topic 6: Specialized Business Formation: Cooperatives, Joint Ventures, Franchising, M&A

Assessment

Here is the assessment for Unit 2:

· Assignment 2 (8%)

Activity Checklist

Here is a blended checklist of suggested and mandatory learning activities that you will benefit from in this unit.

✓	Activities
	Activity 1: · Read textbook, Chapter 5, pages 171–180. · Review the corresponding PowerPoint slides. · Watch the YouTube video,  Who Even is an Entrepreneur? · Watch the YouTube video,  Intrapreneurship in Business .
	Activity 2: · Read textbook, Chapter 5, pages 186–192. · Review the corresponding PowerPoint slides. · Watch the YouTube video,  How to Write a Business Plan To Start Your Own Business .
	Activity 3: · Read textbook Chapter 4, pages 131–133. · Review the corresponding PowerPoint slides. · Watch the YouTube video,  Legal Basics and Business Entity Formation .
	Activity 4: · Read textbook Chapter 4, pages 134–137. · Review the corresponding PowerPoint slides.
	Activity 5: · Read textbook Chapter 4, pages 137–145. · Review the corresponding PowerPoint slides.
	Activity 6: · Read textbook Chapter 4, pages 145–158. · Review the corresponding PowerPoint slides.
	Assessment: Assignment 2 · Complete Assignment 2 as per the instructions given in the Assessments Overview tab.

Resources

The following are resources you will need to complete this unit.

· Textbook

· PowerPoint slides

· Identified video links

Topic 1: Entrepreneurship and Types of Entrepreneurs

Introduction

Entrepreneurship involves substantial risk in starting and managing a new business. Nonetheless, the desire to be your own boss appeals to many people. Entrepreneurs fall into several categories: classic entrepreneurs, multipreneurs, and intrapreneurs. Classic entrepreneurs can be either micropreneurs who keep their businesses small, or growth-oriented individuals. Multipreneurs start multiple companies. Intrapreneurs are entrepreneurs who apply their creativity, vision, and risk-taking within a large corporation, rather than starting a company of their own. While intrapreneurs let their creative juices flow within a company, their employers assume the risks and keep the profits or bear the losses.

Activity 1:

Activity 1 explores the concept of entrepreneurship and how it differs from small business management. This activity involves watching two videos, reading from the text, and reviewing PowerPoint slides.

Instructions

· Read Chapter 5, pages 171–180, covering these topics:

· “Entrepreneurship Today”

· “Characteristics of Successful Entrepreneurs”

· These include the reasons people choose to be entrepreneurs, types of entrepreneurs (intrapreneurs, micropreneurs, and multipreneurs), entrepreneurship versus small business, and characteristics of successful entrepreneurs.

· Complete the exercise, “Young Entrepreneur Living the Dream” on page 172.

· Review the corresponding  Unit 2 Slides.

· Check your understanding of the concepts by answering the Concept Check questions on page 172.

· Watch the YouTube video, Who Even is an Entrepreneur?

CrashCourse. (2019, Aug. 14). Who even is an entrepreneur? Crash course business – Entrepreneurship #1 [Video]. YouTube. https://youtu.be/aozlwC3XwfY

· Watch the YouTube video, Intrapreneurship in Business.

Riley, J. [Tutor2u]. (2018, April 14). Intrapreneurship in Business [Video]. YouTube. https://www.youtube.com/watch?v=steCXw2Cw40

Topic 2: Business Planning and Financing

Introduction

A business plan guides the business operations, outlines a strategy for turning the ideas into a reality, and helps to persuade lenders to finance the business. When considering the pursuit of your business idea, you must create a business plan. The key elements of a business plan are the company’s vision and mission statement, the product line, the marketing plan, the management organization, the operations plan, and a financial plan. Once a business plan is completed, you will have a sense of whether the business can be viable. Some people may abandon the business idea or others may use the completed plan to pursue financing. In the beginning, most business owners raise funds from personal sources such as savings, and from borrowing from family and friends. As a business grows or if it quite large to begin with, debt financing and equity financing are two other sources of funds. With debt finance, the business owner pays interest on the money borrowed, whereas with equity finance, a share of the profit or business ownership is offered to the lender. Two sources of equity financing are angel investors and venture-capitalists. Angel investors are individual investors or groups of investors who provide financing for start-up businesses in return for a share of the profit. Venture capital firms finance businesses with a growth potential in return for keeping shares of the business ownership.

Activity 2:

Activity 2 deals with developing business plans and business financing. This activity involves watching a video, reading from the text, and reviewing PowerPoint slides.

Instructions

· Read Chapter 5, pages 186–192, covering these topics:

· “Choosing a Form of Business Organization”

· “Developing the Business Plan”

· “Financing the Business”

· “Buying a Small Business”

· “Risky Business”

· Review the corresponding  Unit 2 Slides.

· Check your understanding of the concepts by answering the Concept Check questions on page 193.

·

Topic 3: Business Formation: A Sole Proprietorship

Introduction

A sole proprietorship is a business that is established, owned, and operated by one person. Since they are easy and inexpensive to form, most new businesses are formed as sole proprietorships. However, as the business grows, it may become difficult to operate with limited resources. Therefore, the owner may switch to another form for high-growth businesses. The advantages of sole proprietorships include ease and low cost of formation, owner keeping full profits, owner’s complete control over the business and ease of closing the business. However, on the downside, the owner has unlimited personal liability for debts and losses, difficulty in raising capital and personal time commitment.

Activity 3:

Activity 3 deals with the sole proprietorship form of business. This activity involves watching a video, reading from the text, and reviewing PowerPoint slides.

Instructions

· Read Chapter 4 covering topic “Going It Alone: Sole Proprietorships” on pages 131–133

· Review the corresponding  Unit 2 Slides.

· Check your understanding of the concepts by answering the Concept Check questions on page 134.

· Complete the exercise, “Work-Life Balance Important in Small Business” on page 133.

· Watch the YouTube video, Legal Basics & Business Entity Formation: Crash Course Business Entrepreneurship #5. (This video also discusses the other business formations discussed in the next activities.)

Topic 4: Business Formation: A Partnership

Introduction

A partnership is an association of two or more persons who agree to co-own and operate a business together and share the profits and risks. In a general partnership, all partners share the management work and profits. Each partner has unlimited liability for all the business obligations (debts and contracts) of the firm. A limited partnership has general partners who have unlimited liability and they are involved in the day to day operations. A limited partnership also has limited partners who are not involved in the day to day operations but provide funding. Since they are not involved in management and operations of a business, their liability is limited to the extent of their investment and does not extend into further personal liability.

Activity 4:

Activity 4 deals with exploring the partnership form of businesses. This activity involves reading the relevant sections from Chapter 4 of the textbook and PowerPoint slides.

Instructions

· Read Chapter 4 covering topic “Partnerships: Sharing the Load” on pages 134–137

· Check your understanding of the concepts by answering the Concept Check questions on page 137.

· Review the corresponding  Unit 2 Slides.

Topic 5: Business Formation: A Corporation

Introduction

A corporation is a legal entity with existence separate from the owners, who are not personally liable for the corporation’s actions. A corporation can buy and sell property in its own name and enter into legal contracts. Its organizational structure includes stockholders who own the corporation, a board of directors elected by the stockholders, and management who carry out the mission set by the board. Stockholders can sell or transfer their ownership shares at any time and are entitled to receive a portion of the profits in the form of dividends. Advantages of corporations include limited liability, ease of transferring ownership, and the ability to attract financing. Disadvantages include double taxation on the corporation’s profits and owners’ dividends, cost and complexity of formation and government restrictions. Canada recognizes these types of corporation, Canadian-controlled private corporation, other private corporation, public corporation, private corporation controlled by public corporation, other corporations such as crown corporation.

Activity 5:

Activity 5 deals with learning about the corporation legal form of businesses. This activity involves reading the relevant sections from Chapter 4 of the textbook and PowerPoint slides.

Instructions

· Read Chapter 4 covering topic “Corporations: Limiting Your Liability” on pages 137–145

· Check your understanding of the concepts by answering the Concept Check questions on page 145.

· Complete the exercise, “Pacific Sun’s Golden Glow” on page 138.

· Review the corresponding  Unit 2 Slides.

Topic 6: Specialized Business Formation: Cooperatives, Joint Ventures, Franchising, M&A

Introduction

Besides the aforementioned business formations, several specialized business types also exist. Prominent among them are cooperatives, joint ventures, and franchises. A cooperative is a business entity with some corporate features such as limited liability, unlimited life, board of directors and management staff. Members-cum-owners pay annual dues to the cooperative and receive a share of the profits. Since all profits are distributed back to the membership after covering the operating costs, cooperatives do not retain profits and hence are not taxed. In a joint venture, two or more companies pool together their resources to pursue a big project for a specific period but otherwise retain their individual identities. Franchising is a form of business that involves a business agreement between a franchisor, the company that supplies the concept, training, expertise, brand name and trade-mark; and the franchisee, an individual or company that owns, manages and sells the goods or services at a specific location. A franchise in itself is not a business formation, but it is more of a contract between two companies each having its own business registration. The other models include mergers and acquisitions. A merger occurs when two or more firms combine to form one new company under a different identity from the two firms. Mergers can be vertical or horizontal. In a vertical merger, one firm merges with a supplier or customer firm. In a horizontal merger, a company merges with a competing company. In an acquisition, a corporation or investor group finds a target company and negotiates with its board of directors to purchase it. The purchased company loses its identity in an acquisition. An acquisition can be friendly or hostile. In a friendly take-over, a company is acquired with the consent of its board of directors and management. In a hostile take-over, the company is acquired by influencing the vote of stockholders in favour of acquisition or buying the shares of stockholders but against the wishes of management and the board.

Activity 6:

Activity 6 deals with exploring the specialized business formations such as a cooperative, a joint venture, a franchise, a merger, and an acquisition. This activity involves reading the relevant sections from Chapter 4 of the textbook and PowerPoint slides.

Instructions

· Read Chapter 4, pages 145–158, covering these topics:

· “Specialized Formation of Business Organization”

· “Franchising: A Popular Trend”

· “Mergers and Acquisitions”

· Check your understanding of the concepts by answering the Concept Check questions on pages 147, 155, and 158.

· Complete the exercise, “Setting Up (Sandwich) Shop in China” on page 153–154.

· Review the corresponding  Unit 2 Slides.