Tag: forms of business organization

Perks and snags of small business cooperatives

Cooperative small businesses are organized and controlled by members – an association of people who strive to meet common needs. There are approximately 8,800 cooperatives in Canada. If you’ve shopped at a Co-op grocery store, well, it shouldn’t surprise you to learn that it’s a cooperative organization.

Members pool resources and are given one vote per member. Membership is open and voluntary and members get regular patronage dividend payments. There are two operations of the cooperative: general meetings of the members or delegates; and the board of directors elected at a general meeting. Users or stakeholders of the cooperative usually include consumers, producers, workers or multi-stakeholders.

Here are some perks and snags of a cooperative business:

Perks

  • Limited liability.
  • Profit distribution in proportion to use of service.
  • One member, one vote (democratic control).
  • Owned and controlled by members.
  • Ability to respond to community needs.
  • Community development in remote areas can be stimulated as a spin-off from a cooperative activity.
  • The survival rate of co-ops is higher than private sector companies.
  • Life of the company doesn’t end with the death of a shareholder.

Snags

  • It takes longer to make decisions.
  • Record keeping requirements are extensive.
  • There is less incentive to invest additional funds – members having the larger investment have no advantages over smaller contributors.
  • Conflicts may develop between members.
  • Members must participate for success.

Want more perks and snags? Check out our earlier blog posts on:

 

Share this post:

Perks and snags of incorporation

Perks and snags of small business incorporationIn previous blog posts, we’ve discussed the perks and snags of sole proprietorships and partnerships. However, a corporation is very different from these two forms because the company is considered by law to be a unique entity, separate from the owners. The corporation can be taxed, sued, own property and can enter into contractual agreements at either the federal or provincial level.

Terms that identify a corporation include “Limited”, “Ltd.”, “Incorporated”, “Inc.”, “Corporation”, or “Corp.”

Owners of a corporation are its shareholders, who can’t be personally responsible for the corporation’s debts or obligations, and can’t claim any loss the corporation might experience. A board of directors is elected by shareholders to oversee major decisions. The corporation doesn’t dissolve when ownership changes.

Here are a few perks and snags that you may experience by incorporating your business.

Perks of incorporation

  • Possible tax advantage.
  • Shareholders can only be held accountable for their investment in stock of the company.
  • Transferrable ownership, no limited lifetime of the company.
  • Sale of stock allows for additional funds; it can be easier to raise capital.
  • Specialized management – management and ownership are separate.
  • Benefits may be deducted.
  • Separate legal entity.

Snags of incorporation

  • Most time-consuming and expensive form of organization.
  • Federal and state agencies monitor corporations.
  • Charter restrictions.
  • Legal formalities.
  • More paperwork, record keeping and filing requirements; closely regulated.
  • Often higher overall taxes.
  • Dividends may be taxed twice.
  • Possible conflicts between shareholders and executives.

 

Share this post:

Perks and snags of small business partnerships

In a partnership, two or more people combine resources to start a business. In a partnership, the law doesn’t distinguish between the business and its owners. Partnerships can be a little complicated, because there are three different types possible – general partnerships, limited partnerships, and joint ventures.

Let’s take a look at some of the perks and snags of choosing a partnership for your company’s form of organization.

Perks of small business partnerships

  • Relatively easy to form.
  • Relatively low start-up costs.
  • Simple to start and organize.
  • Partnership agreement has most legal issues covered.
  • Having more than one owner may allow more access to funds.
  • There may be possible tax advantages.
  • It may be easy to attract employees if they’re given the incentive to become a partner.
  • Limited regulation.
  • Ability to benefit from complementary skills of partners and a broader management base.

Snags of small business partnerships

  • Each partner may be responsible for the actions of another partner.
  • Profits must be shared with other partners.
  • Unlimited liability for General Partnerships (not separate by law, can be personally liable for all debts even if it means paying debts with personal assets).
  • Control and authority over important decisions is shared.
  • Difficulty in changing ownership.
  • Disagreements among partners may occur; may take a longer time to come to a decision.
  • Difficult to find suitable partners.
  • Some employee benefits are not deductible from business income on tax returns.
  • As a partnership, the company may have a limited life if a partner withdraws or dies.
Share this post:

Perks and snags of cooperative businesses

cooperative_businessA cooperative business – which is organized and controlled by its members – is an association of people who want to satisfy common needs. There are about 40,000 cooperatives in the USA and about 8,800 in Canada. If you’ve stayed at a Best Western hotel, or shopped at a Co-op grocery store in Canada, you’ve done business with a cooperative organization.

Members pool resources and each member gets one vote on major company issues. Membership is open and voluntary, and members may receive dividend payments – their portion of the company’s profits – if the cooperative is profitable and dividends are provided for in the by-laws. Users or stakeholders of the cooperative usually include consumers, producers, workers or multi-stakeholders.

A cooperative may be formed in accordance with the Canada Cooperative Associations Act once it has business locations in at least two provinces. A co-op can also be formed in accordance with a territorial cooperative status, which outlines its corporate form and mode of operation.

Here are some perks and snags of a cooperative business.

Perks

  • Limited liability.
  • Profit distribution in proportion to use of service.
  • One member, one vote (democratic control).
  • Owned and controlled by members.
  • Greater ability to respond to community needs.
  • Community development in remote areas can be stimulated as a spin-off from a cooperative activity.
  • The survival rate of co-ops is higher than that of private sector companies.
  • Life of the company doesn’t end with the death of a shareholder.

Snags

  • It takes longer to make decisions.
  • Record keeping requirements are extensive.
  • Less incentive to invest additional funds — members having the larger investment have no advantages over smaller contributors.
  • Conflicts may develop between members.
  • Members must participate for the success of the cooperative.

 

Share this post: