Chapter 5- Forms Of Ownership Flashcards
Define the term Forms Of Ownership
The legal position of the business and they way it is owned
What is the definition of a Partnership
Has 2 or more partners who own the business
Describe some of the characteristics of a Partnership
An agreement between 2 or more people who combine labour capital and resources towards a common goal
No legal requirements regarding the name of the business
Profit is shared according to the partnership agreement
Partnership does not pay tax, partners pay personal income tax
Discuss the advantages of a Partnership
Partners are able to put their knowledge and skills together to make the best decisions
Workload and responsibilities are shared
Partners can share resources
Partners share responsibility for decision making
Identify disadvantages of a Partnership
Unlimited liability so all partners are responsible for debt
Different personalities lead to conflicts and disagreements
Partners may not contribute equally
Loss in profits if a partner dies or resigns
Describe some of the characteristics of a close corporation
Can have minimum of 1 and maximum of 10 members who share a common goal
Close means all members are involved in the management
Company name must end with suffix CC
Profits are shared amongst all members
What are the advantages of a Close Corporation
Few legal requirements
Is a legal entity and has continuity
Members have limited liability
Can be converted into a private company and members become shareholders
List the disadvantages of a Close Corporation
Limited growth since a CC cannot have more than 10 members
Members can be held responsible for losses
A CC is taxed as if it were a company
Difficult for members to leave as they have signed an agreement
Provide the definition of a private company
It can be a small or large company and has one or more directors
What are characteristics of a private company?
Requires one ore more directors or shareholders
Company name ends with PTY Ltd.
Investors put capital to earn profit
Company has continuity
What are advantages of a Private Company?
Good long term growth
Legal identity and limited liability
Company has continuity
Board of directors can make decisions
Name disadvantages of a Private Company
Requires a lot of capital
The more shareholders the less profit
Directors don’t have personal interest
Tax is required
What is a Personal Liability Company?
Directors of the company are equally liable for all debts. Directors have unlimited liability
What are the characteristics of a personal liability company?
Company name ends with INC
Directors have unlimited liability
What is the definition of a Public Company?
A company that is registered to offer it’s stock and shares to the public
