Forms Of Business Flashcards
What are the 6 forms of business
Sole proprietor
Partnership
Closed corporation (cc)
Personal liability company
Private company
Listed company
What are the 7 considerations when choosing a company
- legal personality
- limited liability
- procedures of establishment
- parties involved
- attaining capital
- regulation and cost of compliance
- costs and taxation
What is a sole proprietor
A business operated and owned b a natural person. It operates under the name of its owner or under a fictitious name and only the proprietor has the authority to make decisions for the business. The proprietor also assumes the risks of the business to the extent of all his/her assets
Advantages of a sole proprietor (5)
- no formalities at formation or closure
- no legal or statutory requirements
-proprietor not accountable to a board of directors or shareholders - income accrues directly to proprietor
- tax consequences of trading as a natural person are relatively simple
Disadvantages of sole proprietor (4)
- no distinction between assets of business and personal assets of proprietor
- doesn’t have benefits of perpetual succession
- all licences and legal agreements entered int also cease in the event of the death of proprietor
- not always easy to sell or dispose of a SP as going concern
What is a partnership
An agreement between two or more persons who join together to carry out a trade, a business or a profession. It’s usually formed by means of a partnership agreement
Know format of partnership agreement in slides
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Advantages of partnership (3)
- no formalities at formation or closure
- no legal or statutory requirements
- combined business skills and knowledge
Disadvantages of partnership (3)
- partners are jointly and separately liable for the debts of the partnership
- does not have the benefits of perpetual succession
- can be difficult to dispose of ones interest
What is a closed corporation
It’s a legal entity with its legal personality and has no share capital (no shareholders). The owners are the members (max 10). An association agreement regulates relationship between members.
What is a CC governed by
Close corporation act
4 advantages of a CC
- cc act is less complex than companies act and also provides built in protection in case of no association agreement
- perpetual succession
- limited liability of members
- no directors
Disadvantages of cc (5)
- simplicity of cc act leads to confusion and uncertainty
- many section of companies act are also applicable
- in reality members can be personally liable for debts
- in absence of an association agreement any member can enter int contracts on the cc’s behalf
- need to set up financial statements
What is a company
A separate legal entity, distinct form its shareholders and directors. Assets and profits of the company belong to the company and shareholders are only entitled to dividends if, and when, declared.
What are companies governed by
The companies act
What are the 2 requirements for companies
Memorandum of incorporation (MOI)
Registration of CIPC
What are the 3 different types of companies as sourced from the MOI
- public company (Ltd)
- private company (pty Ltd)
- personal liability company (inc)
3 advantages of a company
- perpetual succession
- easy transfer of ownership
-limited liability of shareholders
3 disadvantages of a company
- difficult and expensive to form
- regulation and increased paperwork
- agency problems
Look at differences if companies
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7 considerations when choosing a company
- legal personality
- limited liability
- procedures of establishment
- parties involved
- attaining capital
- regulation and cost of compliance
- cost and taxation
Discuss the legal persons of a sole proprietor, partnership, close corporation and company
SP- not seen as separate legal person
Partnership- not a person but can be treated as such (can sue and be sued)
CC- juristic person and hence has its own separate legal identity
Company- juristic persona and hence has its own separate legal identity
Discuss limited liability of an SP, partnership, CC, company
SP- proprietor liable
Partnership- partners jointly and individually liable
CC- members held liable
Company- shareholders NOT liable. Directors can be personally liable if they were negligent
Discuss the formal registration and documentation of an SP
Formal registration - none
Documentation - none
