forms of business organizations Flashcards
sole trader
is a person who has total ownership and responsibility for managing his/her business
characteristics of sole trader
he or she manages the business but may have the services of family and friends
he or she has personal relationship with the client
he or she enjoys all the profit and bears all the risks
why are people a sole trader
independence, simple organisational structure and secrecy.
disadvantages of a sole trader
limited source of finance: the sole trade depends on personal savings or profits and on loans made on the security of personal property.
lack of leisure time- the sole trader has to work long hours and may not be able to take a vacation
unlimited liability- if the business falls even the personal possessions of the owner will be sold in order to pay off the debts of the business if necessary
define partnership
is an association of two to twenty partners operating a business for the common goal of making a profit.
characteristics of partnerships
the minimum members are two and maximum is 20 members except banking where the minimum is 10
profits are shared equally or as stated in the partnership deed.
capital is provided by the partners as agreed.
Partnership deed should have
the name of the partners
the nature of the business and the date of the commencement
the amount of capital put into the business by each partner
advantages of partnerships
more capital can be obtained than as a sole trader
it is possible to have limited liability by being a limited partner
the workload is shared thus partners can take a vacation and enjoy more leisure time
disadvantages of partnerships
unlimited liability-all ordinary partners are fully liable
capital- is limited to all 20 partners
binding- all partners stand to lose if one partner makes a bad mistake
cooperatives
are businesses that are formed and operated by its members.
principles of cooperatives
there is democratic control
membership is open to its construents
there is limited interest on capital investments
characteristics of cooperatives
they are voluntary non-profit making organisations
they are managed and controlled by its members
the members are also the clients
types of cooperatives
financial cooperatives e.g credit unions
agricultural cooperatives e.g the farmer cooperatives which supply agricultural products
consumer cooperatives
service cooperatives
advantages of cooperatives
members pool their resources
members are the owners
there is shared decision making
community bond is strengthened
disadvantages of cooperatives
decision making is slow and therefore clients may miss opportunities
the membership may not have the expertise necessary to build the organisation
define company
is a business entity that has been incorporated,
two types of companies
private limited companies
public limited companies
private limited company
is an incorporated business organisation consisting of two to fifty members who aims to make profits. The membership is restricted to family and friends
characteristics of private limited company
-limited liability shareholders have limited liabilities
the word limited must be in the name
membership is between two to fifty members
advantages of private limited companies
-a larger capital base than sole trader or partnership because the membership is larger
the company has a separate legal identity from the ownership
disadvantages of private limited companies
capital is limited since the membership is limited to fifty
selling of shares is restricted to the private grouping
the company must file its financial reports with the Registrar of companies
public limited company
is an incorporated company, which offers shares to the public
characteristics of public limited company
there must be at least 7 shareholders with no limit on the maximum number of shareholders
the shares are traded openly in the stock market
the public limited company must be incorporated
advantages of public limited company
it is easier to obtain finance
shareholders have limited liability. Ownership and control have separated.
disadvantages of public limited company
the legal requirements may be time consuming and costly
the accounts have to be made public
multinational corporations
are a network of firms that operate in multiple countries but owned and controlled by a single group of shareholders.
state corporations
are independent organizations set up by the government to carry out a service
nationalized industries
are firms which were once privately owned, but have been taken over by the government
