FORMS OF BUSINESS OWNERSHIP AND SOURCE OF FINANCE

Question 1

A sole trader goes with other names as ―‖,

Answer 1

one-man business

Question 2

Sources of Funds of a Sole proprietorship

Answer 2

(i) Personal Savings
(ii) Borrowing particularly from Friends and Relatives
(iii) Credit Purchase from Manufacturers or Wholesalers
(iv) Donations from Friends and Relatives

Question 2

what are the Features of a Sole Trader

Answer 2

1. Ownership: A sole trader as the name implies is owned by one person.
   Liability: The liability of the one man business in unlimited. i.e., if the owner is indebted, both, the business asset and his personal asset can be sold to offset the debt.
   Sources of Capital or Finance: The capital outlay is provided by the owner. This source of fund could be through: Personal saving, Intended capital, Credit, Borrowing from relatives and Banks etc.
   Legal Entity: It is not a legal entity. By law the business and the owner are regarded as one person. They are not different, unlike corporate business; a company is a legal entity, different from the owners.
   Motive: It is believed, that a sole trader is into business to make profit.
   Method of Withdrawing Capital: The owner can withdraw his capital anytime from the business without consulting with anybody.
   No Board of Director: Because he is the owner, no board of directors so he has the liberty of managing the business in his own way.
   Its Nature: It is a simplest and the commonest type of business unit you can think of.

Question 3

10 Advantages of a Sole Trader

Answer 3

(i) It requires small capital
(ii) Easy to establish
(iii) Ownership of all profit
(iv) Quick decision-making
(v) Easy to withdraw his assets
(vi) Single handedly formulates all policies
(viii) It is flexible:
(ix) Personal Satisfaction
(x) Tax saving: Unlike in companies the profits of the sole trader are not taxed, the owner only pays his income tax.

Question 4

6 Disadvantages of a sole proprietorship;

Answer 4

i) Bear All Losses and Risks Alone
(ii) Limited Financial Resources
(iii) Unlimited Liability
(iv) Lack of Continuity
(v) Absence of Specialization
(vi) Limitation on Expansion

Question 5

Denedo (2004) says partnership is ————-

Answer 5

an association of two to twenty persons carrying on a business in common with the view of making profit.

Question 6

———– can also be define as the relationship that exist when two or more persons who contribute small money or moneys worth in order to establish, own and manage business organization with the sole aim of making profit. Partnership

Answer 6

Partnership

Question 7

Features of Partnership are

Answer 7

Ownership: It is formed by between 2-10 people and between 2-20 people in case of banks.
Capital: The initial capital is contributed by partners.
Liability: Their liability is unlimited except for limited partner.
Formation motives: They are formed for profit reasons.
Sources of capital: contribution from the partners ploughing back profit, loans from banks.
Method of withdrawing capital must be approved by other partners as laid down in their partnership deed. It has no separate legal entity. It has no board of directors.

Question 8

We have principally two types of partnership namely;

Answer 8

ordinary and limited partnership.

Question 9

what type of partnership involves that members bear all the risks of the business equally. All the partners have equal powers, unlimited liabilities, take active part and profits are shared equally

Answer 9

Ordinary Partnership

Question 10

Not all partners take equal part in the management of their business. But there must be a member who bears the risk and also takes active part in the business activities. Is what type of partnership

Answer 10

Limited partnership

Question 11

Kinds of Partners;

Answer 11

Active Partner
Dormant/Sleeping Partner
Nominal/Passive Partner
Silent Partners
Secret Partner:

Question 12

————–partner is an individual who is known to the public as a partner but who does not take active part in the management of the firm.

Answer 12

Silent Partners:

Question 13

========partner is one who is not actually a partner but who allows his name to be used in the partnership or who gives the public the impression that he is a partner even though he may not share in the profit of the business.Appointed because of his/her experience or fame

Answer 13

Nominal/Passive Partner

Question 14

———partner contributes only the money needed for formation of the business or for running of the business.

Answer 14

Dormant/Sleeping Partner:

Question 15

——-is the partner(s) who take active part in the formation, financing and management of the business.

Answer 15

Active partner

Question 16

————is the document that regulates the activities of the partnership business.

Answer 16

Article of Partnership or Deed of Partnership

Question 17

Sources of Funds for Partnership

Answer 17

(i) Contribution from members
(ii) Ploughing back profits
(iii) Borrowing from the bank
(iv) Enjoying credit facilities

Question 18

10 Advantages of Partnership

Answer 18

i) Greater Financial Resources:
(ii) Combined Abilities and Skills:
(iii) Greater Continuity
(iv) Ease of Formation:
(v) Joint and Better Decision
(vi) Creation of Employment
(vii) Employment of Valued Employees:
(viii) Tax Advantage: it is because it is not recognize as a legal entity
(ix) Application of Division of Labour
(x) Privacy: Like the sole proprietorship, partnerships are not under any legal obligation to publish their books of accounts for public consumption.

Question 19

8 Disadvantages of Partnership are;

Answer 19

(i) Unlimited Liability
(ii) The Business is not a Legal Entity
(iii) Disagreement and Resignation:
(iv) Decline in Pride of Ownership:
(v) Bureaucracy Leads to Slow Decision and Policy Making
(vi) Risk of Mandatory Dissolution
(vii) Limited Capital:
(viii) Restriction on Sale of Interest:

Question 20

Cooperative is a word derived from two Latin words meaning ——-

Answer 20

―Working together‖.

Question 21

Coady International Institute, however, defines cooperative as a free association of persons legally constituted for the purpose of conducting an economic—-a–or business which they control and administer –b–according to established principles and techniques‖.

Answer 21

a. enterprise
b.democratically

Question 22

Calvert define cooperative as a form of organisation wherein persons —-a— associate together as human being on a basis of equality for the —b– of the economic interest of themselves‖.

Answer 22

a voluntarily
b. promotion

Question 23

The phrase ‘self help through mutual help’ therefore, correctly summarises the –a–meaning and –b– of cooperative societies.

Answer 23

a.general
b purpose

Question 24

By 1935, ----------- was appointed the first Registrar of Cooperative Societies.

Answer 24

Mr. E.F.G. Haig

Question 25

Cooperative principles are usually associated with ------- who are referred to as the founding fathers of the modern cooperative societies.

Answer 25

Rochdale Pioneers

Question 26

According to Ejiofor (1989), modern cooperatives derive their finances from two sources

Answer 26

(1) owned capital, and (2) loan or borrowed capital.

Question 27

Give Atleast 3 owned capital examples in cooperative

Answer 27

(a) Members’ Shares (b) Reserves (c) Entrance Fees

Question 28

Give Atleast 6 owned loan or borrowed capital examples in cooperative

Answer 28

(a) Members’ Deposit (b) Revolving Funds (c) Loan from Cooperative Sources (d) Loan from Commercial Banks (e) Loan from the Government (f) Trading Credits

Question 29

A--------- is a credit granted to any business organisation with a view to defer payment for the goods received for a specific period of time.

Answer 29

trading credit

Question 30

Mention at least 5 Advantages of Cooperative Societies

Answer 30

1 Democracy 2 Cheap Goods 3 Investment Opportunities 4 Checkmate Middlemen 5 Promotion of Savings 6 Limited Liability

Question 31

Disadvantages of Cooperative Societies. Mention at least 4

Answer 31

1. Limited Expansion 2. Poor Management 3. Corruption and Embezzlement 4. Conflict

Question 32

list out at least 3 activities that must be involved to attain meaningful democracy in a coperative societies.

Answer 32

1. There must be educated membership 2. Adequate provision of information, 3.Regular meeting attendance and meaningful discussion of the society affairs with its management.

Question 33

the universal principles of modern cooperative as recommended by the International Cooperative Alliance (ICA). Among the basic principles as observed by this body are: MENTION ATLEAST 9

Answer 33

the universal principles of modern cooperative as recommended by the International Cooperative Alliance (ICA). Among the basic principles as observed by this body are: (i) Open and voluntary membership. (ii) Democratic control and equality of members. (iii) Limited returns on capital. (iv) Patronage rebate or dividend sharing to members. (v) Political and religious neutrality. (vi) Strictly, cash trading. (vii) Sale at market prices. (viii) Continuous education for members, officers, employees and general public. (ix) Cooperation among national and international cooperatives.

Question 34

The reason for fixing the limit of a member‘s shareholding is to prevent the --------- of the society by a single member.

Answer 34

financial domination

Question 35

A -------- is an association of individuals who agreed to and jointly pool their capital together in order to establish and own a business venture distinct from others.

Answer 35

company

Question 36

for the purpose of carrying on a business. Those who buy or own shares are known as --------------

Answer 36

shareholders.

Question 37

We have two kinds of companies namely;

Answer 37

Unlimited Liability Companies Limited Liability Companies

Question 38

We have two types of limited liability companies, they are:

Answer 38

1.Private Limited Liability Company 2.Public Limited Liability Company:

Question 39

This Private Limited Liability Company when formed has a minimum number of two people and a maximum of ---------. The number includes employees of the company.

Answer 39

fifty

Question 40

Public Limited Liability Company: Minimum numbers of people that can form this company are ----------while the maximum is not stated.

Answer 40

seven

Question 41

-------------- certificate is issued by registrar of companies and cooperate affairs commission Abuja to show that a business is legally incorporated and recognize by government.

Answer 41

Certificate of Incorporation

Question 42

Features of a Private Company

Answer 42

Membership: a minimum of 2 and a maximum of 50 Issuance of Shares: cannot sell shares to the public Transferability of Shares: can only be transferred with the consent of other shareholders Quotation: private companies are not quoted on the floor of the stock exchange Publication of Accounts: not required to publish annual account. However they must send a copy of their audited account to the registrar of companies each year. Limited Liability: each shareholder possesses limited liability.

Question 43

Features of a Public Company

Answer 43

(i) Membership: a minimum of seven and no maximum, but article of association could specify maximum. (ii) Issuance of Shares: can sell share to the public. (iii) Transferability of Shares: shares can be transferred without the consent of other share holders. (iv) Quotation as Public Companies: are quoted on the floor of the stock exchange. (v) Publication of Accounts: required by law to publish account and to also send a copy of audited account to the registrar of companies each year. (vi) Limited Liability: each shareholder possess limited liability.

Question 44

Advantages of a Private Company

Answer 44

The advantages of a private company are: i. Limited Liability: Liability is limited to the amount of money contributed into the business. In case of liquidation, your personal properties are not touched. ii. Privacy: Just like the public company, it is not compulsory to publish its account yearly as such the company has the advantage of keeping its secret. iii. Continuity: The minimum number of holder of a company is two and maximum is fifty. If for instance you have forty members and two dies the company will still continue, compare to a one man business iv. More Capital: Compare to partnership business, the chances of sourcing for funds to be granted i.e. from banks is higher. v. Legal Entity: The Company is a legal entity as such it can sue and be sued.

Question 45

Disadvantages of a Private Company

Answer 45

i. Taxes: Most of these companies pay corporate tax compare to a sole trader or partnership that pays personal income tax, the tax may be so heavy that it may be a burden on the company. ii. Share: It is unfortunate that the companies share are not publicly subscribed, even in the exchange of shares, all member must be notify. A new member may be rejected. iii. The shares of private limited companies are not quoted on the floor of the stock exchange; hence they cannot be transferred without the consent of other shareholders.

Question 46

Advantages of Public Limited Company

Answer 46

(i) Legal Entity: It is a corporate body; it can sue and be sued. (ii) Limited Liability: The liabilities of the owners is limited to the shares brought into the organization (iii) Ease of Raising Additional Capital: Because of the large numbers of the owners it makes it easy to raise fund from their contributors or selling of shares or bonds. (iv) Expansion is Unlimited: There is no limit to where the company can expand to provided the company has a large capital. (v) Continuity: This company life is long, even if hundred members die at a time the chances of its survival is still there. Even in a period of resignation, disability etc., the company is not threatened. (vi) Adaptability: It is adaptable to small medium and large scale companies according to the fund available to the firm. (vii) Capital Transfer: you can transfer your capital at will if you are not satisfied with the company. (viii) Flexibility: for the fact that we have many members as shareholders, members of board, managers etc with diverse experience and knowledge, the running of the company will be perfect using the vast experienced personnel thereby giving room for flexibility. (ix) Enjoyment of Large Scale Production unlike the One-Man Business: Because of the number of owners, finances, flexibility etc. a company has a better advantage of producing goods in a large quantity. (x) Share Holders Interest is Safeguarded: Because there is no secrecy, the shareholders have nothing to fear. (xi) No Managerial Responsibility: You can be a share holder and yet you are not part of the management. It means that others are managing the business for you. (xii) Employees May become Co-owners: Employee will become owner either by deliberate action of the management of the companies or by buying shares. (xiii) Democratic Management: The Company is run democratically; election of board of directors is by vote. In meeting, if no quorum is formed there will not be a meeting.

Question 47

Disadvantages of the Public Limited Company

Answer 47

(i) Double Taxation: Most corporations are faced with double taxation. In Nigeria, federal, state and local government charge companies different taxes. (ii) Hard to Establish: Methods of establishment and finance needed for such kind of business is high and it require a large capital outlay which may scare out a lot of investors. (iii) No Privacy: Company and allied matter decree expect this type of company to publish its account annually, making it public affairs. (iv) Non-Flexibility: It is hard to switch business because the papers for registration state what they are to do. If you change condition, it means you are to form another company entirely. (v) Special performance must be sought from government to transact business outside the location in which you were registered. (vi) Cooperation is Non Existence: Most companies have problems of misunderstanding between both managers and non- managers or with workers; it may be because of the large nature. (vii) Owners are Separate from Managers: Therefore there is the tendency of the managers not running it well since they are not the owners. (viii) Huge capital is required for its formation, it therefore becomes more complex to manage compared to one-man business. (ix) Delay in policy and decision making. (x) Suppression of individual initiatives.

Question 48

-----------is a document of notice, circular, advertisement or other invitation offering the public subscription or purchase of shares or debentures of a company

Answer 48

The Prospectus

Question 49

Why is a company regarded as an Artificial Entity?

Answer 49

it is because it operate and engage in business entity separate from the individual who owns or manage it