Forms of ownership Flashcards
Name the 9 factors that to be considered when deciding on which form of business to choose.
- Capital
- Management
- Profit Sharing
- Control
- Number Of Owners
- Income Tax
- Continuity
- Liability
- Legal entity/ Legal personality
Define continuity
Can the business continue to exist if owners join or leave?
• A firm can live beyond the life spans and capacity of its owners, because its ownership can be transferred through a sale or gift of shares
Define the 2 types of liability.
Unlimited liability:
• Owners of the business are personally responsible for the debts of the business
• If the business runs into trouble and shuts down, any debts the business has must be paid by the owners.
• Even if this means they have to sell their house, car and other personal possessions in order to raise the money to pay it back. They are liable for the debt.
Limited Liability:
• Owners of the company are not taking as big a risk.
• If the company goes out of business they can only lose the investment they have already made in the business.
• No one is going to come round and ask them to sell their personal possessions in order to pay any debts the business may have.
Define Legal entity/ Legal personality
A legal entity has legal capacity to enter into agreements or contracts, assume obligations, incure & pay debts, sue & be sued in its own right & to be held responsible for its actions
Name the 4 types of ownership.
- Sole Trader
- Partnership
- Private company
- Public company
Which of the 4 types of ownership are legal entities?
Public and Private companies
Which of the 4 types of ownership are non-legal entities?
Sole Trader and Partnerships
What are the 5 characteristics of a SOLE TRADER?
- It is owned and controlled by a single individual.
- The individual assumes all sorts of risks exposed to the business.
- Liability is unlimited.
- The sole-trader enjoys unlimited freedom of action & decide everything quickly.
- The business unit is not separate from the sole trader.
Name 3 ADVANTAGES of a SOLE TRADER.
• Full control over the business for daily operations.
• No legal requirements for the creation/running of the business.
• Takes all of the profits made by the business & are entitled the ownership of assets.
• Does not need to complete many forms.
(Any 3)
Name 3 DISADVANTAGES of a SOLE TRADER.
• Does not have a legal personality.
• Liabilities unlimited = the owner’s personal assets can be attached for debt.
• Raising funds is difficult as the business is owned and managed by one.
• Lacks of continuity
• Requires enormous investments of time without the normal employee recreation leave & other benefits.
(Any 3)
What are the 6 characteristics of a PARTNERSHIP?
- Agreement between 2+ people.
- A contractual relationship can be in writing/oral
- No legal requirements in starting a partnership except the drawing up of a partnership agreement.
- Partners are jointly and severally liable for debts on the business.
- Each partner must make a contribution
- Capital controlled by the partners
Name 3 ADVANTAGES of a PARTNERSHIP.
• Easy to establish.
• Partners invest new capital into the business to finance expansion.
• Contribute new skills & ideas into a business.
• Share responsibilities for decision making & managing the business
• Each partner must make a contribution
• Capital controlled by the partners
(Any 3)
Name 3 DISADVANTAGES of a PARTNERSHIP.
• Not a separate legal entity & therefore partners are liable for the debts in their own capacity.
• Partners are jointly & severally liable for the actions of other partners.
• Discussion between partners can slow down
decision making -> disagree on important business decisions.
• Problems can arise partners are lazy, inefficient/ dishonest.
• The partnership may terminate on the death of a
partner.
(Any 3)
What are the 5 characteristics of a PRIVATE COMPANY?
• 1+ people may incorporate a private company.
• The board of a private company must comprise at least 1 director.
• Private companies are subject to fewer disclosure & transparency requirements.
• Prohibited by MOI (NOT French) from offering its shares to the public & the transferability of its shares is restricted.
• The name must end with the expression
“Proprietary Limited” / “(Pty) Ltd.”
Name 3 ADVANTAGES of a PRIVATE COMPANY.
• Unlimited amount of shareholders & its lifespan is perpetual.
• Company is separate legal person; it can buy property in its own name.
• Liabilities are limited.
• Directors are not compelled to attend the Annual General Meeting (AGM)
• Information is only available to shareholders.
(Any 3)
