Forms Of Ownership Flashcards
FACTORS THAT MUST BE CONSIDERED
CONCEPTS AND DESCRIPTION
Continuty ➡️ the ability of the business to continue after the death or retirement of the owner or more than one of the owner.
Liability ➡️ Limited liability: the owners will not lose their personal assets.
➡️ Unlimited liability: the owners may lose their personal assets if the declared insolvent.
DIFFERENT FORMS OF OWNERSHIP
PROFIT
ORGANIZATIONS / COMPANIES.
📌Objectives is to make profit for the owners.
📌 Capital contributed by owners
📌 Responsible for paying tax.
NON-PROFIT
ORGANIZATIONS /COMPANIES
📌Objectives is to promote a social cause
📌 Funds from donation and government grants are the main source of capital.
📌Exempted from paying tax.
- SOLE PROPRIETOR
CHARACTERISTICS AAND DESCRIPTION
Name ➡️ no legal requirements regarding the name of the business.
No. Of owners ➡️ 1 owners
Management ➡️ can make quick decisions without consulting others.
Legal requirements ➡️ no legal and administrative formalities.
Liability ➡️ Unlimited liability
Legal personality ➡️ not a legal entity and agreements entered.
CHARACTERISTICS AND DESCRIPTION
Continuity ➡️ no continuity
Capital ➡️ personal debt and business debt, should be carefully spent and managed
Profit sharing ➡️ belongs to the owner
Taxation ➡️ depends on the income earned by owner.
Advantage
📌 Easy & cheap to establish
📌 Quick decision-making
📌 Owners receive all the profit
Disadvantages
📌 Unlimited liability
📌Has no legal personality & continuity
📌 Owner accepts all risks
- PARTNERSHIP
CHARACTERISTICS AND DESCRIPTION
Name ➡️ no legal requirements regarding the name of the business
No. Of owners ➡️ at least 2 partners
Management ➡️ partners share responsibilities and decision making
Capacity ➡️ Expansion is possible because more partners join partnership
Legal requirements ➡️ no legal formalities to start
Liability ➡️ have unlimited liability, are jointly and separately liable for the debts
CHARACTERISTICS AND DESCRIPTION
Legal personality ➡️ has no legal personality
Continuit ➡️ no continuity because if there are two partners and one dies
Capital ➡️ combine capital and may also borrow capital
Profit sharing ➡️ shared according to the partnership agreement
Taxation ➡️ don’t pay tax, the pay personal income tax
ADVANTAGES
📌Relatively easy & cheap to establish
📌Easier to get credit
📌All benefit from profit
DISADVANTAGES
📌Unlimited liability
📌Has no legal personality & continuity
📌Partners may disagree.
- CLOSE CORPORATION
CHARACTERISTICS AND DESCRIPTION
Name ➡️ must end with cc
No. Of owners ➡️ 1-10 members
Management ➡️ Ford close means that all members are involved
Capacity ➡️ transfer of the interest of a member must be involved
Legal requirements ➡️ few legal requirements
Liability ➡️ members have limited liability, CC has 6 months or longer than ten members
CHARACTERISTICS AND DESCRIPTION
Legal personality ➡️ has a legal personality
Continuity ➡️ Unlimited continuity
Capital ➡️ each member contributes certain assets
Profit sharing ➡️ shared in proportion to the interest of the members of the CC
Taxation ➡️ pay tax on the profit of the business and divideds of the members.
ADVANTAGE
📌Limited liability
📌Legal personality & continuity
📌Easy & cheap to establish
DISADVANTAGES
📌Capital limited to 10 members
📌Decision take time
📌Could lead to conflict
- PRIVATE COMPANY
CHARACTERISTICS AND DESCRIPTION
Name ➡️ ends with the letters (PTY) Ltd
No. Of owners ➡️ at least 1 shareholder
Management ➡️managed a least by one skilled director.
Capacity ➡️ no limit to the number of shareholders
Legal requirements ➡️ registrar by companies by setting memorandum of incorporation (MOI)
LIABILITY ➡️ shareholders have limited liability
CHARACTERISTICS AND DESCRIPTION
Legal personality ➡️the business has a legal personality
Continuity ➡️ as well as unlimited continuity
Capital ➡️ raised by issuing shares to it’s shareholders
Profit sharing ➡️ shared in the form of dividends in proportion to the number of shares held
Taxation ➡️ pay tax on the profits of the business and declared dividends of shareholders
ADVANTAGES
📌Limited liability
📌Legal personality & continuity
📌No AGM necessary
DISADVANTAGES
📌Complex establishment process
📌Subject to double taxation
📌Can only rely on capital contributed by members
- PERSONAL LIABILITY COMPANY
📌It is very similar to a private company, and the DIRECTORS of a personal liability company are jointly and separately liable for all debts and obligations of the company. This means that the directors have unlimited liability.
CHARACTERISTICS AND DESCRIPTION
Name ➡️ must end with INC
No. Of owners ➡️ at least 1 shareholder
Management ➡️ have at least one director to their board
Capacity ➡️ no legal to the number of shareholders
Legal requirements ➡️ in the MOI must be stated
Liability ➡️ directors have unlimited liability and are jointly liable for the debt
CHARACTERISTICS AND DESCRIPTION
Legal personality ➡️business has a legal personality
Continuity ➡️ as well as unlimited continuity
Capital ➡️ capital raised by issuing shares to it’s shareholders
Profit sharing ➡️ shared in the form of dividends in proportion of the number of shares held
Taxation ➡️ pay tax on the profit of the business and declared dividends of shareholders
ADVANTAGE
📌Limited liability
📌Legal personality & continuity
📌No AGM necessary
DISADVANTAGES
📌Complex establishment process
📌Subject to double taxation
📌Can only rely on the contributed by members
- PUBLIC COMPANY
📌A public company is registered to offer its shares to the general public. Designed for large scale business that require large capital investments
CHARACTERISTICS AND DESCRIPTION
Name ➡️ must end with Ltd
No. Of owners ➡️ at least 1
Management ➡️ law forces personal liability on the directors who were consciously reckless
Capacity ➡️ many people can join the company
Legal requirements ➡️ registrar of the companies by setting the memorandum
Liability ➡️ shareholders have limited liability
CHARACTERISTICS AND DESCRIPTION
Legal personality ➡️ business has a legal personality
Continuity ➡️ as well as unlimited continuity
Capital ➡️ raised by issuing shares to the public and borrow capital by issuing debentures
Profit sharing ➡️ shared in the form of dividends in proportion to the share held
Taxation ➡️ pay tax on the profits of the business and declared dividends of shareholders
ADVANTAGES
📌Limited liability
📌Legal personality & continuity
📌Can obtain a large amount of capital
DISADVANTAGES
📌Complex establishment process
📌AGM must be held
📌Failure could lead to large scale unemployment
- COMPANIES IN STATES OWNED
📌In a state owned company, the government is the largest shareholders and falls under the Department of Public Enterprises
📌These businesses take behalf of the government the role of commercial enterprises
CHARACTERISTICS AND DESCRIPTION
Name ➡️ must end with SOC Ltd
No. Of owners ➡️ requires 3 or more directors and 1 or more shareholders
Management ➡️ shareholders vote for the competent directors
Capacity ➡️ people join the company by issuing shares to the public
Legal requirements ➡️ registrar of the companies by setting up the memorandum of incorporation
Liability ➡️ shareholders have limited liability
CHARACTERISTICS AND DESCRIPTION
Legal personality ➡️ business has a legal personality
Continuity ➡️ as well as unlimited continuity
Capital ➡️ company has access to long-term capital and therefore good long-term opportunities for growth
Profit sharing ➡️ profits are shared in the form of dividends
Taxation ➡️ pay tax on the profit of the business and declared dividends of shareholders
ADVANTAGES
📌Limited liability
📌Legal personality & continuity
📌Supporting of government
DISADVANTAGES
📌Rely on subsidies from the government
📌Losses must be paid by the taxpayers
📌Difficult to raise capital because stock is limited
- CO-OPERATIVES
📌A Co-operative is a traditional way in which a group of interested parties gathered and resources.
CHARACTERISTICS AND DESCRIPTION
Name ➡️ use of ‘co-op’ in the name. Ends with limited
No. Of owners ➡️ At least 5 members are required to start a cooperative
Management ➡️ members own and manage the business together
Capacity ➡️ purpose a cooperative is to create mutual benefit for the members
Legal requirements ➡️ must register with the registrar of Co-operative societies
Liability ➡️ members have limited liability
CHARACTERISTICS AND DESCRIPTION
Legal personality ➡️ business has a legal personality and are allowed to own land
Continuity ➡️ business has unlimited continuity
Capital ➡️ amount of capital that can be obtain by Co-operative
Profit sharing ➡️ profits are shared equally amongst its members
Taxation ➡️ pay tax on income retained for investment and reserves and surplus revenues are returned
ADVANTAGES
📌Limited liability
📌Legal personality & continuity
📌Facilities of members are combined to achieve common goals
DISADVANTAGES
📌Unable to pay high salaries
📌Auditing of financial statements compulsory
📌Success depends on loyalty, commitment and support of it’s members
