Forms Of Ownership Flashcards
Sole proprietor/Sole trader
Exists when a business is owned by one individual person. Owner handels all processes and decisions( not registered)
Choosing a Form of ownership
Factors that will affect the decision on Forms of ownership
- Size and nature
- Amount of control you would like
- The need for reinvestment into the business
- Tax implications
- Vulnerability of the business in terms of lawsuits and likelihood of bankruptcy
- The amount of money you would like to earn from the business
Limited Liability
The business debts are not the liability of the members
Unlimited Liability
Personal responsibility for all of the businesses incurred debts
Natural person
Living human being with certain rights and responsibilities under the law
Legal person/artificial person
A group of people that is considered by law to be acting as a single individual (can be sued and is entitled to sue other parties)
Characteristics of Sole proprietor
- Full control
- Keep all profits
- No high costs for starting the business
- Easy to start
- Pay personal tax on their profits
- No continuity
Partnership
- Owners are called partners(Silent/sleeping or active partner)
- Not a legal entity
- Owned by 2-20 people
- No formal steps necessary
Advantages of a Partnership
- Money invested can help the business grow
- Shared workload and have new skills and ideas that help you and the business
- It is easy to start, only need an oral or written agreement between you and the other partner
- You and partners share all profits
Disadvantages of Partnerships
You and your partners are all liable for the businesses debts, so if the business fails, you could lose your personal assets(Unlimited liability)
- If one of the partners dies or withdraws from the partnership, the partnership dissolves
- It can end up being difficult to work with a partner if you differ in opinion, can make the business inefficient
- All Decisions have to be agreed upon by all partners which can slow down decision making
Closed Corporation
Can have from one to ten members
- Owners are called members
- The businesses name needs to end in CC
- Legal agreement of a CC is known as a founding statement
Private company ((Pty)Ltd)
To start a private company, you need to register your business with the CIPC.
- You also need to complete a Notice of Incorporation and reserve a company name
- Private Company ends in (Pty)Ltd
- Managers are called directors
- Owners are called shareholders
- Can have 1-50 shareholders
CIPC
Company
Intellectual
Property
Commission
CIPRO
Companies Intellectual Property Registration Office
Advantages of Private company
- Separate legal entity
- Shareholders are protected by the Companies Act
- If shareholders die or sell their shares in the company, the company continues to exist. We say that it has continuity, unlike a partnership.
- Often more opportunities to pay less tax
- Long-term growth opportunities are good
- More likely to take risk and allow growth for the business
- Able to employ or elect their own management and the directors can be appointed on merit
Disadvantages of private Company
- It is expensive to register because there are so many legal requirements
- A meeting of all the shareholders must be held every year,regardless of where the shareholders live.
Characteristics of a Private Company (profit section)
Can have between 1-50 members
Need to register with the Registrar of Companies and a MOI needs to be drawn up
Limited Liability - no shares offered to the public
Investors invest with the idea to earn profit on their shares
Non-profit organizations
Serve a public purpose or cause
Has a founding document- a written agreement of the rules, aims and objectives, governance structures and rights and responsibilities
Advantages of NPO
- Tax exemption
- Fixed management structures in place to ensure that the aims of the organization are met, many people are prepared to give time and effort on a voluntary basis
- Organization does not cease to exist if some members pull out
- Some organizations don’t have to be registered in terms of the NPO Act. A voluntary association can just be an agreement between parties with a common goal
Disadvantages of NPO
- Unable to generate their own profits and rely on generous donations
- Management structure appointed are forced to follow the constitution of the organization
MOI
Memorandum Of Incorporation
Personal Liability company
Similar to a private company. The difference is that Private company has limited liability and Personal Liability has unlimited Liability
Advantages of Public Company
The business has its own legal identity( limited liability)
Easy for public companies to raise funds for growth
Each shareholder is only liable for the amount that is invested
Disadvantages of Public Company
- Stocks have to be traded publicly
- A full report must be submitted to the major shareholders each year
- Required to disclose all your financial information, which could provide the competitors with an unfair advantage
