Forms Of Ownership

Question 0

What is a legal persona?

Answer 0

Legal right of a person or a business to own property, enter into contracts and sue or be sued.

Question 1

What is capital?

Answer 1

Money provided by the owner to set up a business

Question 2

What is continuity?

Answer 2

The business’s ability to continue operating separately from the owners.

Question 3

What is liability ?

Answer 3

Refers to the owners responsibility for the liabilities ( debt) of the business. A business can either have limited or unlimited liability

Question 4

What is the difference between limited and unlimited liability?

Answer 4

Limited liability - if the company goes bankrupt and has debt they sell off all their assets and give the money from their assets to the people they owe, once they run out of money they can stop paying

Unlimited liability - if the company goes bankrupt and has debt then if you sell off all your assets and you still don’t have enough money to pay your debts they have a right to seize the owners personal assets or the owner must use their own money to pay of the debt

Question 5

What are the characteristics of a sole proprietorship?

Answer 5

1 owner, no continuity, owner provides all capital, unlimited liability, cheap and easy to start, must register with SARS and pay income tax

Question 6

What are the advantages of a sole proprietorship?

Answer 6

Cheap and easy to form, owner can make quick decisions, all profits go to the owner, owner wants the business to succeed , no formal documentation required to start business unless there are requirements from local authorities , gains experience, close relationships

Question 7

Disadvantages of a sole proprietorship?

Answer 7

Owner is overworked, only focuses on the aspects that they are good at and neglect or forget the other aspects, no continuity,capital is limited, unlimited liability

Question 8

What are the characteristics of a partnership?

Answer 8

2-20 partners , owners called partners , partners jointly liable for debts, can contribute cash, skill, capital, each partner pays tax on the income received from the business

Question 9

Advantages of a partnership?

Answer 9

Quick and easy to start and end, raises more capital then a sole proprietor , more people contribute capital, easier to get credit or Borrow more capital, if a partner works hard they will benefit from the profit

Question 10

Disadvantages of a partnership?

Answer 10

Unlimited liability, no continuity, if one partner is dishonest or incompetent everyone could lose money

Question 11

Close Corporation characteristics?

Answer 11

Recognize it by CC

You can’t register one anymore. Unique to South Africa.

1-10 members, register a founding statement with the registrar of close corporations , name ends in CC, unlimited continuity, limited liability, business pays tax in profits

Question 12

DiSadvantages of a CC?

Answer 12

Capital limited to what members can raise
Bank may require books to be audited if apply for a loan
Decisions can lead to conflict as all members must be consulted

Question 13

Advantages of a CC?

Answer 13

Registration was cheap and easy
Founding statement can be changed by members without restriction
Continuity unlimited
Limited liability
Don’t have to hold general meetings
Financial statement doesn’t have to be audited

Question 14

NPO characteristics?

Answer 14

Consists of members and directors
Directors are responsible for the day to day running of the company
Income and property may only be used to promote the main objective of the company
Money or property may not be distributed to members or staff except to pay them for their work
Unlimited continuity
Limited liability

Question 15

NPO advantages

Answer 15

Limited liability 
Unlimited continuity 
Can apply for tax exemption status 
Can get funding from other agencies 
Publicly Responsible

Question 16

Disadvantages if an NPO

Answer 16

Difficult to set up
When the company is dissolved its assets must be transferred to a similar organization 
Must keep financial records
May not distribute profit to members
Must hold annual general meetings

Question 17

Private company characteristics

Answer 17

Name ends in PTY LTD
1-50 shareholders
Legal personality
Limited liability
Unlimited continuity
Pays tax on profits 
Relies on own funds

Question 18

Advantages of a private company?

Answer 18

Unlimited continuity
Limited liability
Great form of ownership for people with good business ideas but limited capital
Does not have to hold meetings if shareholders

Question 19

What is the disadvantage if a private company?

Answer 19

Cannot get money from the general public for capital

Question 20

Personal Liability Company Characteristics?

Answer 20

Mix between a private company and a partnership
Owners are known as members
No maximum number if members
Unlimited liability

Question 21

Advantages of a personal liability company?

Answer 21

No maximum number of owners

Can raise a lot of capital as their is no limit to the number of owners

Question 22

What is the disadvantage of a personal liability company?

Answer 22

Unlimited liability, owners are liable for the debt of the business

Question 23

Public Company characteristics?

Answer 23

Name ends in LTD
Minimum of 7 shareholders maximum unlimited
Legal personality
Exists separately from shareholders
Shareholders have limited liability 
Unlimited continuity 
Raises capital by issuing shares to the public
Pays tax on profits

Question 24

Advantages of a public company?

Answer 24

Can raise a large amount if capital
Unlimited continuity
Legal personality
Shares freely transferable via the JSE
Small investors become part of a large organisation that is protected by law

Question 25

Disadvantages of a public company?

Answer 25

Difficult and expensive to start
Failure could lead to large scale unemployment
Company is required to publish certain information

Question 26

What is a SOE?

Answer 26

State Owned Company

Must generate its own income
The state can appoint it remove the directors
The state must appoint an audit committee and a social ethics committee
Must appoint an auditor and have financial statements independently reviewed
Must appoint a company secretary

Question 27

Advantages of an SOE

Answer 27

Limited liability
Support of the government
Greater power in business contracts because they represent the government

Question 28

Disadvantages of an SOE

Answer 28

Not a true form of business because the government has a large say in what the business does
More red tape then other forms of business
Has to follow strict regulations
Difficult to raise capital or obtain debt financing

Question 29

What are the 2 types of co- operatives?

Answer 29

agriculture and trading co-ops

Question 30

What is an agricultural co-op?

Answer 30

Originated from farmers who wanted to work together
Limited liability
Separate legal personalities
Minimum of 7 farmers
Not driven by large profit
Members work together on a voluntary basis

Question 31

What is a trading co-op?

Answer 31

25 members

Same as agriculture co-op

Question 32

Advantages of a co-op?

Answer 32

Unecessary expenditure is eliminated by sharing of facilities
Profit is paid out to members
Limited liability 
Unlimited continuity
Highly productive

Question 33

Disadvantages of a co-op?

Answer 33

Compete with profit driven enterprises
Cannot pay high salaries to employees
Books must be audited
Shares not freely transferable