Forms Of Ownership Flashcards
What is a legal persona?
Legal right of a person or a business to own property, enter into contracts and sue or be sued.
What is capital?
Money provided by the owner to set up a business
What is continuity?
The business’s ability to continue operating separately from the owners.
What is liability ?
Refers to the owners responsibility for the liabilities ( debt) of the business. A business can either have limited or unlimited liability
What is the difference between limited and unlimited liability?
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
What are the characteristics of a sole proprietorship?
1 owner, no continuity, owner provides all capital, unlimited liability, cheap and easy to start, must register with SARS and pay income tax
What are the advantages of a sole proprietorship?
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
Disadvantages of a sole proprietorship?
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
What are the characteristics of a partnership?
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
Advantages of a partnership?
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
Disadvantages of a partnership?
Unlimited liability, no continuity, if one partner is dishonest or incompetent everyone could lose money
Close Corporation characteristics?
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
DiSadvantages of a CC?
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
Advantages of a CC?
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
NPO characteristics?
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
NPO advantages
Limited liability Unlimited continuity Can apply for tax exemption status Can get funding from other agencies Publicly Responsible
Disadvantages if an NPO
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
Private company characteristics
Name ends in PTY LTD 1-50 shareholders Legal personality Limited liability Unlimited continuity Pays tax on profits Relies on own funds
Advantages of a private company?
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
What is the disadvantage if a private company?
Cannot get money from the general public for capital
Personal Liability Company Characteristics?
Mix between a private company and a partnership
Owners are known as members
No maximum number if members
Unlimited liability
Advantages of a personal liability company?
No maximum number of owners
Can raise a lot of capital as their is no limit to the number of owners
What is the disadvantage of a personal liability company?
Unlimited liability, owners are liable for the debt of the business
Public Company characteristics?
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
Advantages of a public company?
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
Disadvantages of a public company?
Difficult and expensive to start
Failure could lead to large scale unemployment
Company is required to publish certain information
What is a SOE?
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
Advantages of an SOE
Limited liability
Support of the government
Greater power in business contracts because they represent the government
Disadvantages of an SOE
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
What are the 2 types of co- operatives?
agriculture and trading co-ops
What is an agricultural co-op?
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
What is a trading co-op?
25 members
Same as agriculture co-op
Advantages of a co-op?
Unecessary expenditure is eliminated by sharing of facilities Profit is paid out to members Limited liability Unlimited continuity Highly productive
Disadvantages of a co-op?
Compete with profit driven enterprises
Cannot pay high salaries to employees
Books must be audited
Shares not freely transferable
