Forms Of Ownership Flashcards
What happens when the owner of a sole trader or partnership business passes away?
The business will be registered as a new company when a new owner comes in.
What are the characteristics of a sole trader form of ownership?
Limited capital Mostly go into the retail business No legal personality as a business The liability is unlimited No continuity-the company doesn't exist after the owner dies
What is a sole trader company?
Only one owner
What are the advantages of the sole trader form of ownership?
Easy to start
Easy to make quick decisions
Personal contact with your customers-good relationships
Easy to adapt to changes
What are the disadvantages of a sole trader form of ownership?
Capital is limited
Owner has to depend on his own judgment
Business has no real continuity
It is often difficult to get good staff-most go to big companies
What are the taxes of of a sole trader form of ownership?
The company does not have to be registered, so the taxes belong to the owner, not the company.
What are the five different forms of ownership?
Sole trader Partnerships Closed corporations Public companies Private companies
What is a partnership?
A company that is owned by a minimum of two people.
What kinds of partnerships are there?
General
Anonymous
Limited liability
What are the characteristics of a partnership form of ownership?
May be formed orally or in writing
The partners bear all legal liability liability for contracts entered into
Partners are jointly liable for any debts
The business has no continuity
What are the advantages of a partnership form of ownership?
There are no legal formation requirements, only a trading license-therefore not too difficult to start
The business can easily expand because of the different people contributing
It is easier to raise loans or obtain credit because everyone bears the liability
The amount of money is not limited by the law, since the partners contribute as much as they can
What are the disadvantages of a partnership?
No continuity
The partners share any accidents that happen and they share the profits, so you may have to pay for mistakes of the partners and share whatever you make
The partners are responsible for all the debts-if the company goes bankrupt, the bank can repossess the partners’ possessions to pay the debt
Urgent decisions cannot be made quickly-each of the partners needs to be consulted
What is the tax of a partnership form of ownership?
Each partner pays tax within his own capacity
What is a close corporation?
Particularly designed for small companies
Any companies with ten or fewer shareholders could become a close corporation before 2011
The close corporation is registered as a legal person
Is cheaper than a private/public company
What are the characteristics of a close corporation form of ownership?
CC is a legal person, so it can continue after a person has left/died
Has ten or less members
Members do not have unlimited debts-they can only lose the capital that they have invested
What the advantages of a closed corporation form of ownership?
Simple to register
Easy and inexpensive to set up
The profit of each member is according to the amount of capital that they have contributed
Members can only lose their capital to debts
What are the disadvantages of a CC?
Any members can decide what will happen to the shares of a person who leaves
It is not possible to sell a CC-it can only be shut down
If you apply for a loan, the bank requests financial statements
Expansion is very limited because only ten or less members
What is the tax of a CC?
Individuals in a CC are not taxed-the company is taxed
What are the characteristics of a private company?
A private company normally has the words “proprietary limited”
This means you don’t have to advertise your financials anywhere
There is a minimum of one and a maximum of fifty shareholders
Capital is provided by issuing shares
The company is managed by a board of directors
The business is a legal person
Shares are not freely transferable
What are the advantages of a private company?
Shareholders have limited liability
The business can commence business as soon as it has the Certificate of Incorporation
Don’t need to publish reports, so it is very private
What are the disadvantages of a private company?
The shares are not freely transferable
It is not suited to very large undertakings
They cannot appeal to the public to invest-limited capital
What is the tax of a private company?
Fixed rate of tax on their profit
Deduct 15% tax of any dividends issued to the shareholders
What are the characteristics of a public company?
Very big
Has the word “limited” after the company name
Lots of paperwork to register
Very expense to set up
May have to employ an administrator
Has at least three qualified directors
Unlimited shareholders
Capital is raised by issuing shares to the public
Can only commence business after being registered
What are the advantages of a public company?
Shares are freely transferable Unlimited capital Continuity Liabilities are limited When shares are spread, debt is less risky
