Module 3A: Factors in Business Formation

Question 1

Ownership: .Owned by one or by spouses

Liability of Owners: unlimited liability

Continuity of Business: through successors or heirs. Lacks continuity when proprietor dies

Capital Requirements: limited to owner’s personal resources

Management Control: .owner’s decision

Distribution of Profits and Losses: Owner receives all profits (and sustains all losses).

Attractiveness of Raising Capital: Limited as the business is solely owned by an individual or spouses. No declaration of dividends and usually no defined organizational structure

Answer 1

Sole Proprietorship

Question 2

Ownership: Owned by 2 or more. Could be General or Limited Partnership

Liability of Owners: shared liability

Continuity of Business: depends on the will of the partners

Capital Requirements: resources come from partners

Management Control: .partners’ decision

Distribution of Profits and Losses: Income included and taxed on partner’s personal tax return.

Attractiveness of Raising Capital: Higher attractiveness vs sole proprietorship as high value partners bring high value investments to the business

Answer 2

Partnership

Question 3

Ownership: .Owned by several individuals with limited liabilities

Liability of Owners: limited liability

Continuity of Business: through board meetings and election of officers by the BOD; can continue indefinitely since it has its own separate entity

Capital Requirements:
issuance of stocks or share capital (stockholders or shareholders).
- Capital investment from the incorporators

Management Control: .Structured. Signatories, Officers and Directors are determined through yearly meetings based on Articles of Inc. and By-Laws.

Distribution of Profits and Losses: Depending on generated income of the year and based on the meeting of BOD if to allow declaration of dividends..

Attractiveness of Raising Capital: Very attractive to investors and creditors as they can receive monetary gains from the business

Answer 3

Corporation

Question 4

Ownership: makes the owners the sole shareholder, acting director and president

Liability of Owners: limited liability

Continuity of Business: perpetual existence

Capital Requirements: No minimum capitalization is required.

Answer 4

One Person Corporation (OPC)

Question 5

Ownership: .held by its members

Liability of Owners:
limited liability
Members as the owner of the cooperative, shall be liable for the debts of the cooperative to the extent of his contribution to the share capital of the cooperative.

Continuity of Business:
Member Commitment and Participation
Strong Governance and Management
Financial Stability
Adaptability and Innovation
The power of succession

Capital Requirements: Capital may be generated from the share capital of the members, deposits and borrowings from federation, banks or other financial services

Management Control: .Members have the right to participate in the decision-making process, elect the board of directors, and vote on significant matters affecting the cooperative. Management control mechanisms should facilitate member participation and engagement in a meaningful way.

Distribution of Profits and Losses: based on the cooperative’s operating principles and the contributions made by its members / equitable sharing.

Attractiveness of Raising Capital: ownership and decision-making are distributed among its members.

Answer 5

Cooperative

Question 6

Ownership: .Owned by one or by spouses

Answer 6

Sole proprietorship

Question 7

Liability of Owners: unlimited liability

Answer 7

Sole proprietorship

Question 8

Continuity of Business: through successors or heirs. Lacks continuity when proprietor dies

Answer 8

Sole proprietorship

Question 9

Capital Requirements: limited to owner’s personal resources

Answer 9

Sole proprietorship

Question 10

Management Control: owner’s decision

Answer 10

Sole proprietorship

Question 11

Distribution of Profits and Losses: Owner receives all profits (and sustains all losses).

Answer 11

Sole proprietorship

Question 12

Attractiveness of Raising Capital: Limited as the business is solely owned by an individual or spouses. No declaration of dividends and usually no defined organizational structure

Answer 12

Sole proprietorship

Question 13

Ownership: Owned by 2 or more. Could be General or Limited Partnership

Answer 13

Partnership

Question 14

Liability of Owners: shared (via partners) liability

Answer 14

Partnership

Question 15

Continuity of Business: depends on the will of the partners

Answer 15

Partnership

Question 16

Capital Requirements: resources come from partners

Answer 16

Partnership

Question 17

Management Control: partners’ decision

Answer 17

Partnership

Question 18

Distribution of Profits and Losses: Income included and taxed on partner’s personal tax return.

Answer 18

Partnership

Question 19

Attractiveness of Raising Capital: Higher attractiveness vs sole proprietorship as high value partners bring high value investments to the business

Answer 19

Partnership

Question 20

Ownership: .Owned by several individuals with limited liabilities

Answer 20

Corporation

Question 21

Liability of Owners: limited liability

Answer 21

Corporation
OPC
Cooperatives

Question 22

Continuity of Business: through board meetings and election of officers by the Board of directors (BOD); can continue indefinitely since it has its own separate entity

Answer 22

Corporation

Question 23

Capital Requirements:
issuance of stocks or share capital (stockholders or shareholders).
Capital investment from the incorporators

Answer 23

Corporation

Question 24

Management Control: .Structured. Signatories, Officers and Directors are determined through yearly meetings based on Articles of Inc. and By-Laws.

Answer 24

Corporation

Question 25

Distribution of Profits and Losses: Depending on generated income of the year and based on the meeting of BOD if to allow declaration of dividends.

Answer 25

Corporation

Question 26

Attractiveness of Raising Capital: Very attractive to investors and creditors as they can receive monetary gains from the business

Answer 26

Corporation

Question 27

Ownership: makes the owners the sole shareholder, acting director and president

Answer 27

OPC

Question 28

Continuity of Business: perpetual existence

Answer 28

OPC

Question 29

Capital Requirements: No minimum capitalization is required.

Answer 29

OPC

Question 30

Ownership: .held by its members

Answer 30

Cooperative

Question 31

Liability of Owners:
- limited liability
- Members as the owner of the cooperative, shall be liable for the debts of the cooperative to the extent of his contribution to the share capital of the cooperative.

Answer 31

Cooperative

Question 32

Continuity of Business:
- Member Commitment and Participation:
- Strong Governance and Management
- Financial Stability
- Adaptability and Innovation
- The power of succession

Answer 32

Cooperative

Question 33

Capital Requirements: Capital may be generated from the share capital of the members, deposits and borrowings from federation, banks or other financial services

Answer 33

Cooperative

Question 34

Management Control: Members have the right to participate in the decision-making process, elect the board of directors, and vote on significant matters affecting the cooperative. Management control mechanisms should facilitate member participation and engagement in a meaningful way.

Answer 34

Cooperative

Question 35

Distribution of Profits and Losses: based on the cooperative’s operating principles and the contributions made by its members / equitable sharing.

Answer 35

Cooperative

Question 36

Attractiveness of Raising Capital: ownership and decision-making are distributed among its members.

Answer 36

Cooperative