Terms Of Business Flashcards
Learn all about business
What is Business
The regular activity carried out with the aim of earning profits through production or purchase, production and sale of goods and services with the intention of satisfying human wants
Xtics of business
- Regular activity
- Exchange motive
- profit motive
- production of goods and services
- satisfaction of human wants
- uncertainity of returns
Types of business classification
Industry_which is production of goods
Commerce_which deals in Trade of goods and services
Aids to trade
Banking Transport Insurance Market research-consulting services Ware house Communication Advertising
Production industry contains the following
Primary industry
Secondary industry
Tertiary industry
Primary industry
Provision of natural resources or God given gifts
Under primary industries we have
Extraction
To dig out something in it’s original form eg, gold,silver, diamond
Genetic
Multiplication of God given things eg; fish,
Secondary industry
Provision of production of artificial product like capital industries, manufacturing industries, construction industry
What are finished goods
These are goods which are in consumable state
Tertiary industry
They deal in services Eg law firms Warehouses Banking Insurance Advertising
Purposes of business
Economic Creation of a customer Make profits Survival (earn a living) Growth (carrier)
Social Protect the environment Fair deal to the society Fair deal to the government Fair deal to the customer
Sole proprietorship
The sole proprietorship is the kind of business entity that is owned by one person
Characteristics or features of sole proprietorship
- Management and control
- Unlimited liability
- No separate legal entity
- limited government intervation
- Creation (requires minimum requirements)
- profit or losses distribution
- Capital or financing
- Duration
- Taxation
- Reporting requirements (none)
Formation of sole proprietorship
Obtain a license or permit for the particular type of business from regulatory bodies
Decision are all made by one person
Advantages of a sole proprietorship
- Direct motivation
- it is flexible
- secrecy
- has complete control
- no corporate tax payments
- few formal business requirements to establish and dissolve
- easiest type of business organization to establish
- the start up cost are minimal
Demerits or disadvantages of sole proprietorship
- Lack of collateral security hence borrowing is limited
- poor decision making/limited managerial skills
- demotivation because of unshared losses
- poor or no book keeping
- owner has unlimited liability both the owner and the assets are subjected to the claims of creditors
- uncertainity of duration
- it is difficult for a sole proprietor to raise capital
Partnerships
A relationship that exists between two people with the view of making promises
Who can be a partner
Any person who is legally capable of contractual capacity that is sane financially sound
Characteristics of partnerships
- Non transferability of shares
- plurality of members for professions of banking,lawyers 2-50. Standard partnership is 2-20
- contractual agreement usually between two people
- Unlimited liability
Formation of a partnership agreement
In Uganda partnerships are registered by the partnership act 2010
Partnerships agreement is done by the following
- Word of mouth
- writing (partnership deed)
- Implication (implaied agreement)
- holding out
Partnerships deed
An agreement that spells out the right and obligations of each of the partners made out by the partners and witnesses by a solicitor
Content of a partnership deed my
- Mode of sharing the profits
- Name and signature of partners
- interest on capital and drawings
- winding up/ changes and dissolutions
- nature of business
- capital contribution per partner
- preparation and auditing of accounts
-the ratio in which profits/losses will be shared - Amount,if any partner may draw in advance
- Partner’s salary
- Admission of new members
Duration of partnership
Types of partners
- General partnership
- limited partnership
- limited liability partnership
General partnership
Where all partners participate in management of the business and each partner is liable for all business debts or losses
Limited liability
Partners are not actively involved in the day to day running of the business
They have limited liability
Limited liability partnership
Partnership where all partners have limited liability
They are not responsible for the debts and liabilities of the debts and liabilities
Types of partners
- Active partners
- dormant/sleep partners
- Nominal / quasi
- minor partner
- Partner in profits only
- Sub partners
Partners by Estoppel or holding out
Active partners or regular or ordinary or ostensible
Participate actively in management of business and are liable to third parties
Domant or sleeping partners
One who does not take part in the management of the business
Contributes capital and shares the profits
Liable for all the debts
Nominal or quasi
Does not contribute any capital nor shares in the profits or take part in the management of the business
He is liable to third parties
He or she is known to outsiders and earns good will for using his or her name as a partner
Minor patner
A partner below the contracting age
Enjoys limited and his decisions are not legally binding
Partner in profits only
Partner who shares on profits only without being liable of the losses
Doesn’t take part in the active management of a business
Sub partners
This is a stranger sharing the profits derived from the firm
Shares profits with one of the partners and has no rights against the firm
Partner by Estoppel or by holding out
One who without being a partner conducts himself in such a way that leads third parties to believe he is a partner
Advantages of partnerships
- Going concern or survival capacity
- increased capital
- better management skills
- More access to credit
- Losses are shared
- Relatively easy to form and dissolve
- Few government regulations
- relative flexibility in management
- relatively easy decision making
- limited liability of some partners
Disadvantage or demerits of partnership
- Unlimited liability of some people
- a mistake by a partner will affect other partners
- less secrecy
- relatively limited resources
- non transferability of interest
- relative delays in decision making
- possibility of instability
- demotivation (sharing of profits)
Factors that could lead to termination of a partnership deed
- Agreement
- Departure
- Dismissal of a partner
- failure to observe the regulations
Joint Stock Companies
A voluntary association of individuals for profit incorporated into transferable shares of a fixed face value the ownership of which is the condition of membership,with limited liability, perpetual succession and a common seal.
Features of a company
- Compalsary incorporation
- voluntary association
- artificial person
- separate legal entity
- common seal
- limited liability
- transferability of shares
- perpetual succession
- separation of ownership and management
_ large membership
Compulsory incorporation
A company is a voluntary association of persons formed
Only when there is a certified then it comes into existence
Voluntary association of in cooparation
Two or more people come into existence with the aim of carrying out a business under the companies act
Artificial person
A company is an artificial person created by law
Separate legal entity
Since a company is created by law it has a separate legal existence compared to it’s members
Common seal
Since a company is an artificial person having no physical features like a natural person,it cannot sign
However each company has to have a common seal of on which the name is engraved
Limited liability
The limited number of a company is limited to the face value shares held by them or amount guaranteed
Transferability of shares
The member who holds the shares of the company can transfer it’s own to any other without the company’s permission
Perpetual succession
Since the company has separate existence from it’s members any emagancy like death will not affect the continuations of the business
Separate ownership and management
In a company the ownership and the management are separated. Share holders who are owners do not take part in the every day share
Large membership
The company is owned by a longer number of members this explains better the 100 persons for Private limited companies and unlimited number for unlimited companies
Types of companies
- Companies limited under the royal chatter
- companies limited under the companies act
- companies in comparated under the statute /acts of the parliament
Companies incorporated under the special/royal charter
These are companies most of which originated from the UK under the permission of the queen of England/special charter
Examples of the companies incorporated under the royal chatter
British South African companies
Imperial British East African company
British East Indian Company
Companies incorporated under the company’s act
In Uganda the companies Act lays down procedures into which a company can be brought in to existence
Types of companies incorporated under the company’s Act
Companies limited by shares
Companies limited by guarantee
Unlimited companies
Companies limited by shares
These are companies where liability of members is limited to the face value of the shares they own
Examples of companies limited by shares
Private limited companies
Public limited companies
Government Companies
