Topic 10 Forms Of Ownership Flashcards
Forms of ownership
Sole trader
Partnership
Private company
Personal liability company
Public company
Factors considered when choosing form of ownership
Start up coat and future capital.
Size and nature of the business.
Risk involved.
How capital will be contributed.
How profits and losses will be shared
Forms of ownership meaning
Legal position of the business and they way its owned
Profit companies
Differences
Company is formed with one aim of making profit.
An company incorporated for financial gain for its shareholders.
Non profit companies
Differences
An association incorporated not for gain.
Not required to pay taxes on next income.
Profit
Classification
Public companies : reflected as Ltd or limited
State owned companies : reflected as SOC ltd
Non profit
Classification
Non profit companies : reflected as NPC
Sole trader defenition
Business owned and managed by one person.
Characteristics of sole trader
Owner has unlimited liability.
Business dissolves when owner dies.
The owner has a personal Interest in the management and services rendered.
Advantages of sole trader
Owner can take steps to eliminate wastage of any kind.
All assets of the business belong to the owner personally.
The owner takes all profits made by the business and is entitled to ownership of assets.
Easy and quick to form a sole trade as there is less capital needed.
Disadvantages of sole traders
Cannot expand the business operations because of limited capital.
The owner has unlimited liability for debts of the business.
Lacks continuity especially in the event of death or illness.
Sole trader hand
- 1 owner
- No legal processes and requirements / trading license.
- Unlimited liability
- No continuity
- Not a legal entity.
- Any name
- Owner pays income tax in personal capacity.
Sole trader capital
Owned or borrowed capital
Sole trader managed ? And profits
By owners ot manager can be appointed. All profits to owner.
Partnership defenition
Arrangement where parties known as business partners agree to form a business for mutual intrest.
Partnership Characteristics
No legal requirements regarding name of the business.
Partners share profitsnmade and therefore work harder.
Partnership has no legal personality and therefore has no continuity.
Advantages of partnerships
All partners have personal intrest in the business.
Partners share profits made and they sre therefore motivated to work harder.
Partners can invest new capitals into the business yo finance expansion.
Disadvantages of partnership
Partners might still find it difficult to raise capital and not all partners contribute cash.
Partners are jointly and severally liable for the actions of other partners.
In large partnership he partners may struggle to agree on business issues.
Partnership hand
- 2 - unlimited partners
- Written partnership agreement
- Unlimited liability
- No continuity.
- Business not a legal entity
- No restriction usually ends in plural
6.partners taxed in personal capacity
Partnership manager and profits
Partner / partners appoint a manager.
Profits ÷ according to Partnership agreement.
Partnership capital
Contribute own or borrowed capital
Money , labour’s, skills
Sole trader
Differences
Profit goes to owner.
Individual who owns a business entirely by him / herself.
Partnership
Differences
Comprises 2 or more people trending to make a profit.
Profit shared amongst partners according to partnership agreement.
Private company
It’s a company whose shares may not be offered to public for sale.
Characteristics of private company
Liability of shareholders is limited to the number of shares held by them.
Raises capital by issuing shares privately to its shareholders.
Name of a private company must end woth the words.
Advantages of private company
A company can continue to trade even if one shareholder dies / resigns.
Shareholders must agree to sale of transfer of shares.
Not required to file annual financial statements woth commission
Disadvantages of private company
Difficult and expensive to establish as the company subjected to many legal requirements.
Directors sometimes act in their own interest not in the company’s best intrest.
Cannot be listed on the stock exchange therefore it cannot sell shares to the public.
Private company
Hand
- 1 - unlimited share holders
- Registered with CIPC only document needed in memo of incorporation.
- Shareholders have limited liability.
- Has continuity unless liquidated
- Business is a separate legal entity.
- Ends in property limited or pay Ltd..
- company tax and shareholders pay tax on dividends
Private company
Managers and profit ?
Managed by board of directors minimum 1 director.
Dividens shared according to no. Of shares held.
Private company
Capital
Capital is raised by selling shares not to public . Aquire more shareholders to expand.
Personal liability defenition
Mainly used by associations such as lawyers and accountants
Characteristics of personal liability company
Required to have a minimum of one director on the board of directors.
Memo of Inc can be altered to require more than one director on board.
The memo of Inc should state that it’s a personal liability company.
Advantages of personal liability
Same as private company
Disadvantages of personal liability company
Same as private
Personal liability company hands
- Min 1 founding member.
- Registered with CIPC . Only document needed is memo of Inc
2.directors and past directors are jointlyand severally liable for debts - Has continuity unless liquidated
- Business is a separate legal entity
- Ends in Inc
- Company tax
Personal liability company
Managers and profits
Managed by board of directors: minimum 1 directors on the board.
Personal liability company
Dividends according to no. Of shares held. Capital attract more shareholders
Public company definition
Company registered to offer shares and stocks to general public.
Public company characteristics
A minimum of 1 person is required to start a public company.
Company name ends with the letters Ltd.
Has separate legal personality.
Public company advantages
Shareholders can sell / transfer their flies easily .
Directors bring creative ideas which In courage innovation / high productivity.
Managed at least 3 competent highly skilled directors.
Disadvantages of public company
They must prepare their financial reports in accordance with the generally accepted accounting principals.
Vulnerable to increased scrutiny from the government and public .
Auditing of financial statements compulsory
Private company
Differences
Minimum 1 director.
Shares not freely transferable.
Annual financial statements need not be audited and published.
Must end with ( pty ) Ltd
Public company
Differences
Shares freely transferable.
Minimum of 3 directors
Must end with Ltd.
Annual financial statements need to be audited and published.
Public company hands
- Min 3 - unlimited shareholders
- Registered with CIPC . ONLY document needed meo of Inc.
- Share holders have limited liability.
- Has no continuity unless liquidated .
- Business is a legal entity.
- Ends in Ltd
- Company tax and shareholders pay tax on dividends.
Public company
Managed and profits
Min 3 directors
Dividends according to the no. Of shares held.
Public company
Capital is raised by setting shares ok Public to aquire more shareholders.
State owned company SOC
Gov is a major shareholder and it falls under the department of public enterprise
Characteristics
Listed at as a public company.
Name ends with the letters SOC
financed by the government
Advantages of SOC
Jobs are created for all skill levels
Wasteful duplication of service limited.
Shareholders have limited liability.
Disadvantages
Losses must be covered by taxpayers.
Gov can lose money if business fails.
Shares are not freely tradable making it difficult to raise capital.
Non profit company NPC definition
Legal entity organised and operated for collective public or social benefit
Characteristics of NPCs
Funded by donations and foreign funding.
Name of company must end in npc.
Main aim is to provide a service and not to make profit
Advantages of NPCs
Can receive grants / aid from the government.
A surplus of income is retained to further goals of the business.
Profits used solely for primary objective of the organization
Disadvantage of NPCs
Creating and NPC take / effort / money.
Does not generate enough capital to cover their expenses.
Need professional assistance to set up the organization
Co operatives definition
A traditional way for a group of interested parties to get together and share resources infrastructures and costs to achieve a better outcome
Types of co operatives
Worker
Housing
Social
Characteristics of co operatives
Motivated by service rather than profit.
Managed by a minimum of 3 directors.
Have a democratic structure which each member having one vote
Advantages of co operatives
Access to resources and funding
Decision making is done by a group.
Members have limited liability
Disadvantages of co operatives
Difficult to grow a co operatives.
Shares are not freely transferable
Very few promotion positions for staff.
