Topic 10 Forms of Ownership Flashcards
Define a Profit Company
A business whose aim is to generate profit from the regular operations.
Define a Non-Profit Company
a company incorporated for public benefit.
Partnership:
an agreement between two or more parties that have agreed to finance and work together in the pursuit of common business goals.
Co-operative society:
a voluntary association started with the aim to meet
their common economic/social needs/aspirations through a jointly-owned and democratically-controlled enterprise.
Company:
a type of business structure that has a separate legal entity from its owners.
Public company:
a company whose shares are traded freely on a stock exchange.
Private company:
a company whose shares may not be offered to the public for sale.
State-owned company:
a legal entity that is created by the government
to participate in commercial activities on its behalf.
Prospectus:
a document inviting the public to buy securities/shares.
Annual General Meeting (AGM):
a meeting is held once a year where the shareholders receive a report stating how well or poorly the company
has done.
Directors:
people elected to the board of a company by the shareholders to represent the shareholders’ interests.
Audit:
a process where financial statements of the business are checked to confirm that they are correct.
Outline the forms of ownership and classify them into
Profit and Non-profit organisations/companies
Outline/explain the differences between
Profit and Non-profit organisations/companies
Discuss
Sole Trader
Define:
A sole trader is a business that is owned and managed by one person.
Characteristics
🥸 There are no legal requirements regarding the name
of the business.
🥸 Legally, the sole trader and the business are not
separate entities.
🥸 A sole trader may be started without performing
any legal formalities/registration.
🥸 There may be some persons to help but ultimate
control lies with the owner.
🥸 The owner has a personal interest in the
management and the services that are rendered.
🥸 The owner has unlimited liability.
🥸 The business dissolve when the owner dies. (no continuity)
Advantages
✅ It is easy and quick to form a sole trade as there is less capital needed.
✅ The owner can take quick decisions as and when required and has
full control.
✅ The owner can take steps to eliminate wastages of any kind.
✅ All the assets of the business belong to the owner personally.
✅ The owner takes all of the profits made by the business and is entitled to the
ownership of assets.
✅ There is personal encouragement and personal contact between the owner
and customers.
✅ Sole traders are generally closer to their customers and offer a more
personalised approach and improved customer service.
Disadvantages
❌ Since all decisions are taken by the owner, the area of the business will be
limited to the management abilities of the owner.
❌ It is not always possible to attract highly skilled workers because the capital is
limited to one person.
❌ The owner has unlimited liability for debts, which means the owner is
personally liable for the debts of the business.
❌ They cannot expand the business operations because of limited capital.
❌ The owner is responsible for providing all the capital needed, which may
make it difficult to raise big amounts of capital when needed.
❌ If the owner does not have enough knowledge/experience the business
may fail.
❌ A sole trader lacks continuity especially in the event of death or illness.
❌ The risk of unlimited liability forces many sole traders not to expand
operations beyond a certain point.
❌ Tax is calculated according to a progressive income system, which can be up
to a maximum of 40%.
6 Forms/Types of Ownership
- Sole proprietor
- Close Corporation
- Partnership
- Profit Company
- Non Profit Company
- Co-Operatives
A business that is started and owned by one person that does not register the business as a seperate legal entity
Sole trader
A business owned by
between 2 and 20 people.
Partnership
A business owned by
between 1 and 10 members.
Close Corporation