Topic 15:Forms of ownership and the contribution of the criteria to the success and/of failure Flashcards
Characteristics of a sole trader?
- This is the simplest and oldest form of ownership.
- The business is owned and managed by one person only
- There are no legal requirements regarding the name of the business.
Positive impact of sole traders?
It is easy to start or end the business.
* It requires little capital to start.
Negative Impact of sole traders?
- The owner is responsible for providing all the capital needed.
- The owner is personally liable for all the debts and losses of the business.
Taxation criteria sole traders
Success
- The owner is only taxed on profits in a personal capacity
Failure
- If profits get too large, the owner may end up paying a bigger amount of tax
Management criteria sole traders
Success
- One owner can make quick decisions because
he/she does not have to consult others and there
are no conflict.
Failure
- The owner has to do all the administration,
management, and decision-making in the
business.
Capital criteria sole traders
Success
- Capital will be carefully spent and managed because owners contribute all capital.
Failure
- Profits may not be large enough for expansion
Division of profits criteria sole traders
Success
- The owner may use the profit to expand the
business
Failure
- Profits may not cover all business debts, which
might hinder the expansion of the business
Legislation criteria sole traders
Success
- It is easy/inexpensive to start.
Failure
- The owner is personally liable for the loss of the
business and must budget carefully.
Characteristics of a partnership?
- No legal formalities required to start, only a written partnership agreement is required.
- There are no legal requirements regarding the name of the business.
- Partners combine capital and may also borrow capital from financial institutions.
Positive impact partnerships
Positives
- There are a few legal requirements to establish a partnership.
- Because of the capital being pooled together, there is more capital.
Negative impact partnerships
- Partners have unlimited liability which means they can lose personal assets.
- Different personalities and options of partners can lead to conflict.
Taxation partnerships
Success
- The partnership does not pay income tax, only
the partners in their personal capacities.
Failure
- High-earning partners pay more tax, which
may discourage other partners from joining the
partnership.
Capital partnerships
Success
- Joint capital contribution from partners
Failure
- Unequal input as some partners put in
expertise instead of cash.
Management partnerships
Success
- Partners are actively involved in
management and may use the ideas of
other partners.
Failure
- Decision making can be time
consuming as everyone must agree.
Division of profit partnerships
Success
- Partners share profits according to their
contributions.
Failure
- Distribution of profit not always corresponding to amount of work = causes unhappiness.
Legislation partnerships
Success
- Easy and cheap to start. Sign partnership agreement.
Failure
- Business is not a legal entity, therefore unlimited liability.
Charachteristics of closed corporation?
- The name of the business must end with the suffi x CC
- A CC can have a minimum of one and a maximum of ten members who share a common goal.
- Members are not partners or have shares, but they have an interest in the CC.
Negative impact closed corporation?
- A CC is taxed at the same rate as companies and it is higher than personal income tax.
- A CC has limited growth and expansion because a CC cannot have more than ten members.
Positive impact closed corporation?
- A CC is a legal entity and has continuity of existence.
- The members of a CC have limited liability
Taxation closed corporation?
Success
- Pay income tax on the profit.
Failure
- Double taxation has negative effect on struggling business.
Management closed corporation?
Success
-Members are actively involved in management and may use the ideas of other members .
Failure
- Decision making can be time
consuming as everyone must agree.
Capital closed corporation?
Success
- More capital because up to 10 people can
contribute capital.
Failure
- A lack of capital to expand the business.
Limited to number of members.
Division of profits closed corporation?
Success
- Members will work harder to earn more profit.
Failure
- A member who contributes less capital will earn less profit.
Legislation closed corporation?
Success
- Own legal personality and limited liability for debts.
Failure
- An accounting officer must be appointed and this can be expensive.
