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.
Charachteristics of a private company?
- The company name ends with letters/abbreviation (Pty) Ltd.
- A private company is not allowed to sell shares to the public.
- The company raises capital by issuing shares to its shareholders
Positive impact of a private company?
- There is the potential of good long-term growth.
- Companies pay tax on a fixed tax rate
Negative impact of a private company?
- The more shareholders, the fewer dividends for shareholders.
- Must adhere to the tax requirement of the government.
Taxation private company?
Success
Failure
Management private company?
Success
Failure
Capital private company?
Success
Failure
Division of profits private company?
Success
Failure
Legislation private company?
Success
