Topic 1b - Types of small businesses Flashcards
Types of small businesses
- sole trader
- partnership
- small proprietary company
sole trader
a business owned by one person
Number of owners: sole trader
1
Liability of owners: sole trader
Unlimited liability
Ability to raise capital or raise funds: sole trader
Owner investment, hard to find investors
Distribution of profits: sole trader
Owner gets full distribution of money
Transfer of ownership: sole trader
Cannot transfer ownership
Continuity of existence: Sole trader
If anything happens to one owner, business ceases to exist
Separate accounting or legal entity: Sole trader
Not a separate legal entity
Advantages: Sole trader
Easy to establish
Does not have to share profit
Disadvantages: Sole trader
Liable for all debts
One person may not have enough money
Losses cannot be shared
partnership
a business, other than a company, that is owned by 2 or more people.
Number of owners: Partnership
2-20
Liability of owners: Partnership
Unlimited liability
Ability to raise capital or raise funds: Partnership
Owners investments. A lot easier with more owners
Distribution of profits: Partnership
Goes to different owners according to partnership agreement or act (form of drawings)
Transfer of ownership: Partnership
partners must agree to transfer ownership (partnership agreement)
Separate accounting or legal entity: partnership
Either separate, or not separate
Continuity of existence: Partnership
If 2 OG owners: ceases to exist
If 2+ OG owners: new partnership agreement, continues to exist
If new partner joins: new partnership agreement occurs
Advantages: Partnership
Can raise more capital
Contribute more skills
Share the workload
Disadvantages: Partnership
Profit must be shared
Conflict over how business is run may occur
Small proprietary company
a proprietary company is a company that cannot raise money for the public. must have at least 1 shareholder and a maximum of 50 non employee shareholders.
small proprietary company must satisfy any 2 of the 3 following conditions
- yearly income is less than $25million
- the assets at the end of a year are less than $12.5 million
- the company has less than 50 employees at the end of the year
Number of owners: Small proprietary company
1-50 non employee shareholders
Liability of owners: Small proprietary company
Limited liability
Ability to raise capital or raise funds: Small proprietary company
Raise capital through shareholders
Distribution of profits: Small proprietary company
Goes to different shareholders in the form of dividends
Transfer of ownership: Small proprietary company
constitution can include a clause that restricts the right of shareholders to transfer their shares to a new owner
Separate accounting or legal entity: Small proprietary company
Separate legal entity, company sues not the owner
Continuity of existence: Small proprietary business
Company continues to exist
Advantages: Small proprietary company
Death of a shareholder makes no difference
Limited liability
Disadvantages: Small proprietary company
Greater regulation
More expensive to form
partnership agreement includes
- aims of partnership
- profit or loss sharing ratio
- voting procedures at meetings of partners
- procedures for retirement, death, new partner
