Types of Business Ownerships Flashcards
Sole trader (include its advantages & disadvantages)
This is a business that owned by one person.
Advantages - The owner is responsible for all decisions of the business, they do not have to share profit with other owners, easiest and least expensive form of business to establish.
Disadvantages - The business is not seen as a separate legal entity resulting in the owner being completely liable for all debts and losses, The owner has unlimited liability meaning if the business’ assets are insufficient the owner must cover the business debts with their personal assets.
Partnership (include advantages & disadvantages)
A partnership is a business, other than a company, that is owned by two or more people. The number of members of a partnership is limited by law. The maximum size of most partnerships is 20 people.
Advantages - Two or more people can raise more capital than a sole trader, partners can bring different skills and knowledge, Workloads are shared allowing greater flexibility, partners are able to share the risks of the business including any losses.
Disadvantages - Partners are jointly and severally liable for debts of the partnership which may result in personal assets being seized, actions and decisions made by one partner is legally binding for all, there may be conflicts for business policies, profits must be shared between all partners.
Small Proprietary Company (include advantages & disadvantages)
A propietary company is a company that cannot raise money from the public. It must have at least one shareholder and a maximum of 50 non-employed shareholders. The word ‘Propietary’ or ‘Pty’ must be included in the company’s name.
Advantages - They have separate legal existence from its owners, shareholders have limited liability usually to the value of shares ensuring personal assets are safe, it is generally easier to raise capital because there are more potential owners.
Disadvantages - They fall under greater regulation than a sole trader or partnership, set up administration and running costs can be high, recordkeeping and reporting requirements are more demanding than for a sole trader or partnership and can be difficult to dissolve.
