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Questions and Answers
What is the primary liability characteristic of business partners in a partnership?
What is the primary liability characteristic of business partners in a partnership?
Partners are jointly and severally responsible for the debts of the business.
What happens to a partnership if one partner leaves the business?
What happens to a partnership if one partner leaves the business?
The business ceases to exist.
What is the maximum number of members allowed in a close corporation?
What is the maximum number of members allowed in a close corporation?
A close corporation can have a maximum of 10 members.
How does a close corporation protect its members from business debts?
How does a close corporation protect its members from business debts?
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What must a public company have in terms of shareholders?
What must a public company have in terms of shareholders?
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What is a key advantage of forming a public company compared to a close corporation?
What is a key advantage of forming a public company compared to a close corporation?
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What is the legal status of a close corporation in relation to its owners?
What is the legal status of a close corporation in relation to its owners?
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What financial obligation do members of a close corporation have regarding profits?
What financial obligation do members of a close corporation have regarding profits?
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What is a sole trader and what are the main advantages and disadvantages of this form of ownership?
What is a sole trader and what are the main advantages and disadvantages of this form of ownership?
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How does liability differ between sole traders and partnerships?
How does liability differ between sole traders and partnerships?
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What are the characteristics of a partnership?
What are the characteristics of a partnership?
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What are the tax implications for a sole trader's income?
What are the tax implications for a sole trader's income?
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What advantages do partnerships have over sole traders in terms of capital?
What advantages do partnerships have over sole traders in terms of capital?
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Describe the decision-making process in a partnership.
Describe the decision-making process in a partnership.
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What happens to a sole trader's business upon their retirement or death?
What happens to a sole trader's business upon their retirement or death?
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What are the two types of partners in a partnership and their roles?
What are the two types of partners in a partnership and their roles?
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Study Notes
Forms of Business Ownership
- Business ownership is categorized legally based on how the business is structured.
- Entrepreneurs have several options with unique characteristics, advantages, and disadvantages.
Sole Trader/Proprietor
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Characteristics:
- Full business control by the owner.
- Owner keeps all profits.
- Low startup costs and easy setup.
- Owner pays personal tax on business profits.
- Business ceases if the owner dies, retires, or sells.
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Advantages:
- Easy and inexpensive setup (needs only a trading license).
- Owner has complete business control.
- All profits belong to the owner.
- Quick decision-making.
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Disadvantages:
- Owner is liable for all business debts (unlimited liability).
- Personal assets can be used to pay business debts.
- Limited capital—only as much as the owner can provide.
- Business closes if the owner is unwell or on holiday.
- Financial statements do not need auditing.
Partnerships
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Characteristics:
- Owned by 2-20 partners.
- More capital is available from multiple partners.
- Managed by partners (combining skills).
- Profits and losses are shared among partners per agreement.
- Unlimited liability (personal assets can be used to pay business debts).
- Two types of partners exist:
- General partners: Manage the business.
- Limited partners: Invest but don't run the business.
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Advantages:
- More capital from partners for business growth.
- Easier to obtain funds than sole traders.
- Combined skills, knowledge, ideas of partners lead to better decision-making.
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Disadvantages:
- Decisions can take longer as all partners must agree.
- One partner's decisions can negatively impact others.
- Partners share joint and individual responsibility for business debts.
- Business ceases if a partner leaves.
Close Corporations (CC)
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Characteristics:
- Owned by 1-10 members (natural persons).
- Members have limited liability (not responsible for business debts).
- Member ownership is expressed as a percentage.
- Business name must end with "CC."
- No longer possible to start a new CC in South Africa after 2011 (pre-existing CCs can still operate).
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Advantages:
- Easy and inexpensive startup.
- Members are not personally responsible for business debts.
- Continues to exist if a member dies.
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Disadvantages:
- Maximum 10 members limits expansion potential.
- Profits need to be shared between members.
- Legal formalities (signed registered agreement required).
- Higher tax rates.
Public Companies
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Characteristics:
- Owned by shareholders.
- Minimum 7 shareholders, potentially unlimited.
- Capital raised by selling shares on the JSE.
- Shareholders become part owners.
- Company is a separate legal entity paying company tax on profits.
- Profits are distributed to shareholders as dividends.
- Business has unlimited continuity.
- Company has a board of directors.
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Description
This quiz explores different types of business ownership, focusing on sole traders or proprietors. Understand their characteristics, advantages, and disadvantages in managing a business. Perfect for entrepreneurs looking to make informed decisions about their business structure.
