Forms of Business Ownership PDF

FORMS OF BUSINESS OWNERSHIP BOOK 1 (COMPULSORY) C1 - 2 Learning objectives 1. Distinguish between the major forms of business ownership: sole proprietorship, partnership and limited company. 2. Evaluate the pros and cons of the different forms of...

FORMS OF BUSINESS OWNERSHIP BOOK 1 (COMPULSORY) C1 - 2 Learning objectives 1. Distinguish between the major forms of business ownership: sole proprietorship, partnership and limited company. 2. Evaluate the pros and cons of the different forms of business ownership. 3. Describe the characteristics of multinational corporations in Hong Kong. Name: ___________________________ Class: _______ ( ) NAME: ___________________________ CLASS: _______ ( )  Ying Wa College 1 Business (Paper 1), Accounting and Financial Studies A. Introduction An enterprise is an organization that produces goods and /or services. Enterprises can be classified into two main types according to their ownership—private enterprises and public enterprises. Private enterprises are owned by ____________________________. Public enterprises are owned by the __________________________. B. Different forms of business enterprises Business enterprises (Private enterprises) Sole Limited Partnerships proprietorships companies General Limited Private limited Public limited partnerships partnerships companies companies 2 Ying Wa College Business (Paper 1), Accounting and Financial Studies C. Private enterprises (I) Sole proprietorships Characteristics 1. No. of owners 2. Management Managed by __________________________, sometimes assisted by ___________________ 3. Main sources of capital i. ____________________________ ii. ____________________________ iii. ___________ from friends, relatives and banks 4. Liability 5. Separate legal existence __________ ∴A sole proprietorship is not a ______________. 6. Scale of business  What does "unlimited liability" mean? Unlimited liability means if the business fails, the owner is responsible for _______________________. He may even have to __________________________________________.  What is a legal entity? A legal entity is an entity which can ____________________, _________________________ and ________________________ in its own name.  Ying Wa College 3 Business (Paper 1), Accounting and Financial Studies Advantages Disadvantages 1. Simpler set-up procedure 1. Unlimited liability It is ____________ to set up a sole A sole proprietor needs to bear proprietorship than other forms of unlimited liability. If the business ownership. The owner can start the fails, he is ___________________ business after obtaining a Business for the debts of the business Registration Certificate. without limit. He may even have to sell his personal belongings. 2. ____________________________ 2. Lack of ____________________ Little money is needed to set up the As the sole proprietorship is not a business. legal entity, if the owner dies or goes bankrupt, the business will close down. 3. Efficient and flexible operations 3. Limited ____________ of capital The owner can _________________ A sole proprietor often has difficulty _____________________ according in obtaining capital. He has to to changes in market demand without depend on his ____________ or others' approval. ______________________, _____________________ etc. Also, ______________ may not be willing to lend money to small firms. 4. Lower profits tax rate 4. Lack of skills The profits tax rate for a sole Running a business requires a proprietorship is only _______, which number of skills, e.g. marketing, is lower than that for a limited accounting, etc. A single owner company (16.5%). may not have all the skills required to develop the business well. 5. Easier transfer of ownership 5. Little time to rest A sole proprietor can easily ___________ the ownership of the business to others without others' approval. 4 Ying Wa College Business (Paper 1), Accounting and Financial Studies 6. Closer relationship with customers 6. Difficult to compete with large With a small scale of business, the businesses owner is able to give customers personal attention. When a close relationship is developed, customers will likely ______________________ _____________________________. 7. Closer relationship with 7. Heavy burden of some employees unavoidable cost As there are usually few employees, a sole proprietor can have a close relationship with his staff. In a good working environment, work is done _____________________________. Classwork Check Your Progress P2-1 (T.B. p 51)  Ying Wa College 5 Business (Paper 1), Accounting and Financial Studies (II) Partnerships Partnership General Limited partnership partnership All the partners are general partners and There must be at least one general have unlimited liability. partner with unlimited liability. Characteristics 1. No. of owners Types of owners (partners): i. Limited partner ii. General partner iii. Nominal partner Differences between limited partners, general partners and nominal partners Ownership Role Liability Decision making rights Limited partner General partner Nominal partner 2. Management Managed by _____________________________ 3. Main sources of i. _____________________________________ capital ii. _____________________________________ iii. _____________ from friends, relatives and banks 4. Liability _________________(∵The _________________ will be personally liable for all the debts) 6 Ying Wa College Business (Paper 1), Accounting and Financial Studies 5. Separate legal existence 6. Scale of business 7. Collective All partners are _____________________ by the accountability decisions made in the name of the partnership by any one of the ______________ partners and are responsible for the consequences of those decisions.  Ying Wa College 7 Business (Paper 1), Accounting and Financial Studies Advantages Disadvantages 1. Simpler set-up procedure 1. Unlimited liability It is _________ to set up a All general partners need to bear partnership compared with that of a unlimited liability. If the business limited company. Partners can start fails, they are ________________ the business after signing a _________ for the debts of the ____________________________ business without limit. They may and obtaining a Business even have to sell their personal Registration Certificate. belongings. 2. More sources of capital 2. Lack of ________________ When compared with a _________ As the partnership is not a legal _______________, more capital entity, if a general partner sources are available as there are withdraws, dies or goes bankrupt, more owners in a partnership. This the business will _____________. helps the business develop. 3. Division of labour 3. Restricted transfer of ownership Each partner can ______________ A partner can only transfer the ____________________________ business to others with the to the business. Division of labour ________________ of other can help the business run more partners. efficiently. 4. Lower profits tax rate 4. Collective accountability The profits tax rate for a partnership All partners are ______________ is only ___________, which is by the decisions made by any one lower than that for a limited of the general partners. Therefore, company (16.5%). a poor decision made by one general partner will affect the whole business. 5. Sharing business risks among partners 6. Easier to attract employees Capable employees may become partners. Classwork Check Your Progress P2-2 and P2-3 (T.B. p 53 and 56) 8 Ying Wa College Business (Paper 1), Accounting and Financial Studies Illustration 1 (Q2.19, T.B. p.70) ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… Illustration 2 (Q2.22, T.B. p.70) ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… …………………………………………………………………………………………………  Ying Wa College 9 Business (Paper 1), Accounting and Financial Studies Illustration 3 (2014/I/B1) ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… 10 Ying Wa College Business (Paper 1), Accounting and Financial Studies Try it out Hung Fook Tong 1. Visit the website of Hung Fook Tong. Read the 2023 Annual Report. a. State the full company name of Hung Fook Tong. …………………………………………………………………………………… b. Refer to page 1. According to the classification, which form of business ownership does Hung Fook Tong belong to? …………………………………………………………………………………… c. Read T.B. p.58 for the differences between private and public limited company. According to the features stated in the textbook, which type of limited company Hung Fook Tong is? Why? …………………………………………………………………………………………… …………………………………………………………………………………………… …………………………………………………………………………………………… 2. Given you have enough resources to start a limited company, would you choose this form of business ownership or would you prefer sole proprietorship? Why or why not? ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ………………………………………………………………………………………………  Ying Wa College 11 Business (Paper 1), Accounting and Financial Studies (III) Limited company (Joint-stock company) Characteristics Private limited Public limited company company 1. No. of owners (__________________) 2. Management Managed by _____________________________ which is elected by shareholders (Separation of ownership and management) 3. Main sources of i. Raise capital from i. Raise capital from capital _______________ ________________ shareholders shareholders ii. ____________ ii. Issue new share to new shareholders the ___________ to join 4. Liability 5. Separate legal existence 6. Scale of business 7. Disclosure of financial accounts to the public 8. Transfer of shares i. The board of i. Share can be directors has the _______________ power to ________ transferred. to register share ii. Share can be bought transfers and sold freely on ii. Share __________ the stock market if be sold on the stock they are _________ market. on a stock market. 9. Restriction on the A limited company must have the word "Limited" or company's name "Ltd" or "有限公司"as the last word in its name.  What does "limited liability" mean? …………………………………………………………………………………………… …………………………………………………………………………………………… 12 Ying Wa College Business (Paper 1), Accounting and Financial Studies Comparison between ordinary shareholder, preference shareholders and bondholders Descriptions Ordinary shares Preference shares Bonds Nature Holder Return ___________________ ____________ rate ____________ rate rate of dividends(股息) of dividends of interest (利息) Priority of receiving return Priority of getting back the principal when the company winds up  Ying Wa College 13 Business (Paper 1), Accounting and Financial Studies General (applicable to all types of limited companies) Advantages Disadvantages 1. Limited liability 1. More complicated set-up Shareholders have limited liability. procedure They do not have to pay off the debts Setting up a limited company is with their _____________________. complicated because ____________ __________________________ are required for registration. 2. More sources of capital 2. Higher profits tax rate When compared with a sole The profits tax is higher (__________) proprietorship and partnership, more than that for a sole proprietorship and capital sources are available as it can a partnership. __________________ to many shareholders to raise capital. 3. Lasting continuity 3. Lack of efficiency As the limited company is a separate The structure of the company may be legal entity, changes in shareholders so ___________ and ____________ ______________ affect the that the process of decision-making continuity of the company. takes time. This results in a lack of efficiency. Specific advantages and disadvantages Advantages Disadvantages Private 1. ________________ to Public 1. The company ________ to disclose financial disclose its financial information to the public information to the public. 2. Shares are not bought and 2. If most of the shares fall into sold freely, so the existing the hands of other parties, shareholders have the existing shareholders _____________________ may _________________ of the company. of the company. Public 1. If the company becomes a Private 1. Shares cannot be easily listed company, more capital transferred as the ________ can be raised by issuing ___________________ has shares on the ___________ the power to refuse to ____________________. register share transfers. 14 Ying Wa College Business (Paper 1), Accounting and Financial Studies Classwork Check Your Progress P2-5 (T.B. p 61) Illustration 4 (Q2.20, T.B. p.70) ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… …………………………………………………………………………………………………  Ying Wa College 15 Business (Paper 1), Accounting and Financial Studies D. Multinational corporations (MNCs) Multinational corporations have operations in at least one country apart from their home country. Characteristics 1. Size ___________ in terms of assets and revenue 2. Management Managed by _____________________________ (∵Most are public limited companies) 3. Main sources of capital 1. Issue __________ and __________ to the public 2. Borrow loans from _____________ 4. Operations Required the application of advanced knowledge and technology 5. Organizational _________________ organizational structure: structure different layers and departments 6. Goods and services As MNCs have to compete on a global level, their goods and services are usually of ______________________. 7. Decision-making  How do MNCs contribute to developing countries? MNCs contribute to the economy of developing countries by bringing in ____________, __________________ and _______________________. They also provide ______________________________ to local workers and _________________________________________ to local managers. Classwork Check Your Progress P2-6 (T.B. p 63) 16 Ying Wa College Business (Paper 1), Accounting and Financial Studies Illustration 5 (Q2.24, T.B. p.71) ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… ………………………………………………………………………………………………… …………………………………………………………………………………………………  Ying Wa College 17 Business (Paper 1), Accounting and Financial Studies Past Paper Reference Multiple-choice Questions Sample/I/A2 Sample/I/A3 Practice/I/A20 2012/I/A12 18 Ying Wa College Business (Paper 1), Accounting and Financial Studies 2013/I/A1 2013/I/A5 2014/I/A1 2015/I/A1 2015/I/A27  Ying Wa College 19 Business (Paper 1), Accounting and Financial Studies 2016/I/A1 2016/I/A6 2016/I/A16 2017/I/A11 20 Ying Wa College Business (Paper 1), Accounting and Financial Studies 2017/I/A18 2017/I/A30 2018/I/A18 2018/I/A24  Ying Wa College 21 Business (Paper 1), Accounting and Financial Studies 2018/I/A28 2019/I/A1 2019/I/A11 2020/I/A1 22 Ying Wa College Business (Paper 1), Accounting and Financial Studies 2020/I/A16 2020/I/A27 2021/I/A12 2022/I/A21  Ying Wa College 23 Business (Paper 1), Accounting and Financial Studies 2023/I/A6 2023/I/A11 2023/I/A21 24 Ying Wa College Business (Paper 1), Accounting and Financial Studies Short / Structured Questions 2012/I/B7a 2014/I/B1 2015/I/B5bc 2019/I/B1a  Ying Wa College 25 Business (Paper 1), Accounting and Financial Studies 2021/I/B1 2022/I/B1a 26 Ying Wa College Business (Paper 1), Accounting and Financial Studies Marking scheme Sample/I/A2 A 2016/I/A1 A 2020/I/A1 C Sample/I/A3 B 2016/I/A16 B 2020/I/A16 A Practice/I/A20 C 2017/I/A11 A 2020/I/A27 B 2012/I/A12 D 2017/I/A30 C 2022/I/A21 C 2013/I/A5 B 2018/I/A24 A 2023/I/A6 A 2014/I/A1 A 2018/I/A28 A 2023/I/A11 B 2015/I/A1 D 2019/I/A1 A 2023/I/A21 C 2012/I/B7a 2014/I/B1 2015/I/B5bc 2019/I/B1a  Ying Wa College 27 Business (Paper 1), Accounting and Financial Studies 2021/I/B1 2022/I/B1a 28 Ying Wa College Business (Paper 1), Accounting and Financial Studies Chapter Assignment Section A Multiple-choice Questions (8 marks) 1. The following is the information about two firms. Firm X Firm Y Source of capital Provided by the owners Raised by issuing shares. only. Legal identity Not a legal entity A legal entity Number of 15 No upper limit owners Financial Disclosure to public not Disclosure to public statements required. required. The forms of ownership of Firm X and Firm Y are __________ and _________, respectively. A. partnership; private limited company B. public limited company; private limited company C. partnership; public limited company D. private limited company; public limited company 2. Which of the following forms of business ownership is/are not (a) legal entity (entities)? (1) Sole proprietorship (2) Partnership (3) Private limited company (4) Public limited company A. (1) and (2) only B. (2) and (3) only C. (2) and (4) only D. (3) and (4) only 3. Which of the following statements concerning a limited company is false? A. A limited company should disclose financial information to the general public. B. Changes in directors will not affect the continuity of the company. C. Shareholders can elect a board of directors to run the company. D. The liability of shareholders is limited to the amount they have invested.  Ying Wa College 29 Business (Paper 1), Accounting and Financial Studies 4. How do multinational companies (MNCs) contribute to developing countries? A. They bring in labour to the country. B. They provide management training for local managers. C. They promote fair competition in the market. D. They provide essential goods and services for the people of the country. Section B Short Questions (16 marks) 1. Ethan is a designer in a public limited advertising company. For years, she has gained a lot of experience in liaising with clients on concept design and development. Since she is not satisfied with the management of the company, she is thinking of opening a design house as a sole proprietor. Ethan decides to put down $100,000 as her initial investment. To save on cost, she will not hire any staff and will handle all the work by herself. (a) If Ethan’s business fails, how much will she lose? (2 marks) (b) If Ethan dies, how will the business be affected? (2 marks) (c) What problems will Ethan likely face as a sole proprietor? List any two of them. (4 marks) (d) Ethan’s friend, Amy, suggests that Ethan can find a partner for better business development. Explain any two advantages Ethan gains by forming a general partnership over a sole proprietorship. (4 marks) 2. Explain two differences between an ordinary shareholder and a preference shareholder. (4 marks)