FORMS OF OWNERSHIP PDF

**[FORMS OF OWNERSHIP]** **[WHAT ARE FORMS OF OWNERSHIP]?** - - - **Note**: Each form of ownership has its own characteristics, advantages and disadvantages. **[THE SOLE TRADER / SOLE PROPRIETOR ]** **[Characteristics]** - - - - - **Advantages**...

**[FORMS OF OWNERSHIP]** **[WHAT ARE FORMS OF OWNERSHIP]?** - - - **Note**: Each form of ownership has its own characteristics, advantages and disadvantages. **[THE SOLE TRADER / SOLE PROPRIETOR ]** **[Characteristics]** - - - - - **Advantages** **Disadvantages** ------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------- Easy and inexpensive to set up: you only need a trading licence. The owner is liable for any and all debts of the business. Owner has full control over the business. Personal assets can be used to pay the debts of the business (unlimited liability). All profits belong to the owner. Complete responsibility means it is a lot of hard work. Financial statements of the business do not need to be audited. Owner pays tax personally on the money made by the business. Decisions can be made quickly. Capital is limited to what the owner can give. If sick or want to go on holiday, have to close business until the owner returns, so no money is earned during the away time. **[PARTNERSHIPS]** **[Characteristics]** - - - - - **[Two kinds of partners]** - - **Advantages** **Disadvantages** -------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- More capital can be brought into the business and can help the business grow. A decision made by one partner can have a negative effect on others. Easier to obtain funds from financial institutions than a sole trader. Decision making can take long as all partners must make decisions together. The skills and knowledge of all partners are combined allowing for better decision making, skills and ideas. Partners are jointly (together) and severally (individually) responsible for the debts of the business. **Unlimited liability** - personal assets can be taken away to pay debts of business. It is easy and simple to form. If a partner leaves the business then the business ceases to exist. **[CLOSE CORPORATION]** **[Characteristics]** - - - - - **Advantages** **Disadvantages** -------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ It is easy and inexpensive to start. Can't have more than 10 members so to an extent it limits the expansion of the business. A close corporation is a legal entity separate from its owners. Profits have to be shared between all the members. If a member dies, the business will continue to exist unless members choose to dissolve it. There are legal formalities as a signed registered CC agreement is made. A CC can raise more capital than a sole trader. Tax rates are higher than for a partnership or a sole trader. If there is more than one member, combined skills, assets and ideas could lead to positive growth of the business. The financials do not need to be audited. The owners will not lose their personal possessions if the business can't pay its debts. **[PUBLIC COMPANIES]** **[Characteristics]** - - - - - - - - - - **Advantages** **Disadvantages** ---------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- Public companies can easily raise funds by selling more shares. Certain financial records must be released during the financial year so that investors can know what they are purchasing. A public company has a long life span not limited to the lifespan of the owners. The profits of the business must be split between the shareholders. A public company has limited liability. External auditors must audit the financial statements which is expensive. There is more knowledge and skills allowing for better decision making. A person who owns 51% of the shares has the majority shares and therefore has a controlling interest in the business. It is easy to transfer ownership by selling shares. A public company is very costly to form. There is no control as to who buys the shares as anyone can buy them. **[PRIVATE COMPANIES]** **[Characteristics]** - - - - - - **Advantages** **Disadvantages** --------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- Easier to obtain funds as there are up to 50 shareholders. The ability to raise funds is limited to what the 50 shareholders can contribute so growth of the business can be limited. Private companies have limited liability. It is expensive to register because of the amount of legal requirements. Has control over who can buy shares as other shareholders must agree who can purchase them. A meeting of all the shareholders must be held annually, regardless of where the shareholders live. This business is not limited to the lifespan of the owner. It has good continuity. Shares cannot be sold without the authority of the other shareholders. Private companies are separate legal entity. Selling shares may take a long time. **SOME CONCEPTS TO REMEMBER** **Legal entity** A business that has legal standing, i.e. is registered with the state; it is allowed to enter into contracts and may also be sued ------------------------- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- **Unlimited liability** When one's personal assets/possessions can be taken away as payment for any debts **Limited liability** The business is liable for its own debts and the owners', partners', shareholders' etc., cannot be sued or their personal assets taken away to settle the business' debts. **Dividends** An amount of the profits that a company pays to shareholders