FORMS OF BUSINESS

OWNERSHIP
From Skinner, James & Brown
 Factors determining the right type of business..

 Deciding whether to operate as a sole trader, partnership or limited company is not

always easy.

 Many factors are involved – including tax position, who else is involved and the
kind of business you are in – and there is rarely a clear-cut answer.

 A person thinking about owning a business should examine the following factors:

 Capital requirements
 Risk
 Control
 Time Requirements
 Tax Liability
Sole Proprietorship
From Skinner, James & Brown
Sole Proprietorship

 What is Sole Proprietorship?

 It is a Business owned & managed by one individual.
 That person may receive help from others but is the only boss.
 Typically sole proprietor owns a small service or retail operations.
 The managerial ability of the owner usually accounts for the success or
failure of the business.
Sole Proprietorship cont….

 Advantage of Sole Proprietorship?

 Ease of Starting
 Control
 Sole participation in Profit
 Use of Owner's Abilities
 Tax Breaks – the business pays no tax on its profit. The proprietor pays tax from his individual income.
 Secrecy
 Ease of Dissolving – no legal complications
Sole Proprietorship cont….

 Disadvantage of Sole Proprietorship?

 Unlimited Liability
 Difficulty in Raising Capital
 Limitation in managerial ability
 Lack of Stability
 Demands on Time
 Difficulty in Hiring & Keeping High-Achievement Emplotees
Partnership
From Skinner, James & Brown
Partnership

 What is Partnership?
 A business may have a small beginning as a sole proprietorship, later expand
into partnership & finally become corporation.
 Partnership Act defines partnership as, “An association of two or more
persons to carry on as co-owners of a business for profit.”
 Other than the differences in the number of owners, a partnership is similar in
many respects to a sole proprietorship.
 A partnership can be based on a written contract or a voluntary & legal oral
agreement.
 Law regards individuals as partners when they act in such a way as to make
people believe they operate a business together.
Partnership contd……..

 Types of Partnership?
 General Partnership
 Partnership in which at least one partner has unlimited liability; a general partner has
authority to act & binding decisions as an owner.

 Limited Partnership
 A partnership with at least one general partner & one or limited partners who are liable
for loss only up to the amount of their investment.

 Master Limited Partnership

 A Partnership that sells unit s traded on a recognized stock exchange.
Partnership contd……..

 The Partnership Contract

 It is recommended that a partnership agreement be written & signed; although
that is not a legal requirement.
 Such a contractual agreement is called ‘Articles of Partnership’.
 It help to lessen or prevent misunderstanding.
 Written agreement provide proof of an agreement.
 A written agreement includes the following features:
 Name of the business partnership.
 Type of Business
 Partnership contd……..

 The Partnership Contract cont…

 Location of the business

 Expected life of the partnership
 Names of the partners & the amount of each one’s investment
 Procedures for distributing profits & covering losses.
 Amounts that partners will withdrawal of funds
 Duties of each partner
 Procedures for dissolving the partnership
Sole Proprietorship cont….

 Advantage of Partnership?
 More Capital
 Combined Managerial Skills
 Ease of Starting
 Clear Legal Status
 Tax Advantage
Sole Proprietorship cont….

 Disadvantage of Partnership?
 Unlimited Liability
 Potential Disagreement
 Investment Withdrawal Difficulty - money typically considered as ‘frozen money’.
 Limited Capital Availability
 Instability – if a partner dies, wants to dissolves
Corporations
From Skinner, James & Brown
Corporations

 What is Corporations?
 A business that is a legal entity separate from its owners.
 It provides a form of business ownership in which owners spread over a wide
geographical area, can hire professional managers to operate the business.
 In the eye of law corporation is an artificial being, invisible & intangible.
 It has the legal right of an individual.
 It can own property, purchase goods & services & sue other person or corporations.
Corporations

 Forming Corporations?
 The legal status of a co stems from a charter.
 Charter is a state-issued document authorizing its formation.
 Most countries require at least 3 persons join together to form a corporations.
 The applicants fill out an application form for a charter.
 The form is then reviewed by the appropriate govt. officials.
 After the charter has been granted the incorporators & all subscribers or the owners of
the stock of the business meet & elect a BOD.
 The BOD then meets to select the professional managers & to make any decisions
needed to start the business.
Corporations

 Advantage of a Corporations?
 Limited Liability
 Skilled Management Team
 Transfer of Ownership
 Greater Capital Base
 Stability
 Legal Entity Status
Corporations

 Disadvantage of a Corporations?
 Difficulty & Expense of Starting
 Lack of Control
 Multiple Taxation
 Govt. Involvement
 Lack of Secrecy
 Lack of Personal Interest
 Credit Limitations
 Mergers
From Skinner, James & Brown
Mergers

 What is Mergers?
 Combination of two or more business enterprises into a single entity.

Types of Mergers?
 Horizontal
 Vertical
 Conglomerate