Download as PPTX, PDF, TXT or read online from Scribd
Download as pptx, pdf, or txt
You are on page 1/ 22
Forms of Ownership
Chapter Choosing a form of ownership
There's no best form of ownership.
The best form of ownership depends on the entrepreneurs situation. Evaluation of the characteristics weighing pros and cons. Then deciding which form suits you as an owner. Factors to consider Control of business Managerial ability Cost of formation Liability exposure Tax consideration The forms of ownership
Sole proprietorship Partnership Companies: public company private company Corporate corporation Characteristics of sole proprietorship One individual. Simple to start and end. Owner is liable for all the debts of the business. Capital provided by sole owner. Business managed by owner. Sole Proprietorship
Advantages Disadvantages No restrictions limits to No legal personality capital Feeling of isolation Quick decision making Unlimited liabilities few legal requirements Lack of continuity All profits belong to owner Characteristics of Partnership
Ownership of 2 or more people
Legal requirements Each partner must make a contribution to the Partnership. Life of the Partnership is not separate from the lives of the partners Partners are jointly and severally liable for debts on the business. Types of partnerships • General partnership: A partnership in which all partners have unlimited personal liability and take full responsibility for the management of the business. • Limited partnership: A partnership in which the partners’ liability is limited to their investment. • Joint venture: A partnership in which two companies join to complete a specific project. The partnership ends after a specified period of time. • Strategic alliance: A partnership in which two businesses work together for mutual benefit e.g :HBL % Pakistan Post Partnership
Advantages Disadvantages Combination of new skills Not a separate legal entity and ideas into a business. Liable for the actions of the shared responsibilities for other partners decision making Discussion between partners share profits and are can slow down decision therefore motivated to making. work hard. Problems can arise if one or Few legal requirements more partners are lazy, inefficient or even dishonest The Partnership Agreement
• Articles of partnership – An agreement listing and explaining the terms of the partnership – Agreement should state • Who will make final decisions • What each partner’s duties will be • How much each partner will invest • How much profit or loss each partner receives or is responsible for • How the partnership can be dissolved Characteristics of companies A company is a legal person which has capacity and powers to act on its own (i.e. the law sees a company in the same light as a natural person)
An artificial person created by law with most of the legal rights
of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts. Types of companies
Profit Companies - A company incorporated for
the purpose of financial gain for its shareholders. Private company Public company Non-Profit Companies to be reflected as NPC Characteristics of private company 1 or more persons may incorporate a private company. one director (1 or more directors) or any other prohibited by MOI from offering its shares to the public and the transferability of its shares is restricted. The name of a private company must end with the expression “Proprietary Limited” or its abbreviation “(Pty) Ltd.”. Unlimited number of shareholders and its life span is perpetual or it has continual life span. Has a separate legal personality. Shareholders have limited liability Characteristics of public company
Unlimited number of shareholders.
Must have at least three directors. 3 or more for a public (Ltd) company Shares of the public company are freely transferable. Financial statement of a public company requires to be audited A separate legal personality Compelled to attend a annual general meeting (AGM). Private company Advantages Disadvantages Limited liabilities The company is subjected to double Directors not compelled taxation to attend (AGM) Transferability of its Audited financial shares is restricted. statements are optional. Compelled to prepare annual financial statements Information only available to Many legal requirements shareholders. Public company
Advantages Disadvantages Separate legal entity Complicated and Operated by only one expensive to establish shareholder and 3 Shareholder may be directors allowed little or no Easier to input attract capital Expensive procedures to investment comply with reporting regulations. Types of corporations • C-corporation: The most common form of corporation. It protects the entrepreneur from being personally sued for the actions and debts of the corporation. • Subchapter S corporation: A corporation that is taxed like a sole proprietorship or partnership. • Nonprofit corporation: Legal entities that make money for reasons other than the owner’s profit. • Limited Liability Company (LLC): A new form of business ownership that provides limited liability and tax advantages. Corporate Corporations Advantages Disadvantages – Limited liability – Difficulty and expense of • Each owner’s financial formation liability is limited to the – Government regulation amount of money that he and increased paperwork or she has paid for the corporation’s stock – Double taxation Double taxation is a term used to describe the – Ease of raising capital way taxes are imposed on corporate shareholders and on corporations. The – Ease of transfer of corporation is taxed on its earnings (profits), and the shareholders are taxed ownership again on the dividends they receive from – Perpetual life those earnings
– Specialized management – Lack of secrecy
Forming a Corporation • Corporate charter – A contract (submitted as articles of incorporation) between the corporation and the state in which the state recognizes the formation of the artificial person that is the corporation – Charter includes • Firm’s name and address • Incorporators’ names and addresses • Purpose of the corporation • Maximum amount of stock and types of stock to be issued • Rights and privileges of stockholders • Length of time the corporation to exist Alternative approaches to starting a business
• Buy an existing business.
• Enter a family business. • Own a franchise business. Advantages of buying an existing business
• Existing businesses already have
customers, suppliers, and procedures. • Seller of the business may be willing to train the new owner. • There are existing financial records. • Financial arrangements may be easier. Disadvantages of buying an existing business
• Business may be for sale because it is not
making a profit. • Problems may be inherited with the purchase of an existing business. • Many entrepreneurs may not have the capital needed to purchase an existing business.
