Forms of ownership
Basics
Formation procedure: according to law some businesses must be
registered, and others don’t require formal formation procedure.
(More procedures is more expensive)
Legal persona: if law requires business to register business becomes
separate legal person from owner. Legal person enters contracts and
sues or gets sued
Continuity: of registered as legal persona it automatically has
continuity of existence (entity and functions are independent)
Liabilities: if separate legal entity, business is responsible for debts,
so owner has limited liabilities. If they are not registered as separate
legal entity owners name is on all contracts and is responsible
(unlimited)
Tax implications: if legal entity the business is liable to pay tax on
income and if it is not the owner pays tax on personal capacity
(SA = progressive tax system)
Management and control aspects: if not separate legal entity law
does not specify who manages and if they are law makes demands
one or more people involved with management
Capital: based on size and nature of business.
Sole trader
, Definition
Business started and owned by one person and that person does not
register business. One person gets all the capital and profit
Characteristics, advantages, and disadvantages
Characteristics Advantages Disadvantages
Formation procedure No legal requirements
making the process
quick and low cost
Legal persona Owner is legal entity
and enters contract
with own name
meaning they carry all
the risks
Continuity of existence No continuity as if
something happens
there is no support
Owners’ debt liability Unlimited liabilities as
they are responsible
Tax implications If profit is below If they are above a
certain amount per certain net worth
annum, they benefit margin it is a
disadvantage as they
pay more tax
Capital requirements If owner can raise Might have to take a
capital on own as loan or different forms
there are not major of ownership if they
requirements cannot afford to pay all
the capital
Management/ control Can make quick No one too bounce
decisions meaning ideas off of or to lean
flexibility to capitalize back on for support
on opportunities and meaning no holidays
you get all the profits etc.
Partnership agreement
The terms and conditions agreed upon by partners and may be entered:
Tacitly by implication, verbally or in written which is the best option
Partnership
Definition
Basics
Formation procedure: according to law some businesses must be
registered, and others don’t require formal formation procedure.
(More procedures is more expensive)
Legal persona: if law requires business to register business becomes
separate legal person from owner. Legal person enters contracts and
sues or gets sued
Continuity: of registered as legal persona it automatically has
continuity of existence (entity and functions are independent)
Liabilities: if separate legal entity, business is responsible for debts,
so owner has limited liabilities. If they are not registered as separate
legal entity owners name is on all contracts and is responsible
(unlimited)
Tax implications: if legal entity the business is liable to pay tax on
income and if it is not the owner pays tax on personal capacity
(SA = progressive tax system)
Management and control aspects: if not separate legal entity law
does not specify who manages and if they are law makes demands
one or more people involved with management
Capital: based on size and nature of business.
Sole trader
, Definition
Business started and owned by one person and that person does not
register business. One person gets all the capital and profit
Characteristics, advantages, and disadvantages
Characteristics Advantages Disadvantages
Formation procedure No legal requirements
making the process
quick and low cost
Legal persona Owner is legal entity
and enters contract
with own name
meaning they carry all
the risks
Continuity of existence No continuity as if
something happens
there is no support
Owners’ debt liability Unlimited liabilities as
they are responsible
Tax implications If profit is below If they are above a
certain amount per certain net worth
annum, they benefit margin it is a
disadvantage as they
pay more tax
Capital requirements If owner can raise Might have to take a
capital on own as loan or different forms
there are not major of ownership if they
requirements cannot afford to pay all
the capital
Management/ control Can make quick No one too bounce
decisions meaning ideas off of or to lean
flexibility to capitalize back on for support
on opportunities and meaning no holidays
you get all the profits etc.
Partnership agreement
The terms and conditions agreed upon by partners and may be entered:
Tacitly by implication, verbally or in written which is the best option
Partnership
Definition
