Chapter 5
Forms of ownership:
Formation procedure > Refers to the fact that some businesses have to be registered.
Legal persona > means the business becomes a separate legal person from the owner.
Management and control aspects > this is where the law does not specify who has to manage the business.
Tax implications > if it is the business that is the legal entity, the business will be labile to pay income tax.
*Capital requirements of the business will probably be determined by the base -sized and nature of the business. *
Sole trade:
Definition of a sole trader >
- It is a business that is started and owned by one person and does not register the business as a
separate legal entity.
Characteristics of a sole trade:
1. Formation procedure
2. Legal persona
3. Continuity of existence
4. Owners’ liability for debts
5. Tax implications
6. Capital requirements
7. Management and control aspects usually handled by the owner.
Advantages & disadvantages of a sole trade:
Advantages: Disadvantages:
Characteristics:
Formation procedures No legal requirements – quick - NADA -
& low cost.
Legal persona - NADA - Owners carries all the risk.
Continuity of existence - NADA - No continuity.
Owners’ liability for debts - NADA - Has unlimited liability.
Tax implications If profit is low, rate at which If profit is high, rate at which
taxed could be lower than 28% taxed will be higher than 28%.
Capital requirements If business does not require If business needs more capitals
lots of capital , owner is that owner can offer, owner
capable of raising capital in must consider different form
their own personal capacity. of ownership.
Management and control Owner can make quick Bouncing off ideas or
decisions. discussion of problems will not
occur as owner manages the
business alone.
, Partnership:
Definition of a partnership >
- A business where two or more people become joint owners of the business. Business not
registered as a legal entity separate from the owners.
Characteristics of a partnership:
1. Formation procedure
2. Legal persona
3. Continuity of existence
4. Owners’ liability for debts
5. Tax implications
6. Capital requirements
7. Management and control aspects usually handled by the owner.
Advantages & disadvantages of a partnership:
Characteristics: Advantages: Disadvantages:
Formation procedure No legal requirements- quick & No partnership agreement in
low cost. writing can cause issues.
Legal persona - NADA - Owners carries all the risk.
Continuity of existence - NADA - Has no continuity.
Owner’s liability for debts - NADA - Have unlimited liability.
Tax implications If profit is low, tax charged will If profit is high, tax charged
be lower. will be higher.
Capital requirements Possible to raise capital due to - NADA -
there being more people.
Management and control Quality of decision making is Slower decision – making.
better than that of a sole
trader.
What is a partnership agreement?
- It is an agreement that defines the terms and conditions agreed upon by the partners and
may be entered into:
➢ Tacitly {by implication.}
➢ Verbally.
➢ In writing.
Forms of ownership:
Formation procedure > Refers to the fact that some businesses have to be registered.
Legal persona > means the business becomes a separate legal person from the owner.
Management and control aspects > this is where the law does not specify who has to manage the business.
Tax implications > if it is the business that is the legal entity, the business will be labile to pay income tax.
*Capital requirements of the business will probably be determined by the base -sized and nature of the business. *
Sole trade:
Definition of a sole trader >
- It is a business that is started and owned by one person and does not register the business as a
separate legal entity.
Characteristics of a sole trade:
1. Formation procedure
2. Legal persona
3. Continuity of existence
4. Owners’ liability for debts
5. Tax implications
6. Capital requirements
7. Management and control aspects usually handled by the owner.
Advantages & disadvantages of a sole trade:
Advantages: Disadvantages:
Characteristics:
Formation procedures No legal requirements – quick - NADA -
& low cost.
Legal persona - NADA - Owners carries all the risk.
Continuity of existence - NADA - No continuity.
Owners’ liability for debts - NADA - Has unlimited liability.
Tax implications If profit is low, rate at which If profit is high, rate at which
taxed could be lower than 28% taxed will be higher than 28%.
Capital requirements If business does not require If business needs more capitals
lots of capital , owner is that owner can offer, owner
capable of raising capital in must consider different form
their own personal capacity. of ownership.
Management and control Owner can make quick Bouncing off ideas or
decisions. discussion of problems will not
occur as owner manages the
business alone.
, Partnership:
Definition of a partnership >
- A business where two or more people become joint owners of the business. Business not
registered as a legal entity separate from the owners.
Characteristics of a partnership:
1. Formation procedure
2. Legal persona
3. Continuity of existence
4. Owners’ liability for debts
5. Tax implications
6. Capital requirements
7. Management and control aspects usually handled by the owner.
Advantages & disadvantages of a partnership:
Characteristics: Advantages: Disadvantages:
Formation procedure No legal requirements- quick & No partnership agreement in
low cost. writing can cause issues.
Legal persona - NADA - Owners carries all the risk.
Continuity of existence - NADA - Has no continuity.
Owner’s liability for debts - NADA - Have unlimited liability.
Tax implications If profit is low, tax charged will If profit is high, tax charged
be lower. will be higher.
Capital requirements Possible to raise capital due to - NADA -
there being more people.
Management and control Quality of decision making is Slower decision – making.
better than that of a sole
trader.
What is a partnership agreement?
- It is an agreement that defines the terms and conditions agreed upon by the partners and
may be entered into:
➢ Tacitly {by implication.}
➢ Verbally.
➢ In writing.
