UNIT 15: Business Forms -
Criteria for Success or Failure Criteria that will be used to
evaluate the success and/or failure
of the business forms
Business forms
TAXATION
This refers to the rate at which the type of
business is taxed, the frequency of tax
payments and its influence on the
success/failure of the business.
AND/OR
It can also refer to the different ways in which
businesses are taxed and ways they can use to
pay less tax and the influence thereof on the
success/failure of the business.
MANAGEMENT
The way decisions are made and how many
people are involved in management. The
influence of decision-making on the success or
failure of the business.
Meaning of limited liability and CAPITAL
unlimited liability
This refers to how easy/difficult it is for a
Limited and unlimited liability can be defined as business to obtain capital and its influence on
follows: the success/failure of the business.
• Limited liability – Losses are limited to the DISTRIBUTION OF PROFITS
amount the owners invested in the business.
This refers to how many people the profits
• Unlimited liability – Personal assets of the should be divided among and its influence on
owners can be seized to pay for the debts of the the success/failure of the business.
business
LEGAL REQUIREMENTS
The owners must consider the legal
The differences between limited liability requirements that businesses are subject to,
and unlimited liability including the requirements before a business
can start and whether or not the business is a
LIMITED LIABILITY UNLIMITED LIABILITY
legal entity.
• Losses are limited • The liability of the
to the amount the owner(s) to pay AND/OR
owner(s) invested in debts/claims is not
the business limited to the It can also refer to the legal aspects that will
business. have an impact on the type of business that the
• The owner(s)' • The owner(s)' owners need to be aware of and their influence
personal assets are personal assets can
on the success/failure of the business.
protected from the be seized to pay for
debts of the business. the debts of the
business.
• Applicable to • Applicable to a sole
Business proprietorship and
Forms/Companies partnership as they
that have a separate do not have a
legal entity. separate legal entity
, • Will legislation contribute to the
success/failure of the business?
Business forms and the
To apply the criteria to the contribution of the criteria to the
different forms of business, ask success and/or failure of each
yourself the following questions: business form
TAXATION:
• Who will be taxed? Sole proprietorship
• What is the tax rate?
A sole proprietorship is formed when there is a
• What impact will the tax rate/payment have single founder who owns and manages the
on the members/shareholders/owners of the business. It is the simplest form of business
business? because the business is not separate from the
owner.
• How does the tax rate compare to other forms
of business?
MANAGEMENT: Characteristics of a sole
proprietorship
• Who manages this form of business?
• This is the simplest and oldest form of
• Is the manager actively involved in the
business.
decisions of the business?
• The business is owned and managed by only
• Will the managers contribute to the
one person.
success/failure of the business?
• It is easy to set up, as there are no legal
• Will the managers be able to make good
formalities when establishing the business.
decisions?
• There are no legal requirements regarding the
CAPITAL:
name of the business.
• What form of capital will be obtained?
• The owner has unlimited liability for all debts
• What amount of capital can be raised? of the business.
• Can the business raise extra capital for
expansion?
Impact of a sole proprietorship
• What will be the impact of capital on the
success/failure of the business? Positive Negative
• It is easy to start or • The owner is
DISTRIBUTION OF PROFITS: end the business. responsible for
• It requires little capital providing all the
• Who will receive the profits of the business? • to start. necessary capital.
How will profits be distributed? • Will profits • There are only a few • The business is not
encourage owners/managers to work hard? legal formalities. a legal entity and has
• The owner can make no continuity.
• Will sharing profits contribute to the all decisions and does • If the owner does
success/failure of the business? not have to consult with not have enough
anyone. knowledge or
LEGAL REQUIREMENTS: • The owner is entitled experience, the
to all profits. business may fail.
• What are the legal restrictions on the business • The owner is
upon establishment? personally liable for
all debts and losses
• What are the time and cost implications of of the business.
legislation for setting up the business?
• Will legislation restrict/motivate
owners/shareholders from joining the business?
Criteria for Success or Failure Criteria that will be used to
evaluate the success and/or failure
of the business forms
Business forms
TAXATION
This refers to the rate at which the type of
business is taxed, the frequency of tax
payments and its influence on the
success/failure of the business.
AND/OR
It can also refer to the different ways in which
businesses are taxed and ways they can use to
pay less tax and the influence thereof on the
success/failure of the business.
MANAGEMENT
The way decisions are made and how many
people are involved in management. The
influence of decision-making on the success or
failure of the business.
Meaning of limited liability and CAPITAL
unlimited liability
This refers to how easy/difficult it is for a
Limited and unlimited liability can be defined as business to obtain capital and its influence on
follows: the success/failure of the business.
• Limited liability – Losses are limited to the DISTRIBUTION OF PROFITS
amount the owners invested in the business.
This refers to how many people the profits
• Unlimited liability – Personal assets of the should be divided among and its influence on
owners can be seized to pay for the debts of the the success/failure of the business.
business
LEGAL REQUIREMENTS
The owners must consider the legal
The differences between limited liability requirements that businesses are subject to,
and unlimited liability including the requirements before a business
can start and whether or not the business is a
LIMITED LIABILITY UNLIMITED LIABILITY
legal entity.
• Losses are limited • The liability of the
to the amount the owner(s) to pay AND/OR
owner(s) invested in debts/claims is not
the business limited to the It can also refer to the legal aspects that will
business. have an impact on the type of business that the
• The owner(s)' • The owner(s)' owners need to be aware of and their influence
personal assets are personal assets can
on the success/failure of the business.
protected from the be seized to pay for
debts of the business. the debts of the
business.
• Applicable to • Applicable to a sole
Business proprietorship and
Forms/Companies partnership as they
that have a separate do not have a
legal entity. separate legal entity
, • Will legislation contribute to the
success/failure of the business?
Business forms and the
To apply the criteria to the contribution of the criteria to the
different forms of business, ask success and/or failure of each
yourself the following questions: business form
TAXATION:
• Who will be taxed? Sole proprietorship
• What is the tax rate?
A sole proprietorship is formed when there is a
• What impact will the tax rate/payment have single founder who owns and manages the
on the members/shareholders/owners of the business. It is the simplest form of business
business? because the business is not separate from the
owner.
• How does the tax rate compare to other forms
of business?
MANAGEMENT: Characteristics of a sole
proprietorship
• Who manages this form of business?
• This is the simplest and oldest form of
• Is the manager actively involved in the
business.
decisions of the business?
• The business is owned and managed by only
• Will the managers contribute to the
one person.
success/failure of the business?
• It is easy to set up, as there are no legal
• Will the managers be able to make good
formalities when establishing the business.
decisions?
• There are no legal requirements regarding the
CAPITAL:
name of the business.
• What form of capital will be obtained?
• The owner has unlimited liability for all debts
• What amount of capital can be raised? of the business.
• Can the business raise extra capital for
expansion?
Impact of a sole proprietorship
• What will be the impact of capital on the
success/failure of the business? Positive Negative
• It is easy to start or • The owner is
DISTRIBUTION OF PROFITS: end the business. responsible for
• It requires little capital providing all the
• Who will receive the profits of the business? • to start. necessary capital.
How will profits be distributed? • Will profits • There are only a few • The business is not
encourage owners/managers to work hard? legal formalities. a legal entity and has
• The owner can make no continuity.
• Will sharing profits contribute to the all decisions and does • If the owner does
success/failure of the business? not have to consult with not have enough
anyone. knowledge or
LEGAL REQUIREMENTS: • The owner is entitled experience, the
to all profits. business may fail.
• What are the legal restrictions on the business • The owner is
upon establishment? personally liable for
all debts and losses
• What are the time and cost implications of of the business.
legislation for setting up the business?
• Will legislation restrict/motivate
owners/shareholders from joining the business?
