Forms of Ownership
Forms of ownership
Choosing a form of ownership
Formation procedures
The more legal formalities involved in starting a business, the more expensive, difficult
and time consuming it is to establish.
Legal persona and liability
When the business has a legal personality, it offers the owners limited liability (Owners
do not risk losing their personal assets).
Continuity of existence
A business only has continuity of existence if they have a legal persona apart from the
owner. If there is continuity of existence it means that a change in ownership does not
affect the business thus increases the possibility of success. Eg the death or retirement
of the owner.
Management/Control aspects
The owner must decide if they would prefer to keep control over the management.
➔ In a sole trader, partnership and close corporation the owners are involved in
day-to-day management.
➔ In a company, shareholders the management of the business is put on a board
of directors. (There is a difference between owners and management)
Capital requirements based on the size of business and nature of
good/service
The size of the business and nature of goods or service affects the amount of capital
needed. (More owners=More capital)
Types of ownership
Sole trader
, Number of owners
One owner to contribute to capital. Positives of a sole trader includes:
➔ Decision making is quick creating flexibility.
➔ Lowering risk of lost opportunities if having to consult with others.
➔ All profits go to one owner
◆ Could create motivation
The negatives include:
➔ Only one person can contribute capital.
➔ Owner relies on their own initiative and does not have any other input
into decision making.
➔ Owner may not have someone to cover for them if they are sick or on
holiday.
Formation Procedure
Easy to start. No requirements or procedures to follow in order to start a sole
trader. These limited costs may increase chances of success.
Legal personality and liability
Cannot be registered as a business with a separate legal persona from the owner
thus the owner has unlimited liability. (All personal belongings can be lost if the
business fails)
Tax
A sole trader has to pay their personal capacity on all profits taken from the
business. Progressive personal income tax scales are applied (The higher the
income the more you pay).
Continuity of Existence
There is no legal personality so there is no continuity of existence and a change
in ownership leads to the demise of the business unless sold.
Partnership
Number of owners
There is a min of two and no max of partners in a partnership.
Positives include:
Forms of ownership
Choosing a form of ownership
Formation procedures
The more legal formalities involved in starting a business, the more expensive, difficult
and time consuming it is to establish.
Legal persona and liability
When the business has a legal personality, it offers the owners limited liability (Owners
do not risk losing their personal assets).
Continuity of existence
A business only has continuity of existence if they have a legal persona apart from the
owner. If there is continuity of existence it means that a change in ownership does not
affect the business thus increases the possibility of success. Eg the death or retirement
of the owner.
Management/Control aspects
The owner must decide if they would prefer to keep control over the management.
➔ In a sole trader, partnership and close corporation the owners are involved in
day-to-day management.
➔ In a company, shareholders the management of the business is put on a board
of directors. (There is a difference between owners and management)
Capital requirements based on the size of business and nature of
good/service
The size of the business and nature of goods or service affects the amount of capital
needed. (More owners=More capital)
Types of ownership
Sole trader
, Number of owners
One owner to contribute to capital. Positives of a sole trader includes:
➔ Decision making is quick creating flexibility.
➔ Lowering risk of lost opportunities if having to consult with others.
➔ All profits go to one owner
◆ Could create motivation
The negatives include:
➔ Only one person can contribute capital.
➔ Owner relies on their own initiative and does not have any other input
into decision making.
➔ Owner may not have someone to cover for them if they are sick or on
holiday.
Formation Procedure
Easy to start. No requirements or procedures to follow in order to start a sole
trader. These limited costs may increase chances of success.
Legal personality and liability
Cannot be registered as a business with a separate legal persona from the owner
thus the owner has unlimited liability. (All personal belongings can be lost if the
business fails)
Tax
A sole trader has to pay their personal capacity on all profits taken from the
business. Progressive personal income tax scales are applied (The higher the
income the more you pay).
Continuity of Existence
There is no legal personality so there is no continuity of existence and a change
in ownership leads to the demise of the business unless sold.
Partnership
Number of owners
There is a min of two and no max of partners in a partnership.
Positives include:
