Types of Business Owner Ships

8/8/2019 Types of Business Owner Ships

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SOLE TRADERS

About sole tradersAdvantages and Disadvantages


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ABOUT SOLE TRADERS

Definition : A form of business in which one

person owns all the assets of the business.

Sole trader is also known as sole proprietor. Sole traders are the most common form of

business.

S

ole traders is own & control by one person. They may work alone or may employ other

people to run the business.


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Start up capital for a sole trader is usually

obtained from personal savings & borrowing. The business is unincorporated the owner is

legally the same as the business.

The sole trader could end up losing his / herpersonal possessions if the firm collapse.

Sole trader does not pay corporate taxes but

pays self employment taxes on the profit made No legal formalities involved in setting up the

business.


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However, under the Business NamesAct 1985, the owner must conform to 3

basic requirement :

1. The name of owner must be displayed on all

business documents.2. The owner must disclose information relating

to ownership to anyone who has dealingswith the business.

3. A notice concerning ownership must bedisplayed in the business premises.


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Advantages

E

asy to set up Owner has complete

control

Owner keeps all profits

More flexible time &

pattern of working

More privacy

Personal contact withstaff & customers

Financial advantages in

term of lower taxes &

accountancy fees.

Disadvantages

Limited source offinance

Unlimited liability

Lack of continuity

Workload & stress

Full personal

responsibility for

decision & for the debtof business


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partnerships

PartnershipsDeeds ofPartnerships

Advantages ofPartnerships

Disadvantages ofPartnerships


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PARTNERSHIPSPARTNERSHIPSGeneral Partners

- manage the business

- equally liable fordebts

Silent Partners

- invest in the businessbut do not managethe business

- only interfere whenthe entity losesmoney

Limited Partners

- may invest but notdirectly involved inmanagement

- liable only to theextent of theirinvestments

Sleeping partners

- involved in the businessbehind the scene

- question every decisionother partners make


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PARTNERSHIPS

- Does not pay income taxes

- Each partner has to report their share of business

profits or losses on their individual tax return

- An unincorporated business organisation

Ownership - 2-20 persons (professions such assolicitors and accountants cannot have shares in this

entity)

Finance - Personal funds of each partner

- Can pool their funds together unlikesole traders

- Raise money from silent partner

Liability - unlimited liability but shared among

partners


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DEED OF PARTNERSHIP

~Without it - profits and losses must

be shared equally

among partners

- each partner has thesame rights in the

running of the

business

can cause problemsand disagreement

~With it , these are included; - amount of finance

contributed by each

partner

- the roles, obligations, and

responsibilities of each partner

- how profits and losses will be

shared among the partners

- conditions to

introduce new

partners

- clauses for the withdrawal of a

partner from a business

- procedures for ending

partnership


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ADVANTAGES OF

PARTNERSHIPS- More financial strength; more people who can

invest yet still quite easy to set up.

- Have division of labour and specialization so

The firm's client base is likely to be much

larger.

- More financial privacy; do not have to to

publicize their records.


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DISADVANTAGES OFPARTNERSHIPS

- Unlimited liability; problem occurs whendeciding which partner's personal assetsshould be used to repay debts.

- Harder and it takes longer to make a desicion.May cause disagreements and confict.

- Lack of continuity if partner dies or leaves the

firm.- Must have a huge amount of mutual trust.

- Difficulties in raising capital.


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company


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Companies are more commonly known as

corporations in n. americasometimes called joint-stock companies because the

shares(stocks) are jointly held by numerous people

/institution.

Businesses that are owned bytheir shareholderscompanies

Individuals / businesses that

invested their money to providecapital 4 a company

Shareholders


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Incorporated business

There are differences between

shareholders(owners) and business itself.Company is separate entity thus has its own

legal rights and duties


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Limited liability

Shareholders do not have to bear theresponsibility of the companys debt thus willnot tend to lose personal belongings if the

company goes into arrears. Maximum loss 4 shareholders

Lose value of investment

there are limits to how much they can losethis is to safeguard investors in the stockmarket -imagine-


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Settingup

Setting up companies-complicated and expensive

Rules and regulations to obey in order 4 shares to be

sold on the stock exchange.

Such legislation is to protect investors in businessthey do not run or control

Board of directors is elected based on their skills and

expertise

One share =one vote


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limitedcompanies

This term used to clarify all companies have

limited liabilities

There are two types of limited companies

private limited companies

Public limited companies


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Private limitedcompany

Cannot raise share capital from general public

Shares sold to private family members and friends

Word ltd or limited after its name

Shares cannot be traded without agreement from BoD

-Directors maintain overall control of business

Advantage-greater control as shares cannot be traded

-cheaper to set up than public ltd.


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Public limitedcompany

Able to advertise and sell its shares to general public

Carry letters PLC after its name

Disadvantage- theres dilution of control

shares owners ability to control business

-exposed to takeover bids from other

investors that seek majority stakes

in the company


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Before commencing trading

both public & private ltd. Company must produce

2 doc. The Memorandum of Association

- fundamentals details of company

e.g: name, main purpose, registered address, original

amount of share capital invested

TheArticles of Association

- stipulates internal regulations & procedures of company

- Details include:-rights-roles & power of theBoD+shareholders

-administrative issues; eg: conduct of AGM, procedures to

appoint directors-how profit distributed.


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Floatation

Occurs when business first sales all/part of business

to shareholders

Allows it to be listed on a stock exchange-generatesadditional source of finance

example: ICIB


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Whybuysharesin ltd.

Company?

Dividends

Capital growth

Voting power


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Annualgeneralmeeting (AGM)

Three main process:

Shareholders;

-vote on resolutions re-elect the BoD

-ask questions to CEO, directors, chairperson

about various aspects of the company

-approve the previous yaers financial accounts


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Annual Report & FinalAccounts

Reporting of profits or losses

Assets of business

Where cash has been spent during the year

-accounts are scrutinized by external auditors

(chartered accountants) before distributed to

shareholders


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Advantagesofcompanies Can raise large amount of capital by selling shares. The money raised through selling shares become permanent

capital.

The initial income from selling shares stays with the company.

Due to limited liability, easy to attract private & commercialinvestors

Benefit from continuity. This is due to (divorce of ownership and

control), any problems with an owner, the company could still

continue as a separate entity from that owner. Directors own large amount of shares, thus they have incentive to

perform well to achieve capital growth & dividends from the shares


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Due to larger scale business, can benefit from economies of

scale

example:It is cheaper for company to borrow money thanother form of business, because commercial lenders see it as

less of financial risk.

Can hire specialist directors & managers . Employ specialist

staffs- marketers, lawyers, accountants thus can productivity

of business


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Disadvantagesofcompanies

Financial information provided to all shareholders-time consuming &expensive exercise no privacy

More bureaucracy involved in setting up ltd company

e.g: preparation of the 2 doc.

At least 25% is paid for business use.e.g: lawyers hired to ensure documents is legally accurate, advertising

and promotion of companys share floatation, hosting AGM.

Dividends only paid to shareholders when profit. Even if there is, the

BoD may decide to retain it 4 financing projects. Communications problem. When the firm is large, services and

relationships may become impersonal to both customers and

employees.


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cooperative

CooperativesIdentity ofCooperatives

Advantages ofCooperatives

Disadvantages ofCooperatives


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COOPERATIVES- A legal entity owned and democraticallycontrolled by its members

- Members often have a close association with theenterprise as;

(a) producers

(b) consumers

(c) employees

- Often share their earnings with the membershipas dividens not according to the value of their

capital shareholdings.


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ADVANTAGES OF COOPERATIVE

- Exists for the benefits of its patron members- Members have a financial interest in the success of thecooperative as they are also the owners

- Members have a voice in the control of the

organization; thus providing the kind of servicethey want.

Thus,

- tie the patrons to the organization by making

them full partners

- help build an assured volume of business

-

efficient operation of the cooperative


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DISADVANTAGES OFCOOPERATIVE

- Limited flexibility for the manager to operatethe co-op; a real disadvantage in competitionwith a

commercial business.

- Lower salary cannot hold competent managers

and other employees.

- The mass of members may lose interest in

running the organization


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HOLDINGCOMPANYWhat is Holding Company?

Advantages ofHolding Companies

Disadvantages ofHoldingCompanies

Examples


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Whatisholdingcompany?A holding company is a company that

controls other companies but is not involved

in their day to day running.

It is a company or firm that owns othercompanies' outstanding stock.

It usually refers to a company which does

not produce goods or services itself, rather itsonly purpose is owning shares of other

companies.


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This doesn't mean that the holding companyowns all of the subsidiary's stock, or even a

majority of it.

However, holding companies that control 80% or

more of the subsidiary's voting stock gain the

benefits of tax consolidation, which include tax-

free dividends for the parent company and theability to share operating losses.


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AdvantagesofHoldingCompanies

Acquiring a controlling interest in a subsidiary

Holding companies allow the reduction of risk for theowners and can allow the ownership and control of anumber of different companies.

The ability to control operations with a small percentage ofownership and, thus, smaller up-front investment

Holding companies can take risks through subsidiaries, and

limit this risk to the subsidiary alone rather than placing theparent company on the line

Expansion can happen through simple stock purchases inthe public market, which avoids the difficult step of gaining

approval from the subsidiary's board of directors


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DisadvantagesofHolding

Companies If less than 80% of the subsidiary is owned by the parent,

the holding company pays multiple taxes on the federal,state, and local levels

A holding company can be forced to dissolve more easilythan a single merged operation

A holding company may expand through the use ofleverage or debt, building a complex corporate structure

that can include unrealized values, and creating a risk ifinterest rates on debt or the valuation of the assets postedas collateral for loans change dramatically.


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EXAMPLE;Signature GlobalHol Sdn. Bhd.

Type: Manufacture

Main Category: Business Services > OtherBusiness Services

Main Products: Web Design, E-Commerce, Web

Maintainance, Trading, RetailYearEstablished: 2009


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franchiseWhat is Franchise?How Franchising works?

Advantages of Franchise

Disadvantages of Franchise


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How FranchisingWorks

The franchisee purchases a franchise from the"franchisor"

The franchisee must follow certain rules andguidelines already established by the franchisor

In most cases the franchisee must pay anongoing franchise royalty fee, as well as an up-front, one-time franchise fee to the franchisor

AdvantagesofBuying a


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AdvantagesofBuyingaFranchise

o Corporate image - The corporate image andbrand awareness of the company is alreadyestablished. Consumers are always morecomfortable purchasing items from a familiar

name or company they trust.o Training - The franchisor usually provides

extensive training and support to the franchiseowner.

o Savings in time - Since the franchise companyalready has the business model in place you canfocus on running a successful business.


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DisadvantagesofBuyingaFranchise

Cost-The initial cost of a franchise can be$50,000 or more on top of the cost ofequipment, inventory, and business space.

franchisees to pay ongoing a percentage inroyalties or franchise fees

Operational Restriction-Franchisors place anumber of restrictions on their franchiseesincluding limitations on products, pricing,employee performance and policies, territory,marketing, and other areas critically importantto the success of the business.


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Guilt by Association-Name recognition canalso be a hindrance to the business,

particularly if the other franchises or thefranchising company itself is receiving bad

press or suffering from a poor publicperception.

Limited Growth Potential-Unable to expandto surrounding areas by purchasing another

franchise due to the territorial rights of otherowners within the franchise


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JOINT VENTUREDefinition

C

haracteristicsTypes

Duties and Rights

Advantages

Disadvantages

Joint Venture VS Partnership


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WhatisaJointVenture?

Definition :

A contractual agreement between two or more

people or companies in executing a particular

business projects where all parties agree to sharethe profits, losses, risks and rewards.

They combine their efforts, ideas, or property for a single

project or related series of transactions. Joint ventures can range from a small activity to a huge, multi-

million dollar project.


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Types of Joint Venture ??

Joint ventures are formed in all kinds of business realms.

Examples include:

Private persons - For example, independent contractors can

combine resources through a joint venture to get a major

contract to build a housing development.

Corporations - For example, General Motors and Volvo Trucks

formed a joint venture to build heavy duty trucks. This is a

joint venture instead of a partnership because the two

companies conduct business separately except for this relatedseries of transactions (manufacturing trucks).


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Whataretheirdutiestooneanother??

Parties in a joint venture have duties to one another. Suchduties include:

Fiduciary duty - A fiduciary duty basically means thateach party has a duty to act in the best interests of allinvolved. Acting for your own best interests is a breachof fiduciary duty (which can also be a breach ofcontract if the joint venture was formed by a contract).

Disclosure - All information regarding the joint ventureshall be disclosed to the involved parties. This becomesan issue when certain trade secrets, patents, or othersensitive information is involved.


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Liability - If a third party is affected by the

joint venture, all parties involved are equally

liable. For example, a joint venture is formed

to construct a building. During construction, a

brick falls and injures a pedestrian. All jointventurers would be liable for the pedestrians

injury.


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WhataretheRightsofJointVenturers??

Parties in a joint venture have certain rights. Such rights include:

Equal control, influence, and power over the project ortransaction.

However, the contract can give one party complete control.

Equal ownership of the project (and thus equal shares ofprofits and expenses).


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Advantages???

By teaming up with other people or

businesses in a joint venture, you can:

extend your marketing reach

access needed information and resources

access new markets that would beinaccessible without the partner


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Disadvantages??

Unable to identify clear objectives (visions and

goals) of their joint venture results in

divergent goals.

Absence of mutual trust and acceptance.

One or more partners depending on the other

partner to complete the project.


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JointVenture VSPartnerships

JV teamed together for particular projects BUTPartnerships joined together to run a business incommon.

Partnerships just aimed in making profits BUT in JV, notjust the profits that binds them together but also otherspecific purposes (e.g. R&D).

Partnerships lasts for many years BUT for JV, they arefor limited period only until goal has been achieved.

Partnerships, they belong to only ONE group WHEREAS for JV, they belong to their respective firms orproperty.

Types of Business Owner Ships

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