Sole Proprietorship And Cooperatives

Jaroslava Gašková, MAT/ECO 5 Task 12 1. 1) A sole proprietorship • A simplest form of business organization with only one owner. • Decision making is in direct hands of the owner and it is easy to take control of the business. • The owner can employ other workers and is responsible for the day-to-day running of the firm. He manages the firm and receives all the profits made by the firm. He is totally responsible for the debts it means that he has an unlimited liability (i.e. if a sole proprietor goes bankrupt and his debts are greater than he can pay, although he sells all the assets of the business, his personal property will be also sold until all his debts will be payed). • The owner can spend unlimited amount of time responding to the bussiness needs. • A sole proprietor pays personal income taxes on the profits made, making accounting much simpler. • It is difficult for a sole proprietorship to raise capital. Financial resources are generally limited to the owner's funds and any loans outsiders are willing to provide. • The firm may find it difficult to compete with larger firms , if larger firms enjoy greater economies of scale. • Easy to set up and maintain and there is no need to obtain any special legal documents. • The startup costs for a sole proprietorship are minimal. • Because a sole proprietorship is not a separate legal entity, it usually terminates when the owner becomes disabled, retires, or dies. As a result, the sole proprietorship lacks continuity and does not have perpetual existence like other business organizations. • This type of business organisation is very common in many service industries such as hairdressing, retailing, newsagents, etc. There are some conditions which must be fulfilled to start small business: a) General – age (18+), - capability to legal acts, - integrity ( you can prove your integrity by your defaulter sheet) b) Specific – special or other capability which is demanded only by specific small businesses Division of small businesses: a) According to the way of getting the business licence Small businesses to registration  You report at the small business register and within some days you get a business licence Concession trade  You have to apply for concession and you have to fulfill some additional conditions (eg. reliability) eg. Taxi service, funeral service, travel agency,etc. b) According to the requirement to special capabilities - Handicraft businesses – involve certificate of apprentice school - Bounded businesses – you have to prove special certificate to provide some services - Free businesses – you don´t need any certificate eg. if you want to sell goods on the market place c) According to the contact and volume of business activity 1

Jaroslava Gašková, MAT/ECO 5 -

Trade businesses Production businesses Service – rendering businesses

A sole proprietorship is a good business organization for an individual starting a business that will remain small and does not have great exposure to liability. 2) Private companies Division of private companies: • Partnerships Ordinary partnership(verejná obchodná spoločnosť) Limited partnership (komanditná spoločnosť) • Capital companies - Limited liability companies (s.r.o.) - Joint-stock companies (a.s.) Partnerships • -

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Ordinary partnership A company that has at least 2 or more partners The partners provide the bussinness activity under the common name Partners have equal and unlimited liability for the debts of the company To start the partnership, partners have to sign the deed of partnership, where shoulf be mentioned  Name and adress of the company  Names and adresses of the partners  Object of bussiness activity  Other things which are important for the partners Division of profit  Profit is divided equally if the partners don´t have initial capital or they don´t agree another way  If the initial capital is created then the profit is usually divided according to the deposits of the partners The partners can choose one of the partners to manage the company or to take decisions about the company, the others can agree by voting or they can divide their decision making Limited partnership Has two types of partners  Ordinary/general – these partners have unlimited liability but they can take decisions about the company  Limited/sleeping – have limited liability upto the high of their deposit but can ´t take decisions about the company Taking decisions  Can be taken only by the ordinary partners but limited partners can vote about decisions and every partner has one vote Division of profit  The ordinary partners divide their profit proportionally  Limited partners divide their profit according to the hight of their deposits

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Jaroslava Gašková, MAT/ECO 5 If all limited partners leave the partnership, the limited partnership changes to ordinary partnership if the remaining partners agree with it In the deed of partnership there should be mentioned  Name and adress of the company  Object of bussiness activity  Determination which of the partners is limited or ordinary  The hight of deposits of limited partners

Co-operatives (co-ops) Is an association of unlimited number of members which is created with the aim to provide the business activity or to satisfy various needs of its members rather than to make as much profit as possible. Initial capital should be at least 50 000,- Sk. It can be established by at least 5 members or by two legal entities and for the establishment the establishing meeting has to be created and it has to be registered in the business register. According to the aim we distinguish 2 types of cooperatives – producer - consumer (eg. Coop Jednota) 1.

Producer co-operatives Are businesses owned by some or all of the workers in the firm. The aim of the cooperative system is to run the business for the sake of the workers and not for the shareholders, who may have nothing to do with the firm except own shares. The workers have to provide any money or financial capital to set up the business. Then they have to find some way of making decisions – for instance, by appointing managers or, if a company is small, by voting on important issues.They also have to decide how to distribute the profitsof the cooperative, although these will almost certainly go to the workers, since they are the shareholders of the company. Workers have the advantage of having limited liability. The main advantage of a worker or producer co-operative should be that there is no conflictof interest between workers and shareholders, since workers are the shareholders. So there should be no strikes and workers should have a strong motivation to work. Worker co-operatives are extremely rare because workers find it difficult to raise enough money to set up and then finance the growth of firms. They also lack the necessary management experience to make a company successful. 2. Consumer co-operatives Are co-operatives set up with the aim of helping consumers. The co-operatives are owned by members of the general public . Interest is paid on the shares. Shares can be sold back to the co-operative and each shareholder is only entitled to one vote at shareholders´ meetings, however many shares are held. Shareholders elect a management committee who run the cooperation. Profits are distributed not to shareholders but to shoppers, according to how much they spend at the co-op. Co-operatives finance their investment mainly through retained profits and loans of various sorts. 3

Jaroslava Gašková, MAT/ECO 5

Managament bodies of cooperatives: Meeting of members (the highest controlling body) or assembly of delegates Board of directors (manages the cooperative between the meetings) Supervisory comittee

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