Three Majors Form Of Businesses.pdf

Sole Proprietorship Structure



A business owned and usually managed by one person.

Partnership  

A business owned by two or more people legally agree to become co-owners of a business. A partnership is carried out by two or more people but not exceeding 20 people. However, in professional business, such as legal firms, architects and accounting firms, the numbers could be up to 50 people.

Characteristics

Types

Corporation    

A legal entity with authority to act and have liability apart from its owners. The most complex form of business It is a legal entity separate from its constituent members and It is formed by several people who are able to own property, draw contracts and employ people.

(a) Can be small or large (b) Sue and be sued (c) Buy, hold and sell property (d) Make and sell products (e) Commit crimes and be tried and punished for them Have limited liability for individuals who from them Limited partner

General partner

Private limited

Public limited

A partnership with one or more general partners and one or more limited partners.

All owners share in operating the business and in assuming liability for the business’s debts.

1. Limited partners are not liable for the partnership debts. (a) Their personal properties will not be affected to cover the partnership’s unpaid liabilities. (b) Their liability for the debts of partnership is limited to the capital they have put in.

1. In partnership, at least one partner must be a general partner which is responsible for the debts of the enterprise and has unlimited liabilities.

1. Private limited is where the company cannot sell shares to the general public.

1. Public limited company is where it raises capital by selling shares and is run by a board of directors elected by shareholders.

2. Private companies are denoted by the words “Sendirian Berhad” - (Sdn. Bhd.)

2. The company must have the word “Berhad”, often abbreviated to Bhd.

(a) Limited company by share - For this type of corporation, the members’ personal liabilities are limited to the par value of their shares. - A corporation limited by shares can be shown in the diagram above.

(b) Limited company by guarantee (c) Unlimited company / corporation

(c) They can lose the capital but they are not required to pay partnership debts. (limited liability) 2. Limited partners are not allowed to take part in the management of the partnership or to have the power to make the decision. Advantages

A. Ease of starting and ending the business - To start sole proprietorship, what one has to do is just to buy and lease the needed equipment, put up some announcements and get permit or license from local government. B. Being your own boss - Working for others simply does not have the same excitement as working for oneself. The mistakes and victories made are of one’s own.

2. A general partner would take an active role in managing business.

A. More financial resources - When two or more people pool their money and credit, it is easier to pay the rent, utilities, and other bills incurred by the business. B. Shared management and pooled skills and knowledge - It is simply much easier to manage the day-to-day activities of business with carefully chosen partners. - Partners give each other free time from the business and provide different skills and perspectives. C. Longer survival - One study that examined 2000 businesses started since 1960 found that partnerships were four times as likely to succeed as sole proprietorship.

A. Limited liability - Limited liability which means that the owners of a business are responsible for its losses only up the amount they invest in it, is the major advantage of corporations. B. Ability to raise more money for investment - To raise money, a corporation can sell shares of its stock to anyone who is interested. This means that millions of people can own part of major companies such as Maybank, IBM and Dell and smaller companies as well. C. Size - The size of some corporations (big) enable them to raise large amounts of money to work with, build modern factories of software development facilities with the latest development and hire experts or specialists in all areas of operation.

C. Pride or ownership - People who own and manage their own businesses are rightfully proud of their work. They deserve all credit for taking risks and providing needed goods and services. D. Leaving a legacy - Owners can leave an ongoing business for future generations. E. Retention of company profit - Owners not only keep the profits earned but also benefit from the increasing value as the business grows. F. No special taxes - tax benefits (Single taxation) - All the profits of a sole proprietorship are taxed (one time based on your personal income) as the personal income of the owner and the owner pays the normal income tax on money earned.

D. No special taxes (Single Taxation) - As with sole proprietorship, all profits of partnerships are taxed as the personal income of the owners who pay normal income tax on income earned.

D. Perpetual life - Because of corporations are separate from those who own them, the death of one or more owners does not terminate the corporation. E. Ease of ownership change - It is easy to change the owners of a corporation as all that is necessary is to sell the stock to someone else. F. Separation of ownership from management - Corporations are able to raise money from many different owners or stockholders without getting them involved in management. - How owners affect management? Owners or stockholders elect Board of Directors. Board of Directors hire officers. Officers set corporate objectives and select managers. Managers supervise employees. Employees......

Disadvantages

A. Unlimited liability the risk of personal loss - Unlimited liability refers to any debts or damages incurred by the business are owners’ debts and they must pay them even if it means selling their home, car or whatever else they own. B. Limited financial resources - Funds available to the business are limited to what the one owner can gather. There are serious limits to how much one person can raise. C. Management difficulties - Sole proprietors often find it difficult to attract qualified employees to help run the business because often they cannot compete with the salary and benefits offered by larger companies.

A. Unlimited liability - Each general partner is liable for the debts of the firm, no matter who was responsible for causing them. Like sole proprietors, general partners can lose their homes, cars, and everything else they own if the business losses a lawsuit or goes bankrupt. B. Division of profits - Sharing risk means sharing profits and that can cause conflicts. There is no set system for dividing profits in a partnership and they are not always divided evenly. C. Difficult to terminate - Once one has committed to a partnership, it is not easy to get out of it because of questions about who gets what and what happens next are often difficult to resolve when the partnership ends. D. Disagreements among partners - Disagreement over money, final authority over employees, working hours, hiring and firing decisions are some examples of potential conflict in a partnership.

A. Initial cost - Incorporation may cost thousands of dollars and require expensive lawyers and accountants to go through the procedure. B. Extensive paperwork - The paperwork needed to start a corporation must keep detailed financial records, the minutes of meeting and more. C. Double taxation - Corporate income is taxed twice. - First, the corporation pays tax on its income before it can distribute any dividends to stockholders. Then, the stockholders pay income tax on the dividend they receive. D. Two tax returns - An individual who incorporates must file both a corporate tax return and an individual tax return. - A corporate return can be quite complex and may require assistance of a certified public accountant. E. Size - Size may be a disadvantage when corporations become too inflexible and tied down in red tape to respond quickly to market changes causing their profitability to suffer. F. Difficulty if termination - Once a corporation has started, it is relatively hard to end.

D. Overwhelming time commitment - Sole proprietors may out in 12 hours a day at least six days a week almost twice the hours worked by by a non-supervisory employee in a large company. - This overwhelming time commitment may affects the sole proprietor’s family life. E. Few fringe benefits - Sole proprietors may lose the fringe benefits that often come with working for others such as, paid health insurance, paid liability insurance, pension plan and sick leave. F. Limited growth - Expansion is often slow since sole proprietors relies most on his/her own creativity, business know-how and funding.

G. Possible conflict with stockholders and board of directors - Conflict may brew if the stockholders elect a board of directors who disagree with management.

G. Limited life span - If the sole proprietor dies, is incapacitated or retires the business no longer exists unless it is taken over by the sole proprietor’s heirs.