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G8 EMS > Forms of ownership > Flashcards

Forms of ownership Flashcards

1
Q

Definition - sole proprietor

A

When the owner does business without registering as a company.
Suitable for smaller enterprises.
Natural person.

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2
Q

Characteristics - sole proprietor

A
  1. Owned and managed by single owner.
  2. Simply the owner doing business.
  3. Not legal entities.
  4. Assets and profit belongs to the owner.
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3
Q

Advantages - sole proprietor

A
  1. Owner can simply start doing business.
  2. Runs business as he sees fit.
  3. Doesn’t need anyone else’s permission to make business decisions.
  4. Success of the business belongs to the owner.
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4
Q

Disadvantages - sole proprietor

A
  1. Owner contributes only his skills, time, energy
  2. No continuity - business cannot continue if owner retires / dies.
  3. Capital is limited to amount of money the owner has access to.
  4. The owner has unlimited liability for the debt.
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5
Q

Definition - partnership

A
  1. Owners do business without registering as company.

2. Number of partners depends on nature and size of partnership.

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6
Q

Characteristics - partnership

A
  1. Agreement between two or more persons.
  2. Each partner makes contribution to partnership
  3. Partnerships are not legal entities.
  4. Partners are jointly and severally liable for debts
  5. Profits and losses are shared among partners according to the partnership agreement.
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7
Q

Advantages - partnership

A
  1. Responsibilities are shared
  2. Partners can specialise in what they do best.
  3. Expenses of partnership are shared among partners.
  4. Partners can consult each other regarding decisions
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8
Q

Disadvantages - partnership

A
  1. Partners do not always agree
  2. One partner’s bad decision can lead to losses for the partnership.
  3. Partners are bound by the decisions of other partners
  4. There is no continuity
  5. Partners have unlimited liability for the debt
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9
Q

Definition - close corporations

A
  1. Registered business with a membership of 1 - 10 persons

2. Specially created for smaller businesses.

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10
Q

Characteristics - close corporations

A
  1. Owned and managed by 1 - 10 members
  2. Name must end with words Close Corporation or CC
  3. CC have continuity
  4. CC are legal entities
  5. Assets belong to the CC and not its members
  6. Profits belong to the CC and not its members
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11
Q

Advantages - CC

A
  1. Members have limited liability for the debts of the CC
  2. Appropriate for small and medium businesses
  3. Usually has greater access to capital
  4. Financial statements need not be audited.
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12
Q

Disadvantages - CC

A
  1. Capital is limited to the contribution of up to 10 members
  2. All members of CC must give approval if a member wishes to sell interest.
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13
Q

Future - CC

A
  1. New Companies Act (Act No 71 of 2008) doesn’t make provision for formation of new CC.
  2. All existing CC may continue to exist indefinitely
  3. Existing companies may not be converted into CC
  4. Existing CC will be treated as private companies.
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14
Q

Definition - Private company

A
  1. Exist to make profit.

2. May not offer its securities to the public.

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15
Q

Characteristics - private company

A
  1. Name must end with Proprietary Limited or (Pty). Ltd.
  2. Owned by shareholders
  3. Minimum number of shareholders = 1
  4. Managed by directors
  5. Minimum number of directors = 1
  6. Securities not offered to the public.
  7. If a shareholder wishes to sell his shares, these shares first have to be offered to existing shareholders.
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16
Q

Advantages - private company

A
  1. More capital can be raised by a company
  2. Continuity of existence
  3. Not necessary to appoint an auditor, audit committee or company secretary
  4. Not necessary to hold annual general meetings.
17
Q

Disadvantages - private company

A
  1. Restricted from raising funds directly from the public

2. Costs and formalities associated with forming a private company

18
Q

Definition - public company

A
  1. Exist to make profit.

2. May offer its securities to the public

19
Q

Characteristics - public company

A
  1. Name must end with Limited or Ltd.
  2. Owned by shareholders
  3. Minimum number of shareholders = 1
  4. Managed by directors
  5. Minimum number of directors = 3
  6. Securities may be offered to the public.
20
Q

Advantages - public company

A
  1. Shareholders have limited liability for the debt.
  2. Funds may be raised directly from the public by offering securities
  3. Continuity of existence
  4. Companies can raise more capital
21
Q

Disadvantages - public company

A
  1. Poor performance by a public company may lead to management losing their jobs.
  2. Annual general meetings must be held
  3. Complicated process to incorporate a public company
  4. An auditor, audit committee and company secretary must be appointed

G8 EMS (14 decks)

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