Accounting - Types of Owners

Question 1

What are the four types of ownerships?

Answer 1

Sole Proprietorship (Sole Owner), Partnership, Proprietary/Private company and Public Company

Question 2

What is a Sole Proprietorship/Owner?

Answer 2

A Sole owner is owned by a single individual operating the business in their own right under their name or registered business name.

Question 3

What are the advantages of a Sole Owner?

Answer 3

-The owner has complete control over the business
-Ower keeps the profits
-Simple and Inexpensive
-No opportunity for conflict with partners

Question 4

What are the disadvantages of a sole owner?

Answer 4

• Unlimited Liability (all assets that you own) for business debt
• Decision-Making burden
• Limited capital and skill; relies on the owner’s knowledge and skill

Question 5

What is a partnership?

Answer 5

A partnership is two or more persons in business together operating under their own names (Sue Dorman and Burry Pratt)

Question 6

What are the advantages for a partnership?

Answer 6

• It is relatively cheap to set up
• Greater access to capital and skill with two people

Question 7

What are the disadvantages of a partnership?

Answer 7

• Decision making is shared among partners
• Unlimited Liability, responsible for all dept
• Profit shared among partners

Question 8

What is a private company?

Answer 8

Registered legal entity with the right to do business in its own right, comes into existence through incorporation. Does not have the ability to publicly sell their stocks

Question 9

What are the advantages of a private company?

Answer 9

• Limited Liability, as there is little liability for shareholder other than the loss of stock value
• There is greater ability to attract capital to companies with limited liability

Question 10

What are the disadvantages of a private company?

Answer 10

• Establishment costs are high
• Cannot Publicly advertise funds, difficult to attract shareholders
• A lot more laws and regulations in place

Question 11

What is a public company?

Answer 11

Similar to private company, it is incorporated and exist as its own legal entity. However, this one can sell it shares publicly through the ASX (Australian Securities Exchange)

Question 12

What are the advantages for a public company?

Answer 12

• Limited Liability
• Greater ability to attract capital and sell shares
• Can transfer ownership easier through selling your shares on the ASX

Question 13

What are the disadvantages of a public company?

Answer 13

• Establishment costs are high
• More public scrutiny since all the company’s constitution/charter, company officers and financial records have to be made public
• ## There is a separation between ownership and control, shareholder have nothing to do with the company