forms of ownership Flashcards
define a sole trader.
A sole trader is a business, owned by one person, who makes all the decisions and assumes the responsibility of ensuring the success of the business.
define a partnership.
A partnership is an agreement between two and a maximum of twenty partners where they each agrees to contribute capital, other resources and skills to form a business.
how is tax levied for a sole trader?
Tax is paid in the sole trader’s personal capacity. The owner alone gains from the profits generated, therefore he will need to pay tax.
what is meant when we say ‘a sole trader does not have a separate legal persona’?
This means the owner and the business do not operate separately, and in the eyes of the law, they are seen as one entity and the owner, therefore, is personally liable for the debts of the business
how can a partnership be used as a way to grow a business?
Forming a partnership has many benefits, in particular, a partner / partners would bring expertise, skills, capital and or resources to his business, as well as added collateral, in the event of raising additional capital. A valuable employee can be retained by offering them a partnership in the business.
what is a partnership agreement?
A partnership agreement entails an arrangement between the number of people in the partnership – anything from two to twenty people – where each agrees to what he / she is able to contribute to the business, such as, capital, skills, resources etc.
explain what a MOI is.
the Memorandum Of Incorporation is the founding statement of a company and contains the information about the business:
* the purpose
* location
* shareholder’s details
* termination procedures
* auditor’s details
* all aspects regarding the business’s management
why could decision-making in a partnership be tricky?
It is sometimes difficult to get every partner to agree on all aspects pertaining to the business.
Differences of opinion, methodology, planning and/or management could contribute to differences and disagreement between partners, thus resulting in a tricky partnership.
what does the concept of unlimited liabilities mean?
It pertains to the partners of the business having unlimited liability for the debts of the business (personal belongings could be used to pay to settle the debt of the business).
Each partner bears the risk of responsibility equal to that of his/her percentage ownership of the partnership.
when will a director of a public company lose their limited liablity?
if their actions are deemed dishonest and reckless
what does it mean when we say ‘the company and the owners are separated from each other?’
as soon as the company registers with the CIPC, it is given a registration number and a legal personality. this means that the company now has the ability and power to act on its own.
what does CIPC stand for?
companies and intellectual property commission
what does the CIPC do?
the CIPC registers companies and provide property and intellectual rights.
what does it mean when a company receives a legal persona?
the company and the shareholders are separated and the shareholders have limited liabilities for the debt of the business. the company will settle its own liabilities and if there is not enough money to pay all the debts, the shareholders’ personal assets are protected.
how does the concept of limited liability apply to a private company and why is it seen as an advantage?
Shareholders have limited liability for the debt of the business. If the business goes insolvent (bankrupt), the owners will not lose their personal belongings to pay for the debt of the business.
