Types if businesses Flashcards
(29 cards)
Sole Trader
A business that is operated by a single person under their own name.
Liability of a Sole Trader
There is unlimited liability. The owner is personally responsible for al debts and damages owed by the business. This is because all of the contracts are under the owners name.
Taxation of a sole trader
All profits of the business are taxable income to the owner.
Ownership of a sole trader
The business can run directly under the owners name or indirectly via a business name. The owner is still liable for any debts regardless of the name.
Advantages of being a sole trader
The owner has full control over all aspects of the business, the owner gets to keep all profits, the business is easy to set up.
Disadvantages of being a sole trader
Unlimited Liability- If the business goes broke the owner can lose personal assets in order to pay off business debts, there is no one to share the workload with, credibility issues- some clients may perceive a sole trader as less established or reliable compared to a larger company.
Partnerships
A partnership is when two or more people go into business together with a view to make a profit. (they are governed by the partnership act of 1895, which can be overturned by a formal agreement).
Liability of partnerships
There is unlimited liability (depending on the partnership agreement), all assets and contracts are in the owners names.
Taxation of Partnerships
All profits of the business are distributed to the partners (depending on agreement), these are considered part of the partners personal taxable incomes.
Ownership of a Partnership
In a partnership, contracts signed by one partner legally bind all partners. New partners require unanimous consent to join. Most partnerships have a 20-partner limit, except for certain professions (e.g., accountants, lawyers), which can have up to 400.
Advantages of being in a partnership
They are easy to set up, partners can bring in money and different skills, work can be shared amongst partners (more balanced workloads)
Disadvantages of being in a partnership
Unlimited liability- If the business goes broke the partners may lose personal assets, there can be disagreements between partners over decisions, rules must be set for partners leaving otherwise the partnership will end.
Small Proprietary company
A small proprietary company is a separate legal entity is has Proprietary (Pty) and Limited (Ltd) in its name. Its consolidated revenue is less than $50 million and its gross assets must be less than $25 million and / or it has fewer than 100 employees.
Liability of a Small proprietary company
Liability of shareholders is limited meaning shareholders are not personally liable for the company’s debts beyond their investment. This basically means they will only lose the money they originally put into the business.
Taxation of a small proprietary company
The company will have to complete a company tax return and will pay a company tax rat.
Ownership of a Small Proprietary company
It can have no more than 50 shareholders. Shares cannot be offered to the general public.
Advantages of a small proprietary company
Limited liability- personal assets are not taken to cover business debts, a person can easily sell there shares if they want to leave the business, the company gets to a pay a lower corporate tax rate compared to personal income taxes.
Non for profit organisations
A Non for profit organisation is an organisation that is not operating for profit or gain of its individual members. Any profits that are made go straight back into the company not the members.
Liability of a non for profit
An incorporated organisation limits members personal liability, while providing financial protection. However members may still be liable for debts and legal claims.
Taxation for non for profits
If approved by the ATO (Australian taxation office) non for profit organisation can be exempt from income tax.
Ownership for non for profits
Non-profit organizations can be unincorporated, meaning they are not separate legal entities, or incorporated, meaning they exist independently of their members and continue despite membership changes.
Advantages of a non for profit
Its not expensive to corporate,
there are very few formalities and low compliance requirements.
They may be eligible for tax exemptions
Disadvantages of a non for profit
They are not closely monitored or regulated and there are no clear guidelines for operation or for disputes.
There is limited funding so they rely on grants, donations and sponsorship.
They rely on volunteers, which can lead to staffing challenges.
Franchise
Franchising is a business arrangement where the franchisor (owner of concept) licenses the business mode to franchisees in return for ongoing fees or royalties.
