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Forms of Business Ownership Simplified Revision Notes for NSC Business Studies
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Forms of Business Ownership
This revision note explores various forms of business ownership, detailing their distinct characteristics, benefits, and drawbacks.
Sole Proprietor
Definition: Sole Proprietor: An individual owns and manages a business on their own, exercising full control over business decisions.
Sole Proprietor: A business framework where one person singularly oversees and operates all facets, akin to managing a solo project at school.
Characteristics
- Single Ownership and Control: The sole decision-maker.
- Easy Management: Facilitates prompt decision-making.
- Unlimited Personal Liability: Personal assets are at risk.
- Taxation: Business earnings taxed as personal income.
Advantages
- Prompt Decision-Making
- Complete Control and Profits
- Absence of Disputes
- Potential Tax Benefits
Disadvantages
- Unlimited Personal Liability
- Restricted Growth Potential
- Higher Taxes with Increased Profits
Tax Implications
Personal Liability and Risk Management
- Obtain liability insurance.
- Keep personal and business finances separate.
Schedule regular checks to manage liabilities and remain informed on tax obligations proactively.
Partnership
Definition: Partnership: A business arrangement shared among two or more individuals managing operations together.
Partnership: A collaborative business arrangement among two or more individuals overseeing operations collectively.
Characteristics
- Joint Ownership
- Unlimited Liability
- Partnership Agreement
Advantages
- Shared Skills and Resources
- Potential for Additional Partners
- Lower Formation Costs
Disadvantages
- Unlimited Liability Risks
- Possibility of Conflicts
- Tax Liabilities
Comparison of Partnership Types
| Type | Liability | Management Roles |
|---|---|---|
| General Partnership | Unlimited | Equal participation |
| Limited Partnership | Limited for some partners | Differentiated roles |
Conflict Management Strategies
- Comprehensive Partnership Agreement
- Structured Conflict Resolution Mechanisms
Close Corporation
Definition: Close Corporation: A legal business entity, separate from its members, appropriate for small businesses.
Close Corporation: A legal entity ideal for small businesses.
Characteristics
- Member-driven
- Legal Identity
Advantages
- Limited Liability
- Simplified Compliance
- Flexibility
Disadvantages
- Constraints on Capital
- Growth Limitations
Non-Profit Company (NPC)
Definition: Non-Profit Company (NPC): An organisation oriented towards promoting public benefits and social welfare.
Non-Profit Company (NPC): Prioritises social welfare over profit distribution.
Characteristics
- Board Governance
- Reinvestment of Profits
- Transparency
Advantages
- Tax Incentives
- Variety of Funding Sources
- Appeal to Talented Individuals
Disadvantages
| Advantages | Disadvantages |
|---|---|
| Tax Exemptions | Complex Financial Management |
| Eligible for Grants | Difficulty in Capital Acquisition |
Profit Companies
Definition: Profit Companies : are business entities designed for profit generation, focusing on maximising shareholder wealth.
Profit Companies: Entities focused on generating financial returns.
Characteristics
- Defined Legal Entity Status
- Structured Governance
Tax Implications
- Flat Tax Rate
- Double Taxation
Comparison of Subtypes
Private Company
Definition: Private Company: A business structure that emphasises confidentiality and privacy.
Private Company: A business entity that prioritises confidentiality.
Characteristics
- Shares not publicly traded
- Limited Disclosure Requirements
Advantages
- Limited Shareholder Liability
- Streamlined Management and Operations
- Enhanced Privacy
Disadvantages
- Restricted Access to Capital
- Limited Share Transferability
Personal Liability Company
Definition: Personal Liability Company (PLC): A business structure where directors' liabilities extend to personal assets.
Personal Liability Company (PLC): Extends directors' liabilities to their personal assets.
Characteristics
- Extended Directors' Liability
Advantages
- Operational Independence
- Strengthened Brand Reputation
Disadvantages
- Increased Personal Risk
Public Company
Definition: Public Company: A business entity that offers shares to the public.
Public Company: Allows public share offerings.
Characteristics
- Liquidity and Marketability
- Capacity for Capital Raising
- Transparency
State-owned Company
Definition: State-owned Company is owned and operated by the government.
A State-owned Company is a government-owned entity essential for public infrastructure.
Characteristics
- Government Ownership
- Focused on Public Service
Advantages
- Stable Funding
- Reliable Service Provision
- Public Accountability
Disadvantages
- Political Influences
- Bureaucratic Procedures
Co-operative
Definition: Co-operative: A business entity owned by a group for mutual benefit.
Co-operative: Group-owned, for shared benefits.
Characteristics
- Driven by Membership
- Autonomous
Advantages
- Community Focus
- Shared Profits
Disadvantages
- Limited Capital
- Complex Management
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