business studies grade 10 forms of ownership essay

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Business Studies-Forms of ownership

Business studies, high school - south africa.

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Preview text, forms of ownership, corporation.

Partnership

Introduction

It is important to know the characteristics, advantages, disadvantages and differences between the various forms of ownership.

The forms of ownership discussed below include:

Sole Proprietor

Close Corporation
Non-profit Company
Profit Company (Private Company, Personal Liability Company, Public Company, State-owned Company)
Co-operatives The information on all forms of ownership is summarised in the form of tables below so that the different forms of ownership can be compared with each other. It is important to study the characteristics very well as this can help you to think of advantages and disadvantages of the different forms of ownership.

Unit 1 Forms of ownership vocabulary

Money or assets provided by the owners to set up the business.

Legal personality

Companies and CCs have legal personality. This means that they are seen as legally separate from their owners. Partnerships and sole proprietors do not have legal personality and are seen as one with their owners. Businesses with legal personality may accept contracts in their own name, can sue and be sued separately from their owners.

The ability of the business to carry on operating after the death or retirement of the owner or more than one of the owners.

Characteristics for specific forms of ownership

The name of the business

The number of owners allowed by law

What the owners are called?

The continuity of existence

Personal liability and legal personality

Who shares in the profit?

Who manages the business?

Formation procedure

Unit 2 Characteristics

The characteristics of each form of ownership can be summarised by looking at:

Characteristics

Form of Form of Form of Form of oooownershipwnershipwnershipwnership

Name of Name of Name of Name of businessbusinessbusiness business

NumberNumberNumberNumber of ownersof ownersof ownersof owners

WhoWhoWhoWho are are are are the the the the owners?owners?owners?owners?

Continuity Continuity Continuity Continuity of of of of existenceexistenceexistence existence

Personal Personal Personal Personal liability liability liability liability and legal and legal and legal and legal personalitypersonalitypersonalitypersonality

Who shares Who shares Who shares Who shares in the profit?in the profit?in the profit?in the profit?

Who Who Who Who manages manages manages manages the the the the business?business?business?business?

Formation Formation Formation Formation procedureprocedureprocedure procedure

OtherOtherOtherOther

No requirement s. Can be chosen by owners

1 Sole trader

No Fully liable for business debts and no legal personality

Owner shares in all profits and suffers all losses

Owner or manager

Easy and cheap to start. Only trading license(s) needed Must register with SARS for tax

No requirement s. Some partners like to link name to their surnames

2 - 20 Partners No Jointly and severally liable for business debts and no legal personality

Partners share in all profits and suffer all losses

Some or all of the partners

Easy and cheap to start. Only trading license(s) needed Must register with SARS for tax Verbal/written partnership agreement needed

Profit Company/ Personal Liability Company

Must end with Inc

1 - the amount of shares issued by the company.

Members Yes Directors are fully liable for business debt

Directors and past directors are liable for the debts of the business, owners share in profits

Minimum of 1 director

(The same for profit and non-profit companies)

Public companies need to bring out a prospectus to invite the public to buy shares.

(Same as other companies)

ethics committee Must appoint auditor and have financial statements independently reviewed Must appoint a company secretary

(The same for all profit companies)

Profit Company/ Public Company

Must end with Ltd

1 - the amount of shares issued by the company

Share- holders

Yes Limited liability and has legal personality

Shareholders get dividends on shares

Minimum of 3 directors

Profit Company/ State-owned Company

Must end with SOC

Must generate own income. Profit belongs to the state

State manages company through directors. Minimum of 3 directors needed

Co-operative

Must end with Co-operativ e

Minimum of 7 for agricultural and minimum of 25 for trading

Members Yes Limited liability and legal personality

Members share in profit

Board of directors chosen by members

Many legal formalities involved

Books must be audited

Non-profit Company (NPO)

Advantages disadvantages.

Publicly responsible which creates trust

Can get funding from National Lotteries Trust and other agencies

Exemption of tax from SARS

Has continuity

Limited liability

Difficult to set up

Assets must be transferred to company with similar purpose when company dissolves

Must keep financial and accounting records

May make some profit but may not distribute property or profit to members

Must hold annual general meeting

Private Company (Pty) Ltd

Number of shareholders allow more capital

No annual general meetings required

Complicated formation procedure

Cannot get money from general public for capital

Can only rely on capital contributed by members

Personal liability company-PLC (Incorporated / Inc after name)

No maximum number of owners

Can raise a lot of capital as there is no limit to the number of owners

Directors liable for debts of the business

Public Company (Limited or Ltd)

Can raise large amounts of capital

Can be involved in large projects to benefit country

Attract skilled staff as they can pay them well

Offer job security

Shares are open to members of the public on the JSE

Failure can lead to large-scale unemployment

Certain information needs to be published by law

Annual general meetings need to be held

Many other requirements such as social and ethical committees

State-owned company (SOC)

Government support

Greater power negotiating contracts

Not a true form of ownership as government controls all decisions

Many other legal requirements and strict regulations

Regulated by PFMA before it may obtain a loan

Difficult to raise capital as shares are restricted

Co-operatives

Able to control and stabilise prices of produce

Share facilities

Extra income/profit shared by members

Better production due to loyal and committed members

Competition is tight

Cannot pay high salaries

Success depends on loyalty, commitment and support of members

Shares are not freely transferable

Compulsory to audit books

1 This refers to the ability of the business to carry on after the death or retirement of one or more owner. A legal personality B liability C continuity D all of the above.

1 Who manages a company? A Board of Directors B shareholders C owners D supervisor. 1 How many directors does a public company need? A 0 B 1 C 2 D 3.

1 How many directors does a private company need? A 0 B 1 C 2 D 3. 10 × 2 = (20)

Question 2: True/false Indicate whether the following statements are TRUE or FALSE. Choose the answer and write only 'true' or 'false' next to the question number. 2 Partners share in all profits and suffer all losses. (2) 2 In a non-profit company, the profit may not be distributed to staff members or owners. (2) 2 A CK7 is used to make changes on the founding statement of a CC. (2) 2 A personal liability company needs a minimum of three directors. (2) 2 A non-profit company must appoint official auditors. (2) 2 A public company must appoint an audit committee and social and ethics committees. (2) 2 In a personal liability company, the directors are liable for the debt of the business, even after they have retired. (2) 2 An advantage of a sole proprietor is that the owner has limited liability. (2) 2 Banks may require a CC to have financial audits for loans. (2) 2 The name of a public company ends with (Pty) Ltd. (2) 10 × 2 = (20)

Question 3: Match terms Choose a term from column B that matches a description in column A. Write only the letter next to the question number.

COLUMN A COLUMN B

3 A compulsory meeting for a public company held once a year

A B C D E F G H I J K

non-profit organisation public company CK annual general meeting CK state-owned company (SOC) close corporation auditor memorandum of incorporation personal liability company cooperative

3 A person authorised to examine and verify accounts

A company controlled by the government 3 A form of ownership where, when the business ceases to operate, its assets need to be transferred to a business with a similar purpose 3 A form of ownership where a founding statement forms part of the formation procedure 3 A form of ownership that my register on the JSE to attract investors 3 A form by which a founding statement may be amended 3 A form of ownership where directors are liable for losses suffered by the organisation 3 A form of ownership enabling members to control and stabilise prices of produce

A document needed in the registration procedure of companies 10 × 2 = (20)

Question 4: Short answers 4 If you had to open a business, what would it be and which form of ownership would you choose? Motivate your answer. (4) 4 Contrast TWO advantages and disadvantages of a public company and a private company. (16) 4 Contrast TWO advantages and disadvantages of a sole proprietor and a partnership. (16) 4 List THREE committees required of profit companies. (3) 4 Which document is needed by a public company to invite the public to buy shares? (1) (40)

Question 1: Multiple choice 1 B 1 C 1 C 1 D 1 D 1 B 1 C 1 A 1 D 1 B

Question 2: True/false 2 T 2 T 2 F 2 F 2 T 2 T 2 T 2 F 2 T 2 F

Question 3: Match terms 3 D 3 H 3 F 3 A 3 G 3 B 3 C 3 J 3 K 3 I

Question 4: Short answers 4 Form of ownership: Marking discretion. Choose any form of ownership. Motivation is important. Form of ownership – 1 mark Motivation – 3 marks 1 – poor motivation 2 – good motivation 3 – outstanding motivation

4 Advantages and disadvantages: (any eight)

Private company Public company

Limited liability meaning that owners are not liable for the business debt Legal personality meaning the business is seen as separate from its owners Has continuity Number of shareholders allow for more capital No annual general meetings required

Can raise large amounts of capital Has continuity meaning the business will continue to exist after the death or retirement of its owners Limited liability Legal personality Can be involved in large projects to benefit country Attract skilled staff as they can pay them well Offer job security Shares are open to members of the public on the JSE

Disadvantages

Complicated formation procedure Cannot get money from general public for capital Can only rely on capital contributed by members

Complicated formation procedure Failure can lead to large-scale unemployment Certain information needs to be published by law Annual general meetings need to be held Many other requirements such as social and ethical committees

Question 5: Essay question Form of ownership: Rubric to use: Introduction 3

Convert to 32

Facts: Characteristics Advantages Disadvantages

2 max. 12 max. 12max.

Conclusion 2 Insight

Layout Structure: 2 Layout structure (LASO) 8 marks

Analysis and interpretation 2 Synthesis 2

Originality (current examples, developments) 2 LASO – For each component: 2 marks if all requirements met 1 mark if some requirements met 0 marks if no requirements met TOTAL 40 Sole Trader best for the situation, but other forms may be acceptable. Include: