Classification of Business – Legal Structure

Instructions:
1. Read through the information in your textbook about business legal structures.
2. Read through the statements below. Cut and paste them into the relevant parts of the classification
table on the attached handout.

Limited capital is Limited capital is

Unlimited liability – this available as the available as the
means that each ownership is limited to ownership is limited to Specialisation of duties
partner is responsible 50 shareholders – may 50 shareholders – may and joint consultation in
for the debts of the affect long term affect long term decision making
business viability (difficult to viability (difficult to
expand/grow) expand/grow)
Has between 2-20
Unlimited liability – in
Able to obtain more owners with some The existence of the
the event of insolvency,
finance (up to 50 exceptions (eg legal company is not affected
the owner is
shareholders) practitioners and by any change in
responsible for ALL
accountants can have owners
debts (personally)
up to 200 partners)
Able to raise most funds Invitation only! Only by
Ownership by one
via capital (rather than invitation can a person Limited liability
person
borrow and repay) become a shareholder
in a private company
Additional finance may Division of
Mgmt by Board of
Owners retain all the be available as well as responsibilities,
Directors are highly
profits the possibility of workload is spread out
skilled and experienced
accessing more finance and some flexibility is
through borrowing possible.
A separate legal entity – Operation of a
Any decision made by
the business is distinct Unlimited liability partnership is set out in
one partner is legally
and separate from the a partnership
binding on all partners
owners agreement
Cannot be listed on the
Funding provided by Listing on the stock Day to day mgmt by the
stock exchange thus
the owner – own capital exchange is a complex owner with some
limited access to equity
and some borrowing process delegation of
finance
responsibilities
Has between 1-50 Operated with the Managerial freedom to
Profits must be shared
shareholders words “Pty Ltd” after make all the decisions
the business name
They are subject to
Simple mgmt structure Is a separate legal entity Limited capital
company tax (approx
(incorporated)
30%)
Shareholders have Managers often lack Members who hold Access to unlimited
limited liability – only skills in all areas of majority shares control number of shares
responsible for managing a business the mgmt of the enables company to
company debts up to which may lead to poor business obtain capital – funds
the amount they decision making expansions/growth etc
invested (not their
personal assets).
 Classification of Business – Legal Structure
Characteristics Advantages Disadvantages
Unlimited liability – this Owners retain all the Unlimited liability –
CompanyPrivatepPartnershi TraderSole
Businesses Unincorporated
Classification of Business– Legal Structure

- - -
means that each partner is profits in the event of
responsible for the debts of the - Managerial freedom insolvency, the
business to make all the owner is responsible
-- Ownership by one person decisions for ALL debts
Unlimited liability – this - Division of - Limited capital is
means that each partner is responsibilities, available as the
responsible for the debts of the workload is spread ownership is limited
business out and some to 50 shareholders –
-- Specialisation of duties and flexibility is possible may affect long term
Limited liability Limited capital is
Businesses Incorporated

- -
- Able to obtain more finance - Is a separate legal available as the
(up to 50 shareholders) entity ownership is limited
- Invitation only! Only by (incorporated) to 50 shareholders –
invitation can a person may affect long term
CompanyPublic

- - Able to raise most - Listing on the stock

funds via capital exchange is a
- The existence of the company (rather than borrow complex process
is not affected by any change and repay - They are subject to
in owners - Limited liability company tax