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Session 2 - Forms of Business Ownership

This document discusses different forms of business ownership and their key characteristics. It begins by noting that informal businesses are generally not registered and may not pay taxes, though governments often tolerate them to allow people means to earn a living. However, informal businesses face risks like lack of legal protection. The document then outlines six major business structures - sole proprietorships, partnerships, private limited companies, public limited companies, non-profits, and cooperatives. It provides details on sole proprietorships, including that the owner enjoys all profits/bears all risks, and has unlimited liability. It also outlines key aspects of partnerships like membership, partnership agreements, unlimited liability, and profit/loss sharing. The document concludes with discussion questions on advantages

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17 views

Session 2 - Forms of Business Ownership

This document discusses different forms of business ownership and their key characteristics. It begins by noting that informal businesses are generally not registered and may not pay taxes, though governments often tolerate them to allow people means to earn a living. However, informal businesses face risks like lack of legal protection. The document then outlines six major business structures - sole proprietorships, partnerships, private limited companies, public limited companies, non-profits, and cooperatives. It provides details on sole proprietorships, including that the owner enjoys all profits/bears all risks, and has unlimited liability. It also outlines key aspects of partnerships like membership, partnership agreements, unlimited liability, and profit/loss sharing. The document concludes with discussion questions on advantages

Uploaded by

ruthykemunto111
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 18

KCA 004 / BAC 1306/BCT 1203/BBIT 04204

ENTREPRENEURSHIP

Forms of Business ownership


Legal Issues of Business ownership

Businesses operating under the informal


sector are generally not registered and
many don't pay taxes

The government tends to ignore the fact


that such unregistered businesses are
actually breaking the
law.. Reason?
Its far more important that people,
especially the poor, are allowed to pursue
whatever means they can to earn a living.

Unfortunately, there are some risks that


come with the decision to operate
informally
An unregistered business is not recognized
by law. Such businesses sometime face
arbitrary and very disruptive decisions that
affect their smooth operation

Having a registered business guarantees


protection because there are laws that exist
to protect private investments

Thus its safe to operate formally and seek to


understand your legal rights as a business
person.
There are six major business ownership
structures namely;

- Sole Proprietorships
- Partnerships
- Private limited companies
- Public limited companies
- Non-profit organizations
- Cooperatives
Sole Proprietorship

-Business organization that is owned and run by


one individual (Sole Proprietor)

- No legal distinction between the owner and


the business
Features

Ownership
-The business is owned by a single individual

-Owner enjoys all the business profits and bears


all the risks (loses)

Management and control


-The business is managed by the owner

-Sole decision maker and has total control

-May have some paid workers to assist him


Finance (capital)
-The capital required to start the business is
provided by the owner

- Other sources - friends, family, financial


institutions or bank

Unlimited liability
-Sole trader is personally accountable for debts
of the business

-If unable to pay his debts the creditor can lay


claim on his personal Property
Legal status

- The sole trader and his business are considered


as one

- All the assets and liabilities of the business


belong to the sole proprietor

- Owner and the business exist together and the


business ceases to exist once the owner dies
Legal formalities

The sole trader can set up or close the business


as and when S/he likes, the operation of the
business is not governed by any special act or
regulation.

However, a few legal restrictions may be there in


setting up a particular type of business.

For example, to open a shop, the sole proprietor


needs a trading license from the local authority
Partnership

A partnership is an agreement between two or


more people to finance and operate a business
with the common objective of making profit.

Each member of a partnership is known as


‘partner’ and jointly the members are known as
a ‘partnership firm’
Characteristics of a Partnership

Membership

A partnership is formed by at least two members


are required to start a partnership business and a
maximum of 20 members
Partnership agreement

The relation between the partners of a


partnership firm is governed by an agreement
which may be verbal, written or implied.

If it is in writing it is known as a ‘Partnership Deed’

Terms
-This agreement must contain-
-The amount of initial capital contributed by
each partner
-Profit or loss sharing ratio for each partner
- Salary or commission payable to the partners,
if any

- Duration of business, if any

- Name and address of the partners and the


firm

- Duties and powers of each partner;

- Nature and place of business; and

Any other terms and conditions to run the


business
Legal Status
The Law does not recognize the firm as a separate
legal entity separate from the partners.

The partnership firm is just a name for the business.

If someone take legal action against the firm, it is as


good as someone suing all the partners.

Transfer of Interest
No partner can sell or transfer his share or part or
partnership of the firm to any one without the approval
of the other partners
Unlimited liability

Like a sole proprietorship, the liability of partners in a


partnership is also unlimited. This means, if the assets of
the firm are inadequate to meet the firms liabilities,
then personal possessions of the partners, if any, can
be used to meet the business liabilities.

Sharing of Profit and Loss

Unless provisions are put in the partnership agreement


on the manner in which profits and losses are to be
shared, all profits and losses are shared equally
amongst the partners
Dissolution of Partnership

Unless provisions are made in the partnership deed by


default a partnership will end upon the death,
disability, insanity or even withdrawal of any one
partner.

Rights of Partners

Unless provisions are made in the partnership deed, by


default, each partner has an equal right to participate
in the management and control of the business.

Differences in the ordinary course of partnership


business are decided by a majority of the partners
Class Discussion

i) Advantages and Disadvantages of a Sole


Proprietorship

ii) Advantages and Disadvantages of a


Partnership firm

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