DIP – Business Organization (B)

1. DIP – Business Organization (B) Lim SeiKee @ cK

2. Sole proprietorship A sole proprietorship is a business entity owned by one person who is legally responsible for the debts and taxes of the business

3. Sole proprietorship • Ownership: 1 owner • Life: Ends when owner: • Is unable to carry on, • Dies, or • Closes the firm Responsibility for business debts if firm is unable to pay: Owner

4. Sole Proprietorship - PRO • Total control of the business by the owner • Cheap and easy to start up • Keep all the profit • Business affairs are private

5. Sole Proprietorship - CON • Unlimited liability • Can be difficult to raise finance • Can be difficult to enjoy economies of scale, i.e. lower costs per unit due to higher levels of production • There is a problem of continuity if the sole trader retires or dies

6. Partnership • Ownership: 2 or more • Life: Ends when partner(s): • withdraws, • Dies, or • Closes the firm Responsibility for business debts if firm is unable to pay: Partners individually and jointly

7. Partners must agree upon: • Amount each partner will contribute • Percentage of ownership of each partner • Share of profits of each partner • Duties each partner will perform • Debts- the responsibility each partner has for the partnership’s debts

8. Partnership - PRO • Spreads the risk across more people • Partner may bring money and resources to the business (e.g. better premises to work from) • Partner may bring other skills and ideas to the business • Increased credibility with potential customers and suppliers

9. Partnership - CON • Have to share the profits. • Less control of the business for the individual. • Disputes over workload. • Problems if partners disagree over of direction of business.

10. Company / Corporation • A company / corporation is a publicly or privately owned business entity that is separate from its owners and has a legal right to own property and do business in its own name; stockholders are not responsible for the debts or taxes of the business

11. Limited Companies • A limited company is a business that is owned by its shareholders, run by directors and most importantly whose liability is limited. • Limited liability means that the investors can only lose the money they have invested and no more. • This encourages people to finance the company, and/or set up such a business, knowing that they can only lose what they put in, if the company fails.

12. Company / Corporation • Ownership: Can be thousands • Life: Continues indefinitely; ends when: -business goes bankrupt -stockholders vote to liquidate Responsibility for business debts if firm is unable to pay: Stockholders can lose only the amount invested

13. Company / Corporation - PRO • For people or businesses who have a claim against the company, “limited liability” means that they can only recover money from the existing assets of the business. • It is easier to raise money through other sources of finance e.g. from banks

14. Company / Corporation - CON • Costly and complicated to set up • Certain financial information must be made available for everyone, competitors and customers included • Shareholders in public companies expect a steady stream of income from dividends • Directors’ legal duties (set out by Companies Act)

15. Cooperatives • The objectives are normally more focused on the members of the co-operative, the local community and the world community. Profit is not the primary objective.

16. Cooperatives - PRO • Achieve a common purpose. • More power to buy or bargain

17. Cooperatives - CON • A long, drawn out decision-making process • Co-operatives may find it difficult to raise finance • Idealistic and ethical aims may not be agreeable with all members • The aims held by many co-operatives may not lead to profits in the long run