Chapter 2 A survey of Business organization

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Chapter 2 A survey of Business organization

• 1 Forms of business organization
• 2 Sole trader
• 3 Partnership
• 4 Company
• 5 Choice of business organization

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1 Forms of business organization

• (1) IICH, RCOH
• (2) Sole traders, sole proprietorship
• (3) Partnershipsgeneral,limited partnership
• (4) Company unlimited, limited, stock
• (5) Non profit-making organization

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2 Sole trader

• (1) Unlimited liability owner
• (2) No separate existence, not legal person
• (3) No formality is required for its formation

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3 Partnership
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3.1 The relationship subsisting between persons
carrying on business in common with a view
to profit

• 3.2 Characteristics

• Agency Each partner is the agent of the firm and
  fellow
• partners
• (2) Unlimited liability partners
• (3) Joint and several liability serious
  consequence

3.3 Disadvantage
(1) Disagreement leads to stalemates (2)
Dishonesty or incompetence of one partner leads
to heavy losses suffered by fellow
partners (3) Time consuming in the aspects of
major decisions
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3.4 Does partnership have separate personality?

• Semi-legal person?
• (1) Firms creditors call against firm assets
  first
• (2) Deceased partners personal creditors have
  first call against personal assets of his estate
• (3) Partnership may hold real property
• (3) Own name may sue and be sued by such name
• (4) Accounting perspective separate entity with
  its own assets, liabilities and financial
  statements

3.5 Limited partnership
(1) Limited partners passive role in firm
management (2) Unlimited partners active role in
management (3) Legal person status UK
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4 Company
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4.1 Classification

• 4.1.1 Public companies and private companies
• 4.1.2 Limited and unlimited companies
• 4.1.3 LLC and CLS
• CLS and LLC

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4.1.4 Parent company and subsidiary

• 4.1.5 Head company and branch

Subsidiary and branch
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4.2 Features

• (1) Limited liability shareholders
• (2) Continuous existence
• (3) Ownership of property
• (4) Contractual capacity
• (5) Professional management, since 1840s
• (6) Less loyalty shareholders
• (7) Separation of ownership and management
• (8) Criminal liability danwei fanzui in China

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5 Choice of business organization
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5.1 Limited liability

• (1) Shareholder Y
• (2) Shareholder of UC N
• (3) Partner N, Limited partner Y
• (4) Sole trader N

5.2 Right to manage
(1) Shareholder N (2) Shareholder of UC Y (3)
Partner Y, Limited partner N (4) Sole trader Y
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5.3 Agency

• (1) Shareholder N
• (2) Director Y
• (3) Partner Y
• (4) Sole trader Y

5.4 Withdrawal from business
(1) Partner easier, by assignment, or
expiration (2) Shareholder of PLC easy (3)
Shareholder of Co Ltd may be subject to
restriction of BOD
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5.5 Business property

• (1) Company property company rather than
  shareholders
• (2) Partnership property jointly owned by
  partners

5.6 Borrowing power

• (1) Sole trader difficult, solid security or
  guarantor
• (2) Partnership difficult, solid security or
  guarantor
• (3) Company easier,
• Share
• Debenture loan with mortgage, floating charge
• Bond

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5.7 Formation

• (1) Sole trader easier
• (2) Partnership easier
• (3) Company LLC by registraion CLS approval
  registration

5.8 Governance formalities
(1)Partnership N (2)Company esp. PLC Y, lots of
mandatory requirements
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5.9 Publicity

• (1) Sole trader completely private
• (2) Partnership completely private
• (3) Company mandatory disclosure
• Except for SMEs in the west
• Turnover of less than ?2.8 million
• Assets of less than ?1.4 million
• Fewer than 50 employees

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5.11 Perpetual existence
5.10 Tax
Sole trader individual income tax Partner
individual income tax Company corporation tax
shareholders individual
income tax

• (1) Company Y
• (2) Partnership N