Management Two

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Management Two

• Business Ownership

Created By M.S.Martin Feb 05 Revised for trade
Oct. 09
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Business Ownership

• Basically there are three forms of ownership
• Sole Trader
• Partnership
• Company

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Ownership Continued

• Many businesses start off as Sole Traders and
  change their ownership as the business grows.
• The main influence for selection of ownership
  structure is
• Tax treatment
• Owners liability
• Costs regulations
• Availability of finance
• Management control

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Advantages of Sole Trader

• Formation is simple. Besides the possible
  registration of a business name, there are no
  formalities or specific regulation related to
  this ownership structure. Anyone who can enter
  into contracts can be a sole trader. Note that
  industry or trade specific licences may apply.
• The owner has independence, sole decision making
  power and is answerable only to him/herself.
• The owner gets to keep all profits (after paying
  tax at individual rates).

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Disadvantages of Sole Trader

• Sole traders often experience a lack of capital,
  since all the capital must come from the owners
  own savings. Additional finance may also be
  difficult to obtain.
• There may be restrictions on the owners
  lifestyle, in terms of taking holidays etc. Hired
  help may be available, but it is often risky to
  trust others with your profits and assets.

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Partnership Agreement

• Arrangement for drawings of profit/capital
• Limitations on authority of partner/s to act as
  agent
• Dispute Settling Procedures/ Arbitration clause
• Provisions for death/bankruptcy of a partner.

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Advantages of Partnerships

• Skills (hopefully different and complementary)
• Capital (equipment /or funds)
• Customers (goodwill)
• Time

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Company Ownership Methods

• Unlimited used by professional people where
  their profession will not allow any limitation on
  their members liability.
• No liability restricted to mining companies.

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Limited Liability Companies

• Public companies
• Proprietary companies
• Exempt-proprietary

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Proprietary Companies

• The company name must be followed by PTY. LTD
  (short for Proprietary Limited)
• Minimum of one, maximum of fifty shareholders
• Minimum of two directors.

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Business Ownership Summary

• 1) Name the different types of business
  ownership?
• Sole Trader, Partnership, Company
• 2) In your own words describe what each of these
  mean?
• Sole Trader A single person carrying on a
  business, having total control of the business.
• Partnership The relationship between persons
  carrying out a business together with shared
  responsibilities.
• Company Is an artificial body or identity
  created by law in order to operate a business.

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• 3) What does ACN stand for?
• Australian Company Number
• 4) Why is it necessary to have the above?
• The law states all companies must be registered
  with the Australian Securities Commission which
  your CAN number is a result of.
• 5) Define what a company is?
• An artificial body created by law

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• 6) What are the abbreviation Pty Ltd short for
  and what do they mean?
• Pty Proprietary which means private
• Ltd Stands for limited meaning limited
  liability.
• 7) The first page describes different types of
  business ownership, list again four types and
  name two advantages and two disadvantages of each
  below?

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• Sole Trader
• Advantages Total control of business, simple
  formation, independence on decisions, gets to
  keep all profits.
• Disadvantages Also bears any losses unlimited
  liability, possible lack of capital, may restrict
  life style.

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• Partnership
• Advantages- Easy to form administer, pooled
  resources enhance skill, capital, time etc.,
  possible larger projects to take on.
• Disadvantages - All partners have unlimited
  liability, statistically they have a limited
  life.

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• Public Company
• Advantages Increased capital by shareholders,
  Limited liability, tax benefits.
• Disadvantages Higher formation costs, document
  lodgment fees, professional accounting

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• Private Company
• Advantages Min. one shareholder, limited
  liability, no lodgment of articles to ASIC.
• Disadvantages Public shares prohibited so
  capital limited to shareholders, formation costs.