UNIVERSITY OF BUSINESS AND

INTEGRATED DEVELOPMENT STUDIES

INTRODUCTION TO BUSINESS STUDIES
LECTURE THREE
FORMS OF BUSINESSES

LECTURER: DAWDI, ABDUL AZIZ

PHONE: 0207712343
WHATSAPP: 0542746885
EMAIL: dawdiabdulaziz@ubids.edu.gh
SOLE PROPRIETORSHIP
DEFINITION
The sole proprietorship is the business that is solely owned by a single person.
This is the most common form of business ownership. In Ghana most business ownerships are sole
proprietorship.
ADVANTAGES OF SOLE PROPRIETORSHIPS
• Owner Controls Profit
The owner receives all the profits of the business and does not have to share them with anyone else. This
explains why the sole proprietorship type of business is so popular.
• High Level of Enthusiasm
The owner of the business will have personal contact with customers and staff. The small-scale retailer, for
example, will be able to find out quickly what people want and then change what the shop sells to suit what
customers wish to buy. The owner has freedom to make decisions and there is no need to consult anyone else.
• Easy to Set Up
The sole proprietorship is easy to start. It requires little effort beyond getting locally licensing permits. The
proprietor needs little or no governmental approval, and usually is less expensive.
• Control of Business
The owner has complete control over the business. That is, he/she has the discretion to do what he/she wants
with his/her business. There are also fewer regulations concerning accounts than with other organizations.
DISADVANTAGES OF SOLE PROPRIETORSHIP
• Limited Capital
The sole proprietorship is limited in the sources it can turn to for funds needed to run or expand the business.
The owner has personal savings, perhaps gifts or loans from family and friends and loans from funding
institutions. That is fairly limited sources of funds. If the business is new and fairly small, banks may be quite
reluctant to extend much credit. Often the business is constrained by such shortage of funds.
2. Unlimited Liability
The owner is liable for the debts of the business. If the firm closes whiles it owes money or if it is sued,
creditors can file claims against the owner’s personal assets. This is clearly a major risk in the sole
proprietorship form of business.
3. Dependence on the Owner
The success of the business will often depend on the owner’s willingness to work long and/or non-standard
hours.
4. Problem with Continued Existence
There is lack of business continuity. That is, any unforeseen accident or illness may cripple the business at an
important stage in its development. The death of the owner may be the end of the business.
PARTNERSHIP
DEFINITION
A partnership is a business owned by two or more individuals. That is, it is defined as “an association of two or
more persons to carry on, as co-owners, a business for profit.”
It must have at least two owners and can, in most cases, have up to a maximum of 20. There are exceptions to
this, such as firms of accountants and solicitors for which there is no legal limit. The business (or firm as it is
sometimes called) is jointly owned by the partners.
Partnerships may trade under the names of the partners or under a business name, though the choice of name is
subject to the same restrictions that apply to sole traders. For example, Boohene, Twum and Associates. Again,
the partners’ real names must appear on the firm’s stationery or letterhead.
A partnership is not taxed as a separate entity. Instead each partner reports his or her share of the business profit
or loss on his or her personal income tax return. Each partner’s share is taxed as if it were from a sole
proprietorship. The Incorporated Private Partnership Act, 1962, ( Act 152,) governs partnership in Ghana
TYPES OF PARTNERS
Although there are a number of distinctions that can be made regarding partnerships, there are basically three
ways in which a partnership may function.
Active Partner
Each partner may play a role in the day-to-day operations of the business. He may have contributed (initial)
capital to the business. In addition to a share of profits, active partners may receive a salary if this is written into
the deeds or the regulations/articles of partnership.
A Sleeping (or Dormant) Partner
Some partners may work in the business, while others do not. Thus, a sleeping partner is one who contributes
capital yet plays no part in the daily operation of the business. Sleeping partners receive an agreed share of
profits and are protected by limited liability.
A General Partner
In a limited partnership a general partner takes full responsibility for financial debts in the event of bankruptcy.
He is not protected by limited liability.
THE ARTICLES OF PARTNERSHIP
The partnership agreement is a document that prescribes the responsibilities and privileges of each partner. The
agreement can be quite complex, but it should specify at least three things. First, it should state the
percentage of ownership of each partner. Secondly, it should state how profits or losses will be divided. Third,
the agreement should state how the partnership should be dissolved.

If two or more persons actively engage in business together as co-owners without making an express agreement,
orally or in writing, the law implies a contract and partnership exits.
The partnership agreement is called the deed of partnership. The contract agreement should expressly cover the
following matters:
1. The names of the partners and the name of partnership
2. The effective date of the contract
3. The nature of the business
4. The place where operations are to be conducted.
5. The amount of capital contributed by each partner and the valuation to be placed upon each asset invested.
6. The rights and duties of the partners
7. The dates when the books are to be closed and the profits ascertained and divided.
8. The portion of the net income to be allowed each partner.
9. The drawings to be allowed each partner and the penalties, if any, to be imposed because of excess withdrawals.
10. The length of time during which the partnership is to continue.
11. The conditions under which a partner may withdraw or may be compelled to withdraw; the bases for determining
his/her equity in the event of withdrawal; and the agreements regarding the payment of his equity in full or in
instalments.
12. Procedures in the event of the death of a partner.
13. Provisions for arbitration in the event of disputes.
14. The rights and duties of the partners in the event of dissolution.
RULES APPLYING TO ABSENCE OF PARTNERSHIP
DEED/ AGREEMENT
a) All the partners are entitled to share equally in the capital and profits of
the firm and must contribute equally towards the losses sustained by the
firm.
b) The firm must indemnify every partner in respect of payments made and
personal liabilities incurred by him “in the ordinary and proper conduct
of the business of the firm”, or in or about anything necessarily done for
the reservation of the business or property of the firm.
c) A partner making, for the purpose of the firm, any actual payment or
advance beyond the amount of capital, which he has agreed to subscribe,
is entitled to interest at the rate of 5% per annum from the date of
payment or advance.
d) Notwithstanding that the partnership agreement provides for payment of interest
on the capital subscribed by any partner, a partner is not entitled to payment of
such interest before the ascertainment of the profits of the firm.
e) Every partner may take part in the management of the business of the firm.
f) No person shall be entitled to remuneration for acting in the firm’s business.
g) No person may be introduced as a partner without his consent and the consent of all the existing partners.
h) Any difference arising as to ordinary matters connected with the firm’s business may be decided by a majority
of the partners, but no change may be made in the firm’s business without the consent of all the existing
partners.
i) The partnership books and accounts shall be kept in Ghana at the place of business of the firm or principal
place of business.
ADVANTAGES OF PARTNERSHIPS
1. Partnerships make available additional financing. That is, more capital is available than for a sole
trader, especially at the start.
2. It is relatively easy to form. There are few regulations, though the Partnership Act does apply and
formation is easy. Legal formalities and expenses are few compared with those for creating a
company.
3. As with the sole proprietorship, the partners share all the profits that accrue to the business.
4. In partnership, additional backgrounds and skills are more available to the business than to a sole
proprietor; people in a similar line of business may form partnerships because they have a range of
expertise between them. There is thus greater specialization/division of labour in partnership.
5. Each partner brings their own monetary reserves to the business and the presence of additional
owners usually increases the business capacity to borrow funds if needed.
6. Flexibility – A partnership often is able to respond quickly to business needs in the form of day-to-
day decisions.
DISADVANTAGES OF PARTNERSHIPS
1. Decision-making may be a problem and arguments can occur. There is a need to consult with or seek the
consent of partners when making decisions, so there is less freedom than with a sole proprietor.
2. As with sole proprietor, creditors can file claims against the owners’ personal assets. In fact, each partner is
personally liable for the business’s debts. As a rule, partners have unlimited liability for the debts of the firm,
although limited liability status may be extended to a ‘sleeping partner’ who invests money in the business but
takes no part in management decisions. Where this arrangement exists, there must always be at least one partner
with unlimited liability for business debts.
3. Problems of continuity. If a partner dies, is adjudged insane, or simply withdraws from the business, the
partnership ceases. However, operation of the business can continue based on the right of survivorship and
possible creation of a new partnership by the remaining members or by the addition of new member(s).
4. The harmful actions of one partner must be borne by other partners. A general partner can commit the
enterprise to contracts and obligations that may prove disastrous to the enterprise in general and to the other
partner(s) in particular.
5. Interpersonal conflicts may arise between the partners. A business between family members and friends that
sounds great in the beginning may become quite contentious and strained as it struggles through the daily
stresses of business life.
COMPANIES-FORMATION AND TYPES
Companies Defined
A Company is a legal entity, owned by its shareholders, whose assets and liabilities are separate from its
shareholders. That is, the company exists in law separately from its owners. The company may form contracts,
sue and be sued in its own name.
The shareholders are not liable for the company’s debt except for the value of their shareholdings (in the case of
limited companies).

In Ghana, one person can form a company. In most countries, however, there must be at least two shareholders.
In several very important respects a company is very different from other forms of business organizations.
All companies must be registered with the Registrar of Companies to whom financial report must be sent each
year.
REGISTRATING A LIMITED COMPANY
The first real step in the formation of a company is the preparation of the Regulation, a very important document
required by law. It is dealt with in Section 17 of the Companies Code 1963, (Act 179).
The Regulation states the reasons or objects for which the company is to be formed. It should be most carefully
drafted, as on this document depend the existence of the company and all its powers.
Matters which must be stated in the Regulation of a Company
The regulations of a company shall state:
a) The name of the company with the word limited as the last word of the name in the case of a company limited
by share.
b) The nature of the business or object(s) for which the company is established.
c) That the company has for furtherance of its authorized business(s) or object(s) all powers of a natural person
of full capacity.
d) The names of the first directors of the company.
e) That the powers of the director are limited in accordance with section 202 of the Code.
f) The capital structure (how many shares shall be issued) in what denomination, types and ratio
g) The addresses of owners to which legal documents can be sent if necessary.
In the case of companies limited by shares and by guarantee, the regulations shall state that the liabilities of the
members is limited. This declaration acts as a protection clause for future investors, or conversely as a warning
to trading suppliers, that the firm has limited liability

It is important to note that the content of Company’s Regulation in Ghana is made up of both matters/clauses of
significance to the general public called (Memorandum of Association) and internal rules of
Company’s organization and structure. (i.e. Articles of Association) as pertains under English Company Law
Taxation
Unlike the sole trader and partnership, the company is a taxable entity. It files its own income tax return and
pays taxes on its income. The tax rate applicable to company is different from personal income tax rates.
TYPES OF COMPANIES
There are three types of companies, which can be registered under the Companies Code 1963, (Act 179).
Limited Companies
This type is by far the commonest kind of association registered under the code. This is a company having the
liability of its members limited to any amount unpaid on shares respectively held by them. It is referred to as a
company limited by shares. A company limited by shares may be converted into a company limited by
guarantee.
Guarantee Companies
These are companies having the liability of their members limited to such amount as the members may
respectively undertake to contribute to the assets of the company in the event of it being wound up. It is referred
to in the companies code as a company limited by guarantee.
Unlimited Companies
A company not having any limit on the liability of the members. This type of company is not popular.
.A company of any of the foregoing types may either be a private company or a public company.
A Private Company imposes restrictions on the trading in its shares. The companies Code, 1963 (Act 179) defines a
private company as one which by its regulations:
a. Restricts the right to transfer its shares, if any;
b. Limits the total number of its members and debenture holders to fifty, not including persons who are bona fide in
the employment of the company, while in that employment, and have continued after the determination of that
employment, to be members or debenture holders of the company;
c. Prohibits the company from making any invitation to the public to acquire any shares or debentures of the company;
and
d. Prohibits the company from making any invitation to the public to deposit money for fixed periods or payable at
call, whether bearing or not bearing interest. Provided that where two or more persons hold one or more shares or
debentures jointly, they shall, be treated as a single member or debenture holder. Examples of private companies
include Shell Ghana Limited, Millicom Ghana Limited, Somotex Ghana Limited and Barclays Bank of Ghana Limited.

NB: Any other company not having the above characteristics shall be a public company. Public companies have their
shares traded on the floor of a Stock Exchange. Examples of public companies in Ghana are Standard Chartered Bank
Ltd., Fan Milk Ltd., Unilever Ghana Ltd. and Ghana Commercial Bank Ltd.
COMPANIES-LIMITED LIABILITY
This concept states that when people buy shares or part ownership of a company and in the event that the
business winds up, the owners will lose only what they have invested in the company. That is, if you buy shares
in a company and the company collapses your liability is limited to only the amount that you have invested in
the company and to any unpaid shares if any. Your liability does not extend to your personal property.
ADVANTAGES OF A LIMITED COMPANY
1. More capital than partnership or sole traders. It is easier to raise capital through share issues and it’s often easier to
raise finance from banks. That is, based on the potential for limited liability and the fact that the company has a record
of accomplishment, separate from that of individuals, the corporate form of ownership makes it possible to raise money
from investors.
2. Greater specialization. Because of division of labour it is possible to employ specialists in the company.
3. Suppliers feel more confident about trading with legally established bodies. That is, if there is any problem, it can be
settled through the law courts.
4. Shareholders have limited liability. That is, the liability of members is limited to the amount of unpaid capital, if any.
5. Enjoy economies of scale. If the firm produces on a large scale it enjoys some advantages. For example, it can enjoy
discounts from buying in bulk from suppliers etc. This may lead to larger outputs and thus larger outputs can be
produced at lower unit cost.
6. There is continuity. That is, while the sole proprietorship and partnership dissolve with the death or disability of the
individuals involved, the corporate entity does not. As a legal entity, it can exist in continuity. The corporate entity can
exists beyond the lives of any individual; business can continue as usual, despite any personal tragedies that could
occur in sole proprietorships or small partnerships.
DISADVANYAGES OF LIMITED COMPANIES
1. There are a number of legal requirements to fulfill which can be expensive and cumbersome. Regulations
mean that a company is more expensive to set up than a sole trader or partnership. Penalties are imposed if
‘rules’ are broken.
2. The accounting of a company is less private than for other forms of organization. Companies are governed by
the Companies Code, 1963 (Act 179) which states that financial records and annual returns must be audited and
made available to the Registrar of Companies.
3. Decisions can be slow and ‘red tape’ can be a problem; since the company is large it takes a long time before
decisions are made.
4. There can be diseconomies in being too large; when a company produces on a larger scale, some
disadvantages such as a lack of interpersonal relationships etc set in.
5. Corporate activities are limited by the regulations of the company. The company was established by law, and
therefore all activities related to the company must be performed within the confines of the law.
CO-OPERATIVES
Definition of Co-operatives
A co-operative may be referred to as an enterprise owned and controlled by all the people working for it, for
their mutual benefit. Co-operatives are usually co-operative societies, limited companies or more rarely,
partnership in Ghana. In Ghana, Co-operatives are regulated by National Liberation Council Decree NLCD 252
of 1968.
Generally, registration would require the following principles to be adopted:
i. The objectives, management and use of assets are controlled by the members.
ii. Membership is not restricted; it must be open to anyone who fulfils the
qualifications laid down.
iii. Each member of the co-operative has an equal vote in how it is run.
iv. Surplus profits, are shared between the members, pro-rata to their participation.
v. Share capital remains at its original value. Members benefit from their
participation, not as investors; co-operatives are not about capital gains.
vi. Interest on loans, or share capital is limited, even if profits permit higher
payments. A registered co-operative is a separate legal body with limited liability for
its members. Annual accounts must be filed.
To start a co-operative, a group of people apply and register with the Department of Cooperatives.
After the certificate has been given, the members elect a board of directors.

Managers, staff members are hired or appointed, who in turn are accountable to the board.
TYPES OF CO-OPERATIVES
Consumer’s Co-operatives
It is an organization of consumers who buy goods and services more cheaply together than each person could do
individually. For example, the workers or employees of an organization may form co-operatives to buy such
products as soap, milk and such services as credit union and insurance. Farmers also form co-operatives from
which they buy products needed to run their farms.

Producer's Co-operatives
It is usually a farmers or manufacturers’ organization that markets such products as poultry, fish, grains and
vegetables. It allows producers to band together for greater bargaining power to sell their products.
The major distinction here is that if the co-operative buys for its members, it is a consumer cooperative. If it
sells goods or services, it is a producers co-operative.
ADVANTAGES OF CO-OPERATIVES
Some of the obvious advantages of cooperatives can be seen in terms of the following:

1. The likelihood of a high level of commitment of co-operative workers toward their work.

2. Increased motivation stemming from the possibility of putting an ideology into practice, and from sharing in
the control and rewards of an enterprise.

3. A high sense of purpose and satisfaction in co-operative workers from their work.
DISADVANTAGES OF CO-OPERATIVES
1. There is always insufficient finance for expansion.
2. They also face difficulties in gaining access to the market place.
3. They also lack management experience and appropriate skills.
4. Many co-operatives start in difficult economic conditions. For example, job creation cooperatives are
stimulated by recession and high unemployment.
5. Decision-making can be confused. Lengthy debates over the running of the cooperative can be unproductive
use of time
PUBLIC ENTERPRISES
Corporation
A corporation is a legal entity created by the state, that is, by an Act of Parliament. Government provides the
capital through the Treasury and a Board is appointed to manage the affairs of the corporation. Any profits are
ploughed back into the industry or taken by the government.
Public corporations have tended to be in heavy industry, energy supply and communications. Such industries
have been government controlled because they fall into one of the following categories:
o They are of strategic importance to the country;
o They are unattractive to the private sector because enormous capital investment is required and profits will
take years to come through.
o They may be natural monopolies which could be exploited by private owners concerned with profit;
o They may be essential services, which should be run for the benefit of the community.
REASONS FOR ESTABLISHING PUBLIC ENTERPRISES
1. To provide facilities which private enterprise either cannot provide, e.g.
unemployment benefits, or would be unable to sell to members of the general
public, e.g. Nuclear warning and defence systems.
2. To provide from taxation, social facilities for the whole of society which
private enterprise could only provide on a limited scale for the rich and for
those willing to pay, e.g. health, education and security services (the police,
etc.)
3. To provide strong government policy where it needs to be carried out e.g. the
Central Bank of England and Treasury (The Bank of Ghana in the case of
Ghana) act together to control monetary matters.
4. To protect against private sector monopolies which may operate “against the
public interest”, e.g. by over-pricing.
5. To subsidise and assist a major industry or employer which has become
technologically outdated and inefficient e.g. steel, rail and shipbuilding.
6. Where public safety is involved, e.g. armed forces, atomic energy, sewage
disposal, public health.
7. Where because of its large scale, a service can be provided more efficiently on
a national basis rather than locally, e.g. the supply of electricity.
8. To provide financial help to private enterprise firms who:
a) Are infant industries and need venture capital for new enterprise;
b) Have short-term cash flow problems of a temporary nature;
c) Have gone bankrupt and need salvaging.
9. Where an industry is too important strategically to be left in private ownership.
10. To ensure the nation has a stake in an enterprise of national importance.