I2B Forms of Business Organizations Slides

Sole Proprietorship,
Partnership and Joint

Stock company
Sole Proprietorship
 A sole proprietorship is a business
owned by one person.
 Oldest and most common form of
business ownership.
 About 75% of all business in the
United States are sole
proprietorships.
 A person who starts a business is
known as an entrepreneur.
Advantages of Sole Proprietorship
 You can make all the decisions and quick decisions.
 Freedom of action
 Easy set-up (minimal paperwork)
 Flexibility in operations
 Personal contact
 Secrecy
 Tax advantage
 Easy dissolution
 Social benefits
 High credit standings
 Total Control
 Profits to Owner
 Self employment
 Few Government Regulations
Disadvantages of Sole Proprietorship
 Limited capital (any $$ needed comes from your pocket)
 Unlimited liability (owner is responsible to pay the business debts out
of personal assets)
 Limited human resources (don’t have other managers to ask opinions
from)
 Limited life (business’s life span or existence is determined by the
owner’s life span or decision)
 Wrong decision ( due to a single person)
 Lack of public confidence
 Lack of specialization.
The Partnership
 A voluntary association
 A partnership is a business
owned by 2 or more persons.
 “It is a relationship existing
between persons to make
contracts who agree to carry
on lawful business with a
view to private gain”
Partnership Agreement
 The partnership agreement is a written document that
states how the business will be organized.
 It includes:
 Names of partners
 Name and nature of the business
 Amount of investment by each partner
 Duties, rights, and responsibilities of each partner
 Procedures for sharing profits and losses
 How assets will be divided when and if the partnership is
dissolved
General Partners and Limited Partners
General Partners Limited Partners

 A business partner who  A business partner who
has decision-making does not take an active role
authority, takes an active in decision making or
role in the operation, and running the business
has unlimited liability for  Usually a partner who will
all losses or debts of the provide capital for the
partnership partnership to run, but does
 All partnerships have at not want to participate in
least one general partner actually running the
business
Advantages of the Partnership
 Easy set-up
 More skills and knowledge (more people to pull ideas from)
 Available capital (more sources for capital to get business
running)
 Better management
 High credit standings
 Skilled employees
 flexibility
 Risk sharing
 Secrecy
 Spirit of cooperation
 Profits taxed once
Disadvantages of the Partnership
 Unlimited liability
 Risk of dissolution
 Possible disagreement among partners (you are
responsible for actions of your partner)
 No transfer of share
 Lack of harmony due to equal authority ( as all will
impose decisions)
 Shared profits
 Lack of public confidence
Joint Stock Company
 The law relating to companies is defined in companies act

2017.
 The simplest way to describe a joint stock company is that
it is a business organisation that is owned jointly by all its
shareholders. All the shareholders own a certain amount of
stock in the company, which is represented by their shares.
Professor Haney defines it as
“a voluntary association of persons for profit, having the
capital divided into some transferable shares, and the
ownership of such shares is the condition of membership of
the company.”
Advantages of company
 Large capital
 Limited liability
 Common seal
 Separate legal entity
 Transfer of shares
 Permanent life/perpetual succession
 Efficient management
 Scope of expansion
 Source of income for government
 Public confidence
 Social responsibilities
Disadvantages of company
 A lotof formalities.
 Lack of secrecy
 Involvement of government
 Clash of interest
 Double taxes
 Accumulation of wealth
What is share?
“Shares are units of ownership interest in a
corporation or financial asset that provide for an
equal distribution in any profits, if any are
declared, in the form of dividends. The two main
types of shares are common shares and
preferred shares..”
Common or ordinary shares:
“The ordinary share represents the basic voting
right in a company, ordinary shareholders are
entitled to receive dividend after payment of
fixed dividend to preference shareholders.
Similarly, upon winding up of company,
ordinary shareholders get their share in surplus
amount after the preference shareholders.”
Preference shares:
“ The shares which have a right to receive fixed
dividend before ordinary shares are called
preference shares. The preference shareholders
get their share in surplus amount before ordinary
shareholders upon winding up of company.”

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Sole Proprietorship,

Partnership and Joint

General Partners Limited Partners

 The law relating to companies is defined in companies act

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