College of Education

School of Continuing and Distance Education 2016/2017 – 2017/2018

Legal Forms of Business Ownership

Lecturers: Dr. Samuel C.K. Buame & Mr. Shelter S.K. Teyi Contact Information: skbuame@ug.edu.gh

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Session Overview

• The session is about the various forms of legal business ownership in Ghana. The various ownership forms have different legal and financial implications.

Slide 2

Goals and Objectives

• At the end of the session, the student will:

1. Explain what business ownership forms are.

2. Differentiate among the various ownership forms.

3. State the legal implications of the ownership forms.

Slide 3

Session Outline

The key topics to be covered in the session are as follows:

• Topic One: Deciding on Ownership Forms

• Topic Two: Sole Proprietorship

• Topic Three: Partnership Form of Ownership

• Topic Four: Limited Liability Company

Slide 4

Reading List

• http://rgd.gov.gh/

• https://egovonline.gegov.gov.gh/RGDPortalWeb/portal/RGDHome/eghana.portal?_nfpb=true&_st=&_pageLabel=portal_RGDHome_NameSearchPage_page&linksPageTitle=Name+Search&service=namesearch#wlp_portal_RGDHome_NameSearchPage_page

• Explore the websites above.

• Pages 220 - 223 of the main text –

• Buame, S.C.K. (2012). Advanced Entrepreneurship: Enterprise Culture, Venture Creation, Promotion & Management of SMEs in Ghana --- MAIN TEXT

Slide 5

DECIDING ON OWNERSHIP FORMS Topic 1

Slide 6

Deciding On Ownership Forms

• There is no one-best form of business ownership.

• The form of ownership that is best for one entrepreneur may not be suitable, at all, for another.

• Choosing the right form of ownership requires that entrepreneurs must understand the characteristics of each form and how well those characteristics match business and personal circumstances.

Slide 7

Deciding On Ownership Forms (cont’d)

• The following are some of the factors the entrepreneur must consider when they are evaluating the various forms of ownership:

1. Tax Consideration

• The amount of net income an entrepreneur expects the business to generate and the tax bill the owner must pay are important factors when choosing a form of ownership.

Slide 8

Deciding On Ownership Forms (cont’d)

2. Liability exposure

• Certain forms of ownership offer business owners greater protection from liability that might result from financial problems, defective products.

3. Start-up and future capital requirements

• Forms of ownership differ in their ability to raise start-up capital.

Slide 9

Deciding On Ownership Forms (cont’d)

4. Control

• By choosing certain forms of ownership, an entrepreneur automatically gives up some control over the company.

5. Managerial Ability

• Entrepreneurs must assess their skills and abilities to manage a business effectively. If they lack ability or experience in key areas, they may need to choose a form of ownership that allows them to bring in other people who can provide the necessary skills for the company to succeed.

Slide 10

Deciding On Ownership Forms (cont’d)

6. Business Goals

• How big and how profitable an entrepreneur plans for the business to become will influence the form ownership chosen.

7. Management of succession plans

• When choosing a form of ownership, entrepreneurs must look ahead to the time when they will pass their companies on to the next generation or to a buyer. Some forms of ownership make this transition such smoother than others.

Slide 11

Deciding On Ownership Forms (cont’d)

8. Cost of Formation

• Some forms of ownership are much more costly and involved to create. Therefore, as an entrepreneur you must weigh carefully the benefits and costs of a particular form.

Slide 12

SOLE PROPRIETORSHIP Topic 2

Slide 13

Sole Proprietorship

• The simplest and the most popular form of ownership, in Ghana and other parts of the world, is the sole proprietorship.

• This is the business owned by one individual. You may want to ask what the advantages of a sole proprietorship are.

• Certainly, this form of ownership has a number of advantages and disadvantages as mentioned below:

Slide 14

Sole Proprietorship

– Simple and most common type in Ghana and other parts of the world

– Registration of Business Names Act, (1962), Act 151

• Advantages

– Simple to create

– Least costly form of ownership to begin with

– One man profit incentive and enjoyment

– Total decision-making by the entrepreneur

– Has no special legal restrictions

– Very easy to discontinue

Sole Proprietorship

• Disadvantages

– Unlimited personal liability

– Limited skills and capabilities of the owner

– Limited access to capital

– May suffer from lack of continuity

PARTNERSHIP FORM OF OWNERSHIP

Topic 3

Slide 17

Partnership (cont’d)

• Association of two or more but less than 20

• Owners share assets, liabilities and profits

• Partnership <20 (Incorporated Private Partnership Act, (1962), Act 152)

Components of Partnership Agreement

1. Names and Address of Partners

2. Name and address of the enterprise

3. General purpose of the venture

4. Contribution of each partner to the business at the creation of the partnership

5. Duties and responsibilities of each partner

6. Salary or drawings provisions

7. Distribution of profits or loss

8. Buy/sell agreements if a partner decides to leave the venture

9. Provisions for additional partners or assets

10. Dissolution of assets if the venture is terminated

Partnership contd.

• Provision for continuing the venture upon the death or disablement of a partner.

• SUCCESS IS GETTING WHAT YOU WANT, HAPPINESS IS WANTING WHAT YOU GET

Advantages/Disadvantages of Partnership

ADVANTAGES DISADVANTAGES

Easy to establish Unlimited liability for partners, jointly and severally

Complementary skill: two heads are better one

Ability to raise capital is also limited

Large pool of capital Potential for personality and authority conflicts

Profits must be shared with others

Since decisions are shared, disagreements can occur

The partnership may have a limited life i.e. it may end upon the withdrawal or death of a partner

LIMITED LIABILITY COMPANY

Topic 4

Slide 22

Limited Liability company

• Incorporated (Limited Entities - Knowledge of the Company’s Code): Limited Liability Company – Companies Act, (1963), Act 179.

• The company becomes a separate entity from its owners

Limited Liability company (cont’d)

• Advantages i. Raising Capital: Since it is a separate entity, the company allows investors to limit their liability to the amount of their investment in the business. ii. Ability to continue indefinitely: Unlike a proprietorship or partnership, in which the death of a founder ends the business, a limited liability company lives beyond the lives of those who gave it life. iii. Transferability of Ownership: Unlike an investment in a partnership, shares of ownership in this form of business are easily transferable. During all these transfers of ownership, the company continues to conduct business as usual.

Limited Liability company (cont’d)

• Disadvantages

1. Costly and Time consuming: Incorporating a company can be costly and time consuming to establish and to maintain. Always entrepreneurs must seek the advice of lawyers. In addition, an incorporated company must have a board of directors and the board must conduct an annual meeting and maintain written records of that meeting.

2. Legal Requirements: Incorporated companies are subject to more legal, requirements, and financial requirements than other forms of ownership.