Management Two

Business OwnershipBusiness Ownership

Created By M.S.Martin

Feb 05

Revised for trade Oct. 09

Created By M.S.Martin

Feb 05

Revised for trade Oct. 09

Business Ownership

Basically there are three forms of Basically there are three forms of ownershipownership Sole TraderSole Trader PartnershipPartnership CompanyCompany

Ownership Continued

Many businesses start off as Sole Traders and Many businesses start off as Sole Traders and change their ownership as the business grows.change their ownership as the business grows.

The main influence for selection of ownership The main influence for selection of ownership structure is:structure is: Tax treatmentTax treatment Owners liabilityOwners liability Costs & regulationsCosts & regulations Availability of financeAvailability of finance Management controlManagement control

Advantages of Sole Trader

Formation is simple. Besides the possible Formation is simple. Besides the possible registration of a business name, there are no registration of a business name, there are no formalities or specific regulation related to this formalities or specific regulation related to this ownership structure. Anyone who can enter into ownership structure. Anyone who can enter into contracts can be a sole trader. Note that industry or contracts can be a sole trader. Note that industry or trade specific licences may apply.trade specific licences may apply.

The owner has independence, sole decision making The owner has independence, sole decision making power and is answerable only to him/herself.power and is answerable only to him/herself.

The owner gets to keep all profits (after paying tax The owner gets to keep all profits (after paying tax at individual rates).at individual rates).

Disadvantages of Sole Trader

Sole traders often experience a lack of capital, Sole traders often experience a lack of capital, since all the capital must come from the owners since all the capital must come from the owners own savings. Additional finance may also be own savings. Additional finance may also be difficult to obtain.difficult to obtain.

There may be restrictions on the owners lifestyle, There may be restrictions on the owners lifestyle, in terms of taking holidays etc. Hired help may be in terms of taking holidays etc. Hired help may be available, but it is often risky to trust others with available, but it is often risky to trust others with your profits and assets.your profits and assets.

Partnership Agreement

Arrangement for drawings of profit/capitalArrangement for drawings of profit/capital Limitations on authority of partner/s to act Limitations on authority of partner/s to act

as agentas agent Dispute Settling Procedures/ Arbitration Dispute Settling Procedures/ Arbitration

clauseclause Provisions for death/bankruptcy of a Provisions for death/bankruptcy of a

partner.partner.

Advantages of Partnerships

Skills (hopefully different and Skills (hopefully different and complementary)complementary)

Capital (equipment &/or funds)Capital (equipment &/or funds) Customers (goodwill)Customers (goodwill) TimeTime

Company Ownership Methods

Unlimited: used by professional people Unlimited: used by professional people where their profession will not allow any where their profession will not allow any limitation on their members’ liability.limitation on their members’ liability.

No liability: restricted to mining companies.No liability: restricted to mining companies.

Limited Liability Companies

Public companiesPublic companies Proprietary companiesProprietary companies Exempt-proprietaryExempt-proprietary

Proprietary Companies

The company name must be followed by The company name must be followed by PTY. LTD (short for Proprietary Limited)PTY. LTD (short for Proprietary Limited)

Minimum of one, maximum of fifty Minimum of one, maximum of fifty shareholdersshareholders

Minimum of two directors.Minimum of two directors.

Business Ownership Summary

1) Name the different types of business ownership?1) Name the different types of business ownership? Sole Trader, Partnership, CompanySole Trader, Partnership, Company 2) In your own words describe what each of these mean?2) In your own words describe what each of these mean? Sole Trader – A single person carrying on a business, Sole Trader – A single person carrying on a business,

having total control of the business.having total control of the business. Partnership – The relationship between persons carrying Partnership – The relationship between persons carrying

out a business together with shared responsibilities.out a business together with shared responsibilities. Company –Is an artificial body or identity created by law Company –Is an artificial body or identity created by law

in order to operate a business.in order to operate a business.

3) What does ACN stand for?3) What does ACN stand for? Australian Company NumberAustralian Company Number 4) Why is it necessary to have the above?4) Why is it necessary to have the above? The law states all companies must be The law states all companies must be

registered with the Australian Securities registered with the Australian Securities Commission which your CAN number is a Commission which your CAN number is a result of.result of.

5) Define what a company is?5) Define what a company is? An artificial body created by lawAn artificial body created by law

6) What are the abbreviation Pty Ltd short 6) What are the abbreviation Pty Ltd short for and what do they mean?for and what do they mean?

Pty = Proprietary which means privatePty = Proprietary which means private Ltd= Stands for limited meaning limited Ltd= Stands for limited meaning limited

liability.liability. 7) The first page describes different types of 7) The first page describes different types of

business ownership, list again four types business ownership, list again four types and name two advantages and two and name two advantages and two disadvantages of each below?disadvantages of each below?

Sole TraderSole Trader

Advantages – Advantages – Total control of business, Total control of business, simple formation, independence on simple formation, independence on decisions, gets to keep all profits.decisions, gets to keep all profits.

Disadvantages – Disadvantages – Also bears any losses Also bears any losses unlimited liability, possible lack of capital, unlimited liability, possible lack of capital, may restrict life style.may restrict life style.

PartnershipPartnership

Advantages- Advantages- Easy to form & administer, Easy to form & administer, pooled resources enhance skill, capital, time pooled resources enhance skill, capital, time etc., possible larger projects to take on.etc., possible larger projects to take on.

Disadvantages - Disadvantages - All partners have All partners have unlimited liability, statistically they have a unlimited liability, statistically they have a limited life.limited life.

Public Company Public Company

Advantages – Advantages – Increased capital by Increased capital by shareholders, Limited liability, tax benefits.shareholders, Limited liability, tax benefits.

Disadvantages – Disadvantages – Higher formation costs, Higher formation costs, document lodgment fee’s, professional document lodgment fee’s, professional accountingaccounting

Private CompanyPrivate Company

Advantages – Advantages – Min. one shareholder, limited Min. one shareholder, limited liability, no lodgment of articles to ASIC.liability, no lodgment of articles to ASIC.

Disadvantages – Disadvantages – Public shares prohibited so Public shares prohibited so capital limited to shareholders, formation capital limited to shareholders, formation costs.costs.