...Liability of the members in relation to the obligations of the business organisation Sole proprietorship The sole proprietor and the owner is regarded as the same entity. Therefore, the owner has unlimited liability in relation to the obligations of the business organisation. This would be a disadvantage as the owner’s personal assets are at risk as the owner is personally responsible for all debts and obligations of the business as regarded by law. Partnership Same as above. Limited liability partnership (LLP) The LLP is a separate legal entity whereby LLP’s liabilities are its own. Therefore the partners will not be personally liable for the LLP’s debts and obligations. Limited Partnership LP is not a separate legal entity. However, only the general partner who takes part in the management of the firm is personally liable for debts and obligations of the LP. The limited partner liability is capped at the amount of the agreed investment in LP and his other assets would not be at risks. It should be noted that the limited partner should not take part in the management of the firm otherwise he would be considered a general partner and his liability will be unlimited. Company The company is considered as a separate legal entity and the company’s assets are its own. The company’s liabilities are also its own and the shareholders and directors of the company are not personally liable. This is also exemplified in the case of Saloman v A Salomon & Co Ltd...
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...Types / form of business organization Sole Proprietor -operated by individual -unlimited liability -not complex organizational structure -all decision regards to business is done by the individual - Capital for venture is from the individual -all the profits made belong to him exclusively but he also bear all the risk -no separation between the business and his personal assets Advantages: -only minimal legal requirements for him to comply - Easy to start -minimum capital is required -all assets & profits belong to the owner -owner can exercise his entrepreneurial skill to the full -owner makes all decision & operates the business the way he wishes - No need to disclose accounts to the public Disadvantages: -unlimited liabilities -inadequate funds -limited skill or expertise -personally accountable for all business decisions -responsible for all the work. No one to share the workload. -no income if owner is incapacitated. Eg. Sickness -no continuity. ( perpetual succession) Business ceases once owner dies Partnership – Partnership Act 1961 * Unlimited liability * Terminate if there is death, bankruptcy * The partners can be sue or be sued * Member –min 20 , max 20 * X own any property under its firm name. * X take any loans from creditors on its firm name * X loan any money on its firm name * X sue or be sued on the firm name Advantages 1. Easy to form 2. Fewer formalities than incorporate a company...
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...Incorporeal elements * Location * Customers * Trade name * Lease rights * Trademarks * Copyrights * Licenses Contracts over BE: * Sale * Chattel mortgage * Unlimited management * Contributing in a corporation or partnership Termination of BE: * In case of the merchant bankruptcy * In case the merchant decides to close the BE * In case the merchant loses his cliental (customers) * Business Concern is not a legal entity. * Business Concern has legal existence. * A business concern cannot exist without business venture; however, a business venture (commercial activities) can exist without a business concern (such as peddler) * The commercial obligations are registration and maintaining commercial books. * Each owner of a business concern is considered by the law a merchant. Unlimited Partnership Definition: The Commercial Code’s definition (article 46) of an unlimited partnership is an association of people. This partnership is formed by two or more people (general/active partners) who are jointly and severally responsible of the company’s debt and which operate under a collective name. UP has a legal personality that represents all the partners. Liability of partners in such UP is unlimited severally and jointly regardless the contribution of the partners themselves. Partners are personally liable regarding the UP debts. UP does not...
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...small retail, service, or manufacturing companies. Also accountants, lawyers, and doctors find it desirable to form partnerships with other professionals in the field. Characteristics of Partnerships STUDY OBJECTIVE 1 Identify the characteristics of the partnership form of business organization. Partnerships are fairly easy to form. People form partnerships simply by a verbal agreement, or more formally, by written agreement. We explain the principal characteristics of partnerships in the following sections. Association of Individuals A partnership is a legal entity. A partnership can own property (land, buildings, equipment), and can sue or be sued. A partnership also is an accounting entity. Thus, the personal assets, liabilities, and transactions of the partners are excluded from the accounting records of the partnership, just as they are in a proprietorship. The net income of a partnership is not taxed as a separate entity. But, a partnership must file an information tax return showing partnership net income and each partner's share of that net income. Each partner's share is taxable at personal tax rates, regardless of the amount of net income each withdraws from the business during the year. Mutual Agency http://edugen.wiley.com/edugen/courses/crs1663/...2/weygandt0196c12_2.xform?course=crs1663&id=ref (1 of 10) [8/23/07 11:08:45 AM] Partnership Form of Organization Mutual agency means that each partner acts on behalf of the partnership when...
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...CHAPTER 1 AN OVERVIEW OF FINANCIAL MANAGEMENT (Difficulty: E = Easy, M = Medium, and T = Tough) Multiple Choice: Conceptual Easy: Firm organization Answer: c Diff: E [i]. Which of the following statements is true? a. One of the benefits of incorporating your business is that you become entitled to receive unlimited liability. b. Sole proprietorships are subject to more regulations than corporations. c. Sole proprietorships do not have to pay corporate tax. d. All of the statements above are correct. e. None of the statements above is correct. Firm organization Answer: c Diff: E [ii]. Which of the following statements is most correct? a. One of the advantages of the corporate form of organization is that there is no double taxation. b. The partnership form of organization has easy transferability of ownership. c. One of the disadvantages of the sole proprietorship form of organi-zation is that there is unlimited liability. d. Statements b and c are correct. e. None of the statements above is correct. Firm organization Answer: a Diff: E [iii]. Which of the following statements is most correct? a. One advantage of forming a corporation is that you have limited liability. b. Corporations face fewer regulations than sole proprietorships. c. One disadvantage of being a sole proprietor is that you have to pay corporate taxes, even though you don’t realize...
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...PREFERRED LEGAL FORMS OF BUSINESS Sole Proprietorship Partnership Corporation Sub-S Corporation Limited Liability Partnership Limited Liability Company Ownership By a single individual By two or more persons By unlimited number of shareholders By shareholders: number of shareholders limited to 75 2 or more persons or entities (except law firms) 1 or more persons or entities (except certain providers of professional services and law firms)Management Entirely in hands of owner By general partners Corporation's board of directors Same as regular corporation By general partners Member-managed, or manager-managed Life Will terminate with death or disability of owner Generally for a specific, agreed-upon term. Partnership may be terminated by death, withdrawal, insolvency, or legal disability of a general partner Unlimited, unless by state law or charter Same as regular corporation Generally for a specific, agreed-upon term. Partnership may be terminated by death, withdrawal, insolvency, or legal disability of a general partner May be for a specific agreed-upon time, or at will Liability Owner liability unlimited. Personal property can be attached by creditors to settle business debts Unlimited for general partners. General partners are jointly and severally liable for obligations of partnership. Limited partner's liability limited to amount invested Shareholders' liability limited to their investment in corporation stock Same as regular corporation Limited to amount of investment...
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...business organizations, namely sole proprietorship, partnership and limited liability companies. However, emphasis is placed here on partnership and the legal consequences which flow from the formation of such a method. The main advantages and disadvantages of these forms of business organizations are also discussed. Important Concepts in Business Organizations The following are some important concepts in business organizations: Incorporation The law permits the creation of artificial or legal persons. An example of such is an incorporated company. This means that such an organization has a legal personality separate from its members. Legal Personality Under The English Law, all human beings have a legal personality. A legal personality is made up of a person’s legal rights and duties. However, the extent of these rights and duties is dependent on whether the person is an adult or a minor. A minor has limited rights and few duties. By operation of the law, an incorporated company has a legal personality Limited/unlimited Liability As a result of an incorporated organization having its own legal personality, its members are not generally liable for the debts of the organization. This however is in contrast to a partnership which does not have a legal personality separate from the partners. Here, partners have unlimited liability for partnership’s debts. Also, a sole proprietor has unlimited liability for his business. Forms of Business Organizations ...
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...MODULE -2 Business Organisations Notes 5 FORMS OF BUSINESS ORGANISATION ou have studied in the first lesson about the business, its significance and the classification of business activities. You are also aware that these activities are carried out by individuals in an organised form of a business house having different patterns of ownership and management. A single individual may own the business or a number of individuals may come together to own the business jointly. So, based on ownership, we have different forms of business organisation like a proprietary concern, a partnership firm or a company. In this lesson, you will learn about the various forms of business organisation (excluding a joint stock company), their characteristics, merits and limitations, suitability and the steps involved in their formation. Y OBJECTIVES After studying this lesson, you will be able to: • • • • • explain the concept of business organisation; state the meaning and characteristics of Sole Proprietorship, Partnership, Joint Hindu Family Business and Cooperative Societies. identify the merits and limitations of these forms of business organisation; describe the suitability of these forms of business organisation; and explain the steps in the formation of these business organisation. 5.1 BUSINESS ORGANISATION You have already learnt about the meaning of business and the various types of business activities like industry, trade, transport, banking, insurance etc. If you observe...
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...registration. The Partnership Act does not require the registration of the partnership with any authority. However, a partnership business must be registered with the Registrar of Businesses. While the company’s memorandum and articles of association are lodged with the Registrar of Companies (“ROC”) III. Third is the number of members. Private Limited Company shall have at least 2 members and maximum 50 members. But for a public company are at least 2 members with no limitation. Partnership firm shall have at least 2 members and maximum 20 members and for banking business, maximum 10 members excluding lawyer firm, accounting firm, and architectural. . IV. Fourth is the Constitution. Partnership agreement binds only the partners while a company’s affairs are governed by Articles of Association and Memorandum of Association. V. Fifth is the liability. For a partnership company, Section 11 – Every partner is jointly liable with his other partners for all debts of the firm incurred while he is a partner. Section 12, 13 and 14 – Every...
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...A. working capital management B. cash management C. cost analysis D. capital budgeting E. capital structure 3. Which one of the following is defined as a firm's short-term assets and its short-term liabilities? A. working capital B. debt C. investment capital D. net capital E. capital structure 4. A business owned by a solitary individual who has unlimited liability for its debt is called a: A. corporation. B. sole proprietorship. C. general partnership. D. limited partnership. E. limited liability company. 5. A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a: A. corporation. B. sole proprietorship. C. general partnership. D. limited partnership. E. limited liability company. 6. A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: A. generally partner. B. sole proprietor. C. limited partner. D. corporate shareholder. E. zero partner. 7. A business created as a distinct legal entity and treated as a legal "person" is called a: A. corporation. B. sole proprietorship. C. general partnership. D. limited partnership. E. unlimited liability company. 8. Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? A. articles of incorporation B....
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...Business Organizations (LT1) Task 1 By Forms of Business organization There are seven characteristics used to determine a business organization; Liability, Income taxes, Longevity or continuity of the organization, Control over decision making, Profit retension, Expansion/ Location, and Compliance/Convenience/Burden Sole Proprietorship The sole proprietorship is the simplest form of business it is not a legal entity. It is best described as one person who owning a business and is personally responsible for the business debts. There is unlimited and unshared finanicial liability in a sole proprietorship. The assets * and liabilities whether it be business or personal are not differenciated. * A sole priprietorship and the business is taxed as a single unit. A 1040 form is filed * with a schedule C which shows a profit or loss. Any income from a sole proprietor * business are personal profit. It is a pass through taxation, there is not a seporate * federal income tax to report. * The longevity of the sole proprietor is a disadvantage because when the sole proprietor * dies the business also dies and there is no longer an income. The business ceases to * exist without an option to leave an heir. * The sole proprietorship has one person in control, the owner with unlimited choices * and unshared responsibility for day to day operations. * The sole proprietorship has sole gain in relation to profits. There are...
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...Limited Liability Corporation, Limited Liability Partnership, Corporation Paper Angelika Evanoff FIN/419 July 20, 2015 Mrs. Michele Huss Limited Liability Corporation, Limited Liability Partnership, Corporation Paper The purpose of this paper is to discuss three legal forms of business organization; a limited liability corporation or company, a limited liability partnership, and a class C corporation. The paper begins with a brief description of each structure, followed by a comparison and contrast of each form’s advantages and disadvantages. The author finishes by citing examples in which she would use each type of business structure if establishing a new business. It is important to choose the appropriate legal form of organization because the decision affects owner’s risks, raising money, and how profits are taxed (Gitman & Zutter, 2014). Readers can expect to have a better idea of the various options available to entrepreneurs after reading this essay. Legal Forms of Business Organization The three most popular structures of company organization are the sole proprietorship, the partnership, and the corporation. A sole proprietorship has one owner while a partnership has two or more owners, and a corporation is an entity created by law (Gitman & Zutter, 2014). The forms offer limited liability or unlimited liability to its owners. Various structures that provide limited liability include a limited liability corporation, limited liability partnership, and a...
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...Solutions to Chapter 1 The Firm and the Financial Manager 1. real executive airplanes brand names financial stock investment capital budgeting financing 2. A firm might cut its labor force dramatically which could reduce immediate expenses and increase profits in the short term. Over the long term, however, the firm might not be able to serve its customers properly or it might alienate its remaining workers; if so, future profits will decrease, and the stock price will decrease in anticipation of these problems. Similarly, a firm can boost profits over the short term by using less costly materials even if this reduces the quality of the product. Once customers catch on, sales will decrease and profits will fall in the future. The stock price will fall. The moral of these examples is that, because stock prices reflect present and future profitability, the firm should not necessarily sacrifice future prospects for short-term gains. 3. The key advantage of separating ownership and management in a large corporation is that it gives the corporation permanence. The corporation continues to exist if managers are replaced or if stockholders sell their ownership interests to other investors. The corporation’s permanence is an essential characteristic in allowing corporations to obtain the large amounts of financing required by many business entities. 4. A sole proprietorship is easy to set up with a minimum of legal work. The business itself...
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...corporate finance so that you can understand how things fit together. Motto for class: You can forget the details, but don’t miss the storyline. To show you that corporate finance is a blast! Motto for class: Are we having fun yet? The Balance Sheet Model of the firm Managerial finance focuses on three decisions: In what long-term assets should the firm invest? This question concerns the lefthand side of the BS 4 How can the firm raise cash for its required expenditures? This question concerns the righthand side of the BS How should shortterm operating cash flows be managed? This question concerns the upper portion of the BS The capital budgeting decision The capital structure decision Net working capital decisions Cash flows are king! The most important job of a financial manager is to: Create value from capital budgeting, financing, and net working capital activities. 5 How do managers do this? Buy assets that generate more cash than they cost Sell bonds, stocks, and other financial instruments that raise more cash than they cost. Thus, the firm must create more cash than it uses - the cash flows paid to bondholders and stockholders should be greater than the cash flows they put into the firm. Finance is about one thing: And that one thing is valuation: How much should you pay for the asset (what is that stock, bond, or business really worth? ) How should you...
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...FINANCE AGENDA • Definition • Types of corporate firm • The importance of cash flows • Agency problem WHAT IS CORPORATE FINANCE? WHAT IS CORPORATE FINANCE? How the company raise funds? (financing decision capital structure) Sources of fund: 1. Debt 2. Equity What long-lived assets to invest? Assets: 1. Current assets 2. Non-current assets/fixed assets How the company manage shortterm operating cash flows? BALANCE SHEET MODEL OF THE FIRM Total Value of Assets: Total Firm Value to Investors: Current Liabilities Net Working Capital Current Assets Long-Term Debt Fixed Assets 1 Tangible Shareholders’ Equity 2 Intangible What is the most important job of a financial manager? To create value for the firm How? In summary, corporate finance addresses the following three questions: 1. What long-term investments should the firm choose (capital budgeting)? 2. How should the firm raise funds for the selected investments (financing)? 3. How should short-term assets be managed and financed (net working capital activities)? LEGAL FORM OF ORGANIZING FORM SOLE PROPRIETORSHIP Owned by one person PARTNERSHIP Owned by two or more individuals Types of partnership: a. General partnership b. Limited partnership Advantages 1. Easy to form 2. No corporate income taxes 3. Management control resides with the owner of general partners Disadvantages 1. 2. 3. 4. Unlimited liability Life of the business is limited Difficulty of transferring...
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