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Types of Businesses

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Sole proprietorship
Sole proprietorship concern (also known as a sole trader/owner) is the most common and most favored option for individuals who want to establish a small business in Pakistan, or want to start a home-based business. This form of business is used by majority of start-ups on Pakistan, and it is the simplest way of giving corporate face to a small business
Formation
Following are the main steps to start a sole proprietorship business:
· Finalize a business name.
· Print basic business stationary i.e. letterheads, visiting cards etc.
· Prepare firm's name stamp (a common rubber stamp will do).
· Open a bank account in the name of sole proprietor business. The bank manager will require a request letter on business letterhead with sole proprietor’s signature and stamp.
· Get bank statement of the newly opened bank account.
· Apply for National Tax Number (NTN) certificate. Bank account statement and a copy of sole proprietor’s computerized national identity card will be required along with application for NTN. If sole proprietor already has NTN there is no need to get a new one as the existing NTN can be used for business documentation.
Characteristics
There is no requirement to register a sole proprietorship in Pakistan. Any business can be conducted through a sole proprietorship unless the law requires a certain business to be carried out only by an association of persons, for example a partnership firm or a limited liability company. Sole proprietorships are not complex business structures, and are therefore quite easy and quick to establish.

The owner of a sole proprietor business (referred as ‘sole proprietor’ or ‘proprietor’) can pay taxes through his/her personal tax returns. Unlike a limited liability company, the sole proprietor will always be personally liable for affairs of the business, for example to the creditors of the business or to someone having a legal claim against the business. All assets of the business will be considered personal assets of the sole proprietor. A sole proprietor can do business with a trade name other than his or her legal name. This also allows the proprietor to open a bank account in the name of the business
Advantages of a sole trader
Sole traders benefit from the following advantages:
· Control - Sole traders maintain full control of their business. Running it how they please without the interference of others.
· Profit retention – Sole traders retain all the profits of their business.
· Private data – Information about sole traders is kept private, unlike that of limited companies which is necessarily made public after registration with Companies House.
· Specialist – Often a small business, sole traders can offer a more personal service with local roots and ties. This can be more appealing to potential customers in the local community.
· Personal – Because there is no need to confer with other decision makers, sole traders can make decisions quickly and act on them swiftly, providing for the needs of their customers.
Disadvantages of a sole trader
Just like any other form of business, being a sole trader can also have its disadvantages.
· Liability – sole traders are not seen as a separate entity by the law. Therefore, they are subject to unlimited liability. This means if the business gets into debt, the business owner is liable. In the worst case, this may mean a person risks their home, personal savings and any other assets they have both in and outside of the business.
· Finance – sole traders often find it difficult to raise finance to fund their business. They may struggle with expansion in the future.
· Reverse economies of scale – sole traders will be unable to take advantage of economies of scale in the same way as limited companies and larger corporations, who can afford to buy in bulk. This might mean that they have to charge higher prices for their products or services in order to cover the costs.
· Decision making – all decisions must be made by the sole trader. There is no room for help by others. So the success or failure of the business rests on one person.

Partnership
A partnership or firm is established through written agreement between all the partners. The law governing the partnerships in Pakistan is contained in the Partnership Act 1932.
Characteristics
In Pakistan partnerships are of two kinds:
· Registered Partnership
· Unregistered Partnership
There is no requirement to register a firm, however there are certain benefits of registering a firm. In case of registered firm, the partnership deed is registered with the Registrar of Firms. Unregistered partnership can be dissolved without any formality, however a registered firm can only be dissolved through a written dissolution application to the Registrar of Firms.
By definition partnership is a relation between two or more persons who have agreed through a written partnership deed to conduct the business and share the profits and losses of the business according to the terms of the partnership deed. Partnership business can be conducted by all partners or any of the partners on behalf of others. A maximum of 20 partners are allowed to form a partnership. In a partnership firm the partners’ liability is not limited and they are fully liable for all claims or law su its against the partnership.
Formation
Registration of Partnership
Procedure and Requirements
The registration of Partnership firm is not required by law and there is nopenalty for non-registration. Nevertheless registration can give myadvantages to the firm. First of all Form – I needs to be filled. It is attached inappendix B. Then Partnership Deed is prepared on the Stamp Paper of worthRs. 500. A sample for the statement of Partnership Deed is also added inappendix B. Registration fee of Rs. 500 also needs to be deposited inNational Bank of Pakistan through Challan Form. It is mandatory for the firmto be located in commercial area. Copy of Lease Agreement or Ownershipproof needs to be provided as well. A template of Lease Agreement isattached in appendix B. The next requirement is the attachment of computerized National IdentityCards of Partners and Witnesses. It is mandatory that all papers should beattested from Notary Public. And the partners should contact the office afterthree days of submission of papers. All partners are required to appear beforeRegistrar of Firm during 9:00am to 11:00am with their original NationalIdentity Cards. Lastly an affidavit regarding accuracy of papers and existenceof office needs to be submitted on stamp paper worth Rs. 5.
Partnership Deed
“Partnership Deed” is a document that tells about the mutual rights andobligations of all partners. This needs to be signed by all the partners andsubsequent copies held by each partner. At the time of registration, a copy of the deed has to be submitted with an application to the Registrar of Firms inthe concerned area. This document may also be referred to as an “Article of partnership”. A partnership deed usually contains the following format:
· Name of the firm
· Profit and loss sharing ratio of the partners
· Nature of the business to be conducted by the firm
· Full address (place of business) of the firm
· Full names and addresses of the partners
· Duration of the partnership
· Respective investments of the partners
.
Application
The procedure of registration is comparatively simple. An application in theForm No. 1 Partnership Act 1932) along with the fee has to be submitted tothe Registrar of Firms. All the partners must sign the application. Theapplication or statement must contain the following particulars:
1.The name of the firm
2.The place or principal place of business of the firm
3.The names and addresses of other places where the firm may conductbusiness
4.The partner’s date of joining the firm
5.The duration of the firm
6.The name and address of the partners.
Once the registrar is satisfied with the application, a certificate of registrationis issued to the partners. As mentioned previously this is not required tocommence business.If at any time there are changes to the firm in relations to the partners, placeof business, insolvency etc. the registrar must be notified. Advantages of Partnership

1. Easy to Form
The partnership, like the sole proprietorship, can be easily organized. There are no complicated legal formalities involved in the establishment of partnership business. The partners enter into a partnership agreement and start business.

2. Favourable Credit Standing
The partnership enjoys a better credit rating in the eyes of creditors. As the liability of each partner in the organization is unlimited the financial institution can safely advance loans to the firms.

3. Large Capital
In case of sole proprietorship, the capital is limited to the savings of one owner or his borrowing capacity. Partnership can bring more capital to the business by the joint efforts of the partners. The partnership is normally in strong position to raise capita and expand the business.

4. Greater Management Ability
As there are many partners involved in the operation of a business, the firm can distribute the duties and responsibilities to each partner for which one is best qualified and suited. Division of labour and specialization, thus, can promote efficiency of the firm.

5. Union of Business Ability
There is a bid age saying that two heads are better than one. In case of partner the partner mutually consults each other about the lay out, production procedure, marketing channels, etc. and as a result, a wise course of procedure results.

6. Profit Incentive
The profits are shared by the partners as per agreement. They are encouraged to do more work to earn more profit. Higher the profits, higher will be the partners share.

7. Advantages of Secrecy
The partners can keep the business secrets to themselves. The firm is not required by law to publish its profit and loss account and balance sheet.

8. Retention of a Skilled Worker
If an employee in the partnership business is found to be a man of outstanding talent and ability, he with the mutual consultation of other partners can be given a status of a partner in the business.

9. Brake on Hasty Decisions
As liability of partners is unlimited, the partners, therefore, tend to be careful in taking business decisions. They adopt sound practices in the conduct of business. There is a brake on hasty decisions.

10. Special Protection to Minor
A death or lunacy of a partner may not cause dissolution of the partnership. His minor can be admitted only to the benefits of partners with the consent of other partners.

11. Increase in The Spirit of Cooperation
The success of business depends upon mutual trust and cooperation of the partners. The partners are fully aware that a sight difference can cause the end of partnership. This increases in them the sprit of working together.

12. Tax Advantage
The profits of a registered firm, after payment of super fax, are divided among the partners. They pay tax to the government on their shares of profit. Thus the partners of registered firm get the benefit of lower assessment.

13. Ease of Dissolution
The partnership can also be legally dissolved much difficult by mutual consent of the partners or in accordance with a contract by the partners. There are no formal documents required to be drawn up as in the case of a joint stock company.

Disadvantages or Demerits of Partnership
The partnership form of organization suffers from certain disadvantages also. These in brief are as follows.

1. Unlimited Liability of Partners
One of the basic defects of partnership is that the partners are personally and jointly responsible for all the debts of the firm. In case the business suffers losses and the business assets are not sufficient to satisfy the claimants on liquidation, the personal property of one or more than one partners can be sold under the Court order for the clearance of the debts of the business. The rich and wealthy persons, therefore, avoid to be enlisted in partnership because each individual partner in liable for the firm’s debt.

2. Limited Life of Firm
The duration of the partnership is always uncertain. I partner dies, injured, withdraws, sells his interest, or a new partner is admitted into the business, or their arises difference, the partnership may come td an end. There are every possibilities of the dissolution of the firm due to internal differences.

3. Frozen Investment
It is very easy for a partner to invest money but it is most difficult to withdraw the from the business. A person who wishes to withdraw investment has to consult his partners, find a substitute with equal business ability. Unless the above conditions are fulfilled, the funds remain difficult to transfer and as such remain a frozen investment which creates lack of interest.

4. Disputes Among The Partners
The partners should be like minded, have a common objective, be large hearted, have a cool temperament, should not unnecessarily cause friction and confusion among the partners. The choosing of partner is in fact like choosing a wife. Marry in haste and repent in leisure. In case of dispute among the partners, quick action should be taken by all the partners for the remedial measures.

5. Possibility of Misuse of Resources
It is known to each and every partner that the resources of the firm are owned jointly. There can and does arise the misuse of resources by a partner/partners.

6. Loss of Business Opportunities
In case of differences among the “partners, a delay may take place in decision-making. This can cause loss to the firm.

7. Divided Control
In a partnership, the work of the business is divided among the partners according to their ability, choice and taste. Divided control - and responsibility sometimes creates confusion and delay in making decisions. The lack of efficiency on the part of one partner can upset the whole structure of the business and ultimately lead to dissolution of the firm.

8. Lack of Public Confidence
Partnership form of organization may not enjoy public confidence due to lack of publicity and absence of regulations.

9. Implied Authority
Implied authority is the authority vested in a partner to bind the firm with any of his acts done in connection with the business of the firms. In partnership form of organization, each partner binds other partners by his acts done on behalf of the firm: Thus the other partners may have to pay for the follies and dishonesty of a fellow partner.

10. Conclusion
Partnership form of ownership is suitable where business is of medium size, the partners are of equal status, ability and resources.

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M.R Mohamed Abdi

...Book PPT = PowerPoint® AS = Activity Sheet R = Research E = Extension for Stretch and support NS = Non-supervised individual study time Week 1 Non-supervised individual study time and research: 40 hours Outcome Content Learner activity Resources Assessment and PLTS LO1: Know the range of different businesses and their ownership Introduction to unit and the structure of the programme Introduction to LO1 Range of different businesses: local; national; international; global; public; private; not-for-profit/voluntary; sectors of business activity (primary, secondary and tertiary) Business purposes: supply of products or services; difference between profit and not-for profit organisations Set up file for new unit Reflective questions AS1 Business types and ownership, Task 1; as individual or pair activity SB activities: • Starter stimulus • Tony and Guy • Aresenal • VSO • Primary, secondary and tertiary businesses Sample assignment brief Task 1.1 for P1; learners should spend the session time and NS time on this activity SB activities: • Poundland AS1 Business types and ownership SB Sample assignment brief Task 1.1 Stretch and support Assessment P1 PLTS RL BTEC National Business © Pearson Education Ltd 2010. Copying permitted for purchasing institution only. This material is not copyright free. BTEC National Business Unit 1 The business environment Unit 1 The business......

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