Management Two Business 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 ownership Basically there are three forms of ownership  Sole Trader  Partnership  Company

Ownership Continued Many businesses start off as Sole Traders and change their ownership as the business grows. Many businesses start off as Sole Traders and change their ownership as the business grows. The main influence for selection of ownership structure is: The main influence for selection of ownership structure is:  Tax treatment  Owners liability  Costs & regulations  Availability of finance  Management control

Advantages of Sole Trader Formation is simple. Besides the possible registration of a business name, there are no formalities or specific regulation related to this ownership structure. Anyone who can enter into contracts can be a sole trader. Note that industry or trade specific licences may apply. Formation is simple. Besides the possible registration of a business name, there are no formalities or specific regulation related to this ownership structure. Anyone who can enter into contracts can be a sole trader. Note that industry or trade specific licences may apply. The owner has independence, sole decision making power and is answerable only to him/herself. The owner has independence, sole decision making power and is answerable only to him/herself. The owner gets to keep all profits (after paying tax at individual rates). The owner gets to keep all profits (after paying tax at individual rates).

Disadvantages of Sole Trader Sole traders often experience a lack of capital, since all the capital must come from the owners own savings. Additional finance may also be difficult to obtain. Sole traders often experience a lack of capital, since all the capital must come from the owners own savings. Additional finance may also be difficult to obtain. There may be restrictions on the owners lifestyle, in terms of taking holidays etc. Hired help may be available, but it is often risky to trust others with your profits and assets. There may be restrictions on the owners lifestyle, in terms of taking holidays etc. Hired help may be available, but it is often risky to trust others with your profits and assets.

Partnership Agreement Arrangement for drawings of profit/capital Arrangement for drawings of profit/capital Limitations on authority of partner/s to act as agent Limitations on authority of partner/s to act as agent Dispute Settling Procedures/ Arbitration clause Dispute Settling Procedures/ Arbitration clause Provisions for death/bankruptcy of a partner. Provisions for death/bankruptcy of a partner.

Advantages of Partnerships Skills (hopefully different and complementary) Skills (hopefully different and complementary) Capital (equipment &/or funds) Capital (equipment &/or funds) Customers (goodwill) Customers (goodwill) Time Time

Company Ownership Methods Unlimited: used by professional people where their profession will not allow any limitation on their members’ liability. Unlimited: used by professional people where their profession will not allow any limitation on their members’ liability. No liability: restricted to mining companies. No liability: restricted to mining companies.

Limited Liability Companies Public companies Public companies Proprietary companies Proprietary companies Exempt-proprietary Exempt-proprietary

Proprietary Companies The company name must be followed by PTY. LTD (short for Proprietary Limited) The company name must be followed by PTY. LTD (short for Proprietary Limited) Minimum of one, maximum of fifty shareholders Minimum of one, maximum of fifty shareholders 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, Company Sole 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, having total control of the business. Sole Trader – A single person carrying on a business, having total control of the business. Partnership – The relationship between persons carrying out a business together with shared responsibilities. Partnership – The relationship between persons carrying out a business together with shared responsibilities. Company –Is an artificial body or identity created by law in order to operate a business. Company –Is an artificial body or identity created by law in order to operate a business.

3) What does ACN stand for? 3) What does ACN stand for? Australian Company Number Australian 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 registered with the Australian Securities Commission which your CAN number is a result of. The law states all companies must be registered with the Australian Securities Commission which your CAN number is a result of. 5) Define what a company is? 5) Define what a company is? An artificial body created by law An artificial body created by law

6) What are the abbreviation Pty Ltd short for and what do they mean? 6) What are the abbreviation Pty Ltd short for and what do they mean? Pty = Proprietary which means private Pty = Proprietary which means private Ltd= Stands for limited meaning limited liability. Ltd= Stands for limited meaning limited liability. 7) The first page describes different types of business ownership, list again four types and name two advantages and two disadvantages of each below? 7) The first page describes different types of business ownership, list again four types and name two advantages and two disadvantages of each below?

Sole Trader Sole Trader Advantages – Total control of business, simple formation, independence on decisions, gets to keep all profits. Advantages – Total control of business, simple formation, independence on decisions, gets to keep all profits. Disadvantages – Also bears any losses unlimited liability, possible lack of capital, may restrict life style. Disadvantages – Also bears any losses unlimited liability, possible lack of capital, may restrict life style.

Partnership Partnership Advantages- Easy to form & administer, pooled resources enhance skill, capital, time etc., possible larger projects to take on. Advantages- Easy to form & administer, pooled resources enhance skill, capital, time etc., possible larger projects to take on. Disadvantages - All partners have unlimited liability, statistically they have a limited life. Disadvantages - All partners have unlimited liability, statistically they have a limited life.

Public Company Public Company Advantages – Increased capital by shareholders, Limited liability, tax benefits. Advantages – Increased capital by shareholders, Limited liability, tax benefits. Disadvantages – Higher formation costs, document lodgment fee’s, professional accounting Disadvantages – Higher formation costs, document lodgment fee’s, professional accounting

Private Company Private Company Advantages – Min. one shareholder, limited liability, no lodgment of articles to ASIC. Advantages – Min. one shareholder, limited liability, no lodgment of articles to ASIC. Disadvantages – Public shares prohibited so capital limited to shareholders, formation costs. Disadvantages – Public shares prohibited so capital limited to shareholders, formation costs.