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Understanding Sole Proprietorships, Partnerships, Corporations, and Cooperatives in Business

This guide covers various business structures, including sole proprietorships, partnerships, corporations, and cooperatives. It highlights the ownership, responsibilities, advantages, and disadvantages associated with each type. A sole proprietorship is owned by one individual who bears total control and liability. Partnerships involve two or more individuals sharing ownership and responsibilities. Corporations are separate legal entities that limit liability for shareholders. Finally, cooperatives focus on member benefits and community objectives. Understanding these structures is crucial for effective business planning.

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Understanding Sole Proprietorships, Partnerships, Corporations, and Cooperatives in Business

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  1. SC – Business Organization (B) Lim SeiKee @ cK

  2. Sole proprietorship A sole proprietorship is a business entity owned by one person who is legally responsible for the debts and taxes of the business

  3. Sole proprietorship • Ownership: 1 owner • Life: Ends when owner: • Is unable to carry on, • Dies, or • Closes the firm Responsibility for business debts if firm is unable to pay: Owner

  4. ADVANTAGES • Total control • Cheap and easy to start up • Keep all the profit • Business affairs are private

  5. DISADVANTAGES • Unlimited liability • Can be difficult to raise finance • Can be difficult to enjoy economies of scale, i.e. lower costs per unit due to higher levels of production • There is a problem of continuity if the sole trader retires or dies

  6. Partnership • Ownership: 2 or more • Life: Ends when partner(s): • withdraws, • Dies, or • Closes the firm Responsibility for business debts if firm is unable to pay: Partners individually and jointly

  7. Partners must agree upon: • Amount each partner will contribute • Percentage of ownership of each partner • Share of profits of each partner • Duties each partner will perform • Debts- the responsibility each partner has for the partnership’s debts

  8. ADVANTAGES • Spreads the risk across more people • Partner may bring money and resources to the business (e.g. better premises to work from) • Partner may bring other skills and ideas to the business • Increased credibility with potential customers and suppliers

  9. DISADVANTAGES • Have to share the profits. • Less control of the business for the individual. • Disputes over workload. • Problems if partners disagree over of direction of business.

  10. Company / Corporation • A company / corporation is a publicly or privately owned business entity that is separate from its owners and has a legal right to own property and do business in its own name; stockholders are not responsible for the debts or taxes of the business

  11. Company / Corporation • Ownership: Can be thousands • Life: Continues indefinitely; ends when: -business goes bankrupt -stockholders vote to liquidate Responsibility for business debts if firm is unable to pay: Stockholders can lose only the amount invested

  12. ADVANTAGES • Limited liability • Easier to raise finance • Stable form of structure • Provides more privacy of information than an public limited company

  13. DISADVANTAGES • Greater admin costs • Public disclosure of company information (annual report & accounts + annual return) • Directors’ legal duties (set out by Companies Act)

  14. Cooperatives • The objectives are normally more focused on the members of the co-operative, the local community and the world community. Profit is not the primary objective.

  15. ADVANTAGES • Achieve a common purpose. • More power to buy or bargain

  16. DISADVANTAGES • A long, drawn out decision-making process • Co-operatives may find it difficult to raise finance • Idealistic and ethical aims may not be agreeable with all members • The aims held by many co-operatives may not lead to profits in the long run

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