So you are an Entrepreneur or running some kind of small business, but what forms of ownership are there and what are the advantages and disadvantages of these types of ownership? I hope to help you in this article with those questions.Read our overview for Students and Business owners
This link below is for students who wish to see the forms of ownership in bullet form, it helps study your material easier when you get all the facts.
For those of you who need the facts please refer to our other article below, it lists all the advantages and disadvantages. It lists all the facts and basics neatly for you. This page will give you all facts about Companies, Close Corporations, and Sole traders.
Read our Advantages and Disadvantages of All Forms of Ownership
here.What is formal and informal enterprise?
Just for completness, The forms of ownership we are talking about are also known as forms of enterprise. Now, if you have a informal enterprise this means you do not have a proper business premises, you may be selling fruit or polishing shoes on the side of the road. A formal enterprise on the other hand has a registered form of enterprise [like a type of business] and it should also be registered for tax purposes. The goverment wants to know about you right.Sole Proprietorship
A Sole Proprietorship is a type of business ownership, it belongs to only one person. The owner can hire his/her staff and takes responsibility for all capital needed [like machinery, startup costs or raw materials]. The owner also accepts all profits and debts incurred. A Sole Proprietorship is the most simple type of business to start. Be ware thought, any debts you may have from the business, can be directly attached to your personal possessions. So should the business fail, you may have more to loose.Partnership
Groups of people who agree to combine their capital, labour and resources towards some common goal [usually profit]. It may have 2 to 20 members. You will also need an attorney to draw up the contract between the partners, the contract should state what contributions each member has made, how the profits will be divided and many other aspects within the partnership. Remember, partners are also jointly responsible for debts incurred by other members, so be careful with whom you enter into contracts with.Close Corporation
A Close Corporation does not have any shareholders only some members who share some common goal. Each member makes a contribution of some money, assets or services towards the Corporation. This form of ownership is limited to 10 members and ends with the [cc] abbreviation. You only need an accounting officer and not a auditor to start a cc. The financing of a Close Corporation is often the biggest problem since there are only 10 members and members have limited liability for debts, and this leads to banks not easily giving loans towards the enterprise.
An assosiation agreement is recommended to be used by members, this regulates the internal relationship between partners including voting powers, payments, member rights, benefits, duties and obligations to the business. You do need to keep proper accounting records, this can be done by an accounting officer, auditor or registered accountant.Private Company
This type of ownership can be public or private. A private company does not sell shares to the general public like a public company would do to raise capital. Every private company has the words (Pty) Ltd after the company name and this name can be obtained the Registrar of Companies, it needs 1 shareholder, 1 director and there is a limit of 50 shareholders.
The registration of a private company is more complex and costs much more than the other forms of ownership. After the registration requirements are complete the Registrar will issue a Certificate of Incorporation, you also need to complete the memorandum and articles that states the company name, the company objectives and its share capital. It is advised to contact a registered accountant or attorney since the registration process can be tricky with many forms, documents and steps that need to be followed.A Public Company
This form of ownership allows companies to sell shares and bonds to the general public. Most of these companies are listed on the stock exchange. One disadvantage of a public company is that they are required to publish annual reports about companys performance, this could often be used by competitors as useful information.
A large enough [private company] that has shown profits would be able to list as a [public company] and thus allow them to submit an IPO [initial public offering] to the general public. This would allow them to grow even quicker and allow shareholders to own a part of the company. They would usually receive dividends on the company profits at certain periods throughout the year.
For those of you who need the facts please refer to our other article below, it lists all the advantages and disadvantages. It lists all the facts and basics neatly for you.
You can also read Advantages and Disadvantages of All Forms of Ownership