#commerce/y9/business
- A business is the name given to firms, which produce and distribute goods and services to consumers.
Business legal structure §
- When starting a business, you need to consider the different types of business legal structure.
- There are 4 types: sole trader, partnership, private company and public company.
- Businesses also may change their business structure. Often, it is more common to change from a sole trader / partnership business to a private / public company form.
Sole trader §
- It is owned and operated by 1 person.
- It is simple and cheap to establish.
- The individual takes the risk of either receiving all the profits or suffering all the losses.
- This structure is subjected to Unlimited Liability which means the owner can be forced to sell personal assets to pay for debts if the loan cannot be repaid.
- The business will cease to operate if the owner is dead.
Partnership §
- It is owned and operated by 2-50 people as partners.
- The profit is shared among the partners.
- This structure is also subjected to Unlimited Liability which means the owners can be forced to sell personal assets to pay for debts if the loan cannot be repaid.
- It is common for people with similar skills like layers, doctors and accountants.
- Business will continue to operate if the original owner is dead (by the partners).
Private company §
- It has less than 50 private owners or shareholders.
- Company name has the words Proprietary Limited (Pty Ltd)
- It is a lot more expensive to establish.
- The profit is shared between the shareholders.
- This structure is subjected to Limited Liability which means the shareholders do not need to sell any personal assets to pay for debts.
- The company will continue to operate if the owners change.
Public company §
- It has an unlimited cap for the number of shareholders.
- The general public can trade shares in the stock exchange, so anyone can be shareholders or owners of the company.
- It is expensive to establish.
- Company name has the word Limited (Ltd) and has become a separate legal entity from the owners, ie. incorporation.
- It is easier to raise capital or cash.
- The company will continue to operate if the owners change.