TYPES OF BUSINESS ENTERPRISES

10.1 TYPES OF BUSINESS ENTERPRISES

There are different types of businesses that occur in practice. These relate to the form of ownership of the business. We will discuss the main types of businesses viz. Sole Proprietorship, Partnerships, Close Corporations, Private Companies, and Public Companies.

10.1.1 Sole proprietor

From Powell, et al; 2000:1

This is a type of business owned by one person, where the owner also manages the business. The proprietor is in control and can make decisions quickly.The owner provides his/her own capital to finance the start up of the business, and bears the liability for all debts. This type of business is popular in the retail trade e.g. small shops and individual professional businesses.

A sole proprietor can conduct business under his/her own name or under a trade name. For example, let's say I am a plumber. I can conduct business under my own name, Jim Poznak, Plumber. Or, I can conduct business under a trade name, such as EZ Flush. In either case-whether you conduct business under your own name or under a trade name-if you are the sole owner of an unincorporated business, your business will be a sole proprietorship, and you will be the sole proprietor.

The main advantage of this type of business is that the owner gets all the profits of the business and so works harder. The owner also makes all the decisions and therefore s/he can adapt quickly to any changes. One of the major disadvantages is that the business could lack sufficient capital because the owner has to rely on his/her own savings or take a loan. Also, the owner has to take responsibility for all the management of the business.

10.1.2 Partnerships/ Joint owners

From Powell, et al; 2000:2

When two or more people legally (verbal or written) agree to become co-owners of a business, the organization is called a partnership. The legal contract has to be between a minimum of two and a maximum of twenty persons, who contribute capital, goods, or expertise to the lawful business with the purpose of making a profit. A partnership is not a legal person and therefore all partners are jointly liable for the debts of the business.

The principle advantage of a partnership is the equal division of all responsibilities for the The principle advantage of a partnership is the equal division of all responsibilities for the

One of the main disadvantages is that urgent decisions cannot be made quickly and easily – all the partners must be consulted and their input must be given before a decision can be made. Furthermore, differences may arise among the partners, which may cause conflict.

10.1.3 Close Corporations (cc)

From Powell, et al; 2000:4

When between one and ten individuals contribute capital and acquire an interest expressed as a percentage in the business, it is called a Close Corporation. The name of a close corporation always

ends in the letters ‘CC’. The members of a close corporation have a limited liability. This means that they are only liable for the amount of money they invested in the business. A CC is relatively easy and inexpensive to set up and a member’s interest does not have to be in proportion to their capital contributions. The main potential for problems is that a CC relies heavily on trust between the

members. It could create a problem if one of the members is untrustworthy. Also, the restriction of ten members could hamper growth.

Differences between Partnerships and Close corporations Partnerships

Close Corporations (CC)

Minimum of 2 and maximum of 20 Minimum of 1 and maximum of 10 partners

members

Partners are jointly and severally liable Members have limited liability. for debts of business No particular indication in name.

Name of company ends with the letters