Forms of Owership differ from one anther according to how....

• Capital is raised
• the business is controlled and managed
• the risks are spread between the owners
• the profit is divided between the owners
• the number of owners

What is Capital

Money used to establish a business. This money will be used to buy capital goods

Own Capital 

Capital contributed by the owners of the business 

Borrowed Capital/ foreign Capital

Must be paid back with interest 

Continuity of existence 

Ability of the business to continue independently of the owners

NB: if the business does not have continuity of existance, the business will be terminated if the owner dies or retires

Liability

Responsibilty for the debt of the business

(always the owner)

Unlimited liability - owner may lose personal belongings

Limited liablity - personal belongings are not at risk 

Legal Persona/ Personality

Legal right of a person or business to enter into contracts/ own property and sue and be sued

Tax implications

Progressive tax system applies to the individuals in South Africa, this means that higher income , the higher tax percantage that applies.

Tax implications for sole traders and the partners in a partnership 

taxed up to a maximum of 40%

Tax Implications for CC

Business is responsible to pay income tax on profits generated, 28% on all profits and with a secondary tax of 10% on distruibuted to memebers/shareholders(do not pay tax on income recieved in CC)

1) Sole Trader

Single person who contributes all capital

Fully responsible / liable for all risks but gets all profit

Characteristics of a Sole Trader 

• One person who has capital and skills to start a business
• Unlimited Liability
• No continuity
• business is not a legal person and is not registered but the owner is the legal person
• Owner pays tax on his personal income which is the profit from the business(the business does not pay tax)

Advantages of Sole Trader

• Easy to start
• owner can make own descions
• Owner gaisn expierence in different fields in the business
• Owner gets all profits and will be motivated to be succesfull

Disadvantages of a soul trader

• Only one person can contribute to capital - limits expansion and growth
• unlimited liability
• Noone to discuss descions with
• No continuity of existence
• May not have someone to take over the business
• Bears all responsibilities
• Progressive personal income tax sales

Partnership

verbal, preferably written agreement between at elast two, no more than 20 people to combine the money and skills in  a legal business

Partneships characterestics

• Minimum 2 max 20
• Partnership must be entered orally or in writing
• The business is not a legal entities, the partners are
• Partners are jointly and severally liabe for all the debts 
• No continuity of existance
• Business does not pay tax but partners pay tax on their personal income

Partnership Agreement

• Document = Partneship agreement/ Partnership articles
• Contract defining the terms and conditions agreed upon by the partners

Advantages of a Partnership

• More capital is available than a sole trader
• More than one person can decides on important issues
• Productivity improves because of division of labour
• Partnership articles are the only documents required to form a partnership(easy and cheap to start)
• Eliminate competition between smaller sole traders
• Unlimited liability which motivates them to work harder

Disadvantages of a partnership

• Limit is 20 people - limits expansion
• no continuity of existance
• Partners are over cautious and lose opportunities (unlimited liability)
• All Partners have to agree before a descion is put into action = loss of oppurtunities
• Each partner pays tax on personal income
• One bad descion from one Partner may cause finicial loses to other companies because partners coblind each other by their actions

Close Corporation (Companies Act 69 of 1984)

• Atleast one memeber and no more than 10 
• The name must end in CC
• CC is a legal person, business may enter into contracts
• Members have limited liability
• Continuity of existence is present

• Pays Income tax(fixed percantage of 28% on all profits and secondary tax on profits distributed to members (10%) - Company Tax rate
• Easy and and inexpensive to establish( funding statement (CK1 - Founding statment and CK7 reservation of the name) must be completed and sent to the register of CCs at CIPRO. Memebers manage the CC
• Registration number msut be shown on all legal documents

Advantages of a Close Corporation

• Registration is relatively easy and inexpensive
•  Easy to change orginal funding statement if change in memebership CK2 Ammended founding statement
• Finicial statments do not need to be audited but msut be signed by an accounting officer registered with SAIPA
• Memebers have limtied Liability
• members ahve oppurtinity to participate actively in the day to day managment of the business

Disadvantages of CC

• only natural person may be a memeber of a CC, No other company or CC can have interest in a CC, limits capital and expansion
• All memebers have to agree if one memeber wants to sell his interest
• !0 people limited thus making it hard to raise large amount of capital
• memebers can lose limited liability if letter CC is not used in all documents and if there are more than 10 memebers for longer than 6 months