Running head: FORMS OF BUSINESS ORGANISATIONS 1

Forms of Business Organizations

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Table of Contents
Forms of Business Organizations&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&'
Introdu%tion&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&'
FORMS OF BUSINESS ORGANISATIONS '
So(e Trader&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&)
*artnershi+ , Sim+(e- deed of *artnershi+ . /imited /ia#i(it0 *artnershi+ 1//*2&&&&&&&&&&&&&&&&&&&&)
*ri3ate !om+an0&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&4
*u#(i% /imited !om+an0&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&4
!on%(usion&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&5
Referen%es&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&6
A++endi%es&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&7
Sam+(e !ertifi%ate of In%or+oration&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&7
Forms of Business Organizations
Introduction
There are 3arious forms of #usiness stru%tures e8isting and the most %ommon stru%tures
in%(ude so(e trader- +artnershi+- +ri3ate %om+an0- and +u#(i% (imited %om+an0& Ea%h #usiness
stru%tures has its ad3antages and disad3antages& In de%iding to start an0 #usiness- one %onsiders
fa%tors as %a+ita( re9uirements- ta8ation- size of #usiness- and esta#(ishment %ost& This re+ort
aims at e8+(aining the 3arious stru%tures of #usiness organizations& It a(so fo%us on +ro3iding the
(ega( re9uirements :ith regard to informing sta;eho(ders as to the #usiness finan%ia( a%ti3ities&
FORMS OF BUSINESS ORGANISATIONS )
Sole Trader
A So(e trader is the sim+(est #usiness stru%ture& So(e trader- a(so ;no:n as So(e
*ro+rietorshi+ %an #e form #0 an indi3idua( a(one in #usiness& This form of #usiness (ess
e8+ensi3e and 3er0 sim+(e to esta#(ish and run& A so(e trader en<o0s the #enefit (ess (ega(
%ontro(s- greater management f(e8i#i(it0- and (ess ta8es 1Gage(- '==62& >o:e3er- the o:ner of the
#usiness is (ia#(e +ersona((0 for a(( finan%ia( o#(igations in%urred #0 the entit0& ?ith regard to
(ega( re9uirements :ith informing sta;eho(ders on #usiness a%ti3ities- the so(e trader is the so(e
o:ner of the #usiness and has no one to inform on #usiness finan%e a%ti3ities& A so(e trader
en<o0s a(( the +rofits a(one and is ta8ed on a (o:er ta8 rate as %om+ared to other forms of
#usiness& There are no (ega( re9uirements su%h as %a((ing for annua( meeting- dire%tors- and
%om+an0 se%retar0 as re9uired in other forms of #usiness& A so(e trader does not ha3e to share
an0 #usiness information :ith an0 +erson a+art from the ta8 authorities& There is no (ega(
identit0 and (a%;s %ontinuit0&
Partnership Simple, deed of Partnership & Limited Liabilit Partnership !LLP"
A +artnershi+ %an #e esta#(ished #0 t:o or more indi3idua(s :ith an aim of doing
#usiness& The +artners agree to %ontri#ute (a#or- s;i((s- or finan%e resour%es to the #usiness&
Under a sim+(e- deed +artnershi+- a(( +artners shares +rofits and (osses e9ua((0& This form of
+artnershi+ does not ha3e the (ega( +ersona(it0 and thus- e3er0 +artner in the #usiness is
indi3idua((0 and e9ua((0 (ia#(e for finan%ia( de#ts& Forma( terms of the +artnershi+ are usua((0
%ontained in a :ritten +artnershi+ agreement&
Under a (imited (ia#i(it0 %om+an0- the (ia#i(ities of the indi3idua( +artners are (imited to
the amount of in3estment the0 ha3e in3ested in the +artnershi+& In a //*- an indi3idua( +artner
FORMS OF BUSINESS ORGANISATIONS @
does not ha3e indi3idua( (ia#i(it0 for neg(igen%e +erformed #0 a different +artner& //* %an ha3e
t:o +artner t0+esA genera( +artners and (imited +artners& Genera( +artners o3ersee e3er0 da0
management of the //* and ha3e un(imited (ia#i(it0 for de#ts& On the other hand- (imited
+artners does not ha3e a ro(e to +erform in #usiness management and ha3e (imited (ia#i(it0 to
de#ts& The (ega( re9uirement of a +artnershi+ is a(:a0s go3erned through the +artnershi+
agreement- :hi%h %o3ers on +rofit and (oss sharing- interest on %a+ita(- ne: +artners
introdu%tion- retiring +artners- as :e(( as sa(ar0 entit(ement& In +artnershi+s- there is no (ega(
re9uirement to +a0 %or+orate in%ome ta8- #ut the #usiness de%(are its in%ome #0 fi(ing an in%ome
ta8 return& A%%ording to Gage( 1'==62- +artners are re9uired to de%(are their share of in%ome from
+artnershi+ in their in%ome ta8 returns and +a0 ta8es a%%ording to indi3idua( in%ome ta8 rate&
Most of the +artners in a +artnershi+ are in3o(3ed in managing and e3er0 da0 running of the
#usiness- and thus- most +artners are informed on finan%ia( +erforman%es& There is a (ega(
re9uirement for the +artners to share information :ithin themse(3es regarding #usiness finan%ia(
a%ti3ities and :ith ta8 authorities&
Pri#ate $ompan
A +ri3ate %om+an0 has a distin%t (ega( identit0- and thus the #usiness o:ners are (imited
to an0 #usiness (ia#i(it0& *ri3ate %om+an0 has a (ega( %ontinuit0- and is a((o:ed to se(( shares to
fami(0 or friends- :ith the +ermission of a(( shareho(ders& It %an enter into (ega( %ontra%ts :ith
an0 #usiness& The o:ners of a +ri3ate (imited %om+an0 are shareho(ders #ut are managed #0
dire%tors& The dire%tors are em+(o0ed #0 the %om+an0 and a%t on #eha(f of the %om+an0&
$ire%tors ha3e the authorit0 to a%t on #eha(f of the %om+an0 #ased on %ontra%ts-
%onstitution- or Arti%(es of Asso%iation& O:ners does not enter into %ontra%ts on #eha(f of the
#usiness- #ut %an affe%t ho: the %om+an0 o+erated through Annua( Genera( Meetings& There are
FORMS OF BUSINESS ORGANISATIONS 4
3arious (ega( re9uirements in esta#(ishing a +ri3ate %om+an0& This in%(udes: The Arti%(es of
Asso%iation- Memorandum of Asso%iation- and %ertifi%ate of in%or+oration& Sing(a 1'==72 has
that an arti%(es of asso%iation out(ines the management of the +ri3ate %om+an0& It a(so out(ines
rights and fun%tions of dire%tors as :e(( as regu(ations on dire%tors e(e%tion- issue of share and
ho(ding %om+an0 meetings& Memorandum of asso%iation has %ru%ia( information %on%erning the
dire%tors and the %om+an0& A +ri3ate %om+an0 is re9uired to fi(e in%ome ta8es and +a0 %or+orate
ta8es& It is a(so re9uired to +re+are finan%ia( statements ref(e%ting the true and fair finan%ia(
+osition of the %om+an0 to #e issued to the %om+an0s shareho(ders& The %om+an0 must at (east
ho(d a genera( meeting in e3er0 finan%ia( 0ear&
Public Limited $ompan
*u#(i% (imited %om+anies ha3e the same features :ith +ri3ate (imited %om+anies- e8%e+t
that +u#(i% (imited %om+anies are a((o:ed to se(( their shares to the genera( +u#(i% 1Bo %hou8-
'==72& It %an #e formed #0 a minimum of se3en mem#ers and it %an ha3e as man0 mem#ers as it
%an a((o:& A +u#(i% (imited %om+an0 has a distin%t (ega( identit0- and thus the #usiness o:ners
are (imited to an0 #usiness (ia#i(it0& The #usiness stru%ture has a (ega( %ontinuit0- and is a((o:ed
to se(( shares to +u#(i% to raise funds& In order for the +u#(i% (imited %om+an0 to issue its shares
to the +u#(i%- the %om+an0 is (ega((0 re9uired to issue a +ros+e%tus ad3ertising the sa(e of shares
and out(ining ho: the raised funds :i(( #e s+ent& A +u#(i% (imited %om+an0 is managed and run
#0 %om+an0 dire%tors :ho are e(e%ted #0 the shareho(ders& The minimum num#er of dire%tors is
t:o and ma8imum num#er is t:e(3e&
A +u#(i% (imited %om+an0 is re9uired to fi(e in%ome ta8es and +a0 %or+orate ta8es& It is
a(so re9uired to +re+are finan%ia( statements ref(e%ting the true and fair finan%ia( +osition of the
%om+an0 to #e issued to the %om+an0s shareho(ders& There are regu(ations and ru(es to +rote%t
FORMS OF BUSINESS ORGANISATIONS 5
o:ners of the %om+an0 and in%(udes the re9uirement to +u#(ish a(( annua( a%%ounts& The
%om+an0 must ho(d an Annua( Genera( Meeting 1AGM2 e3er0 0ear and a(( the shareho(ders must
#e in3ited& ?ith regard to informing sta;eho(ders as to the #usiness finan%ia( a%ti3ities- a +u#(i%
(imited %om+an0 is re9uired under the %om+an0 (a: to +u#(ish its entire finan%ia( statements
e3er0 finan%ia( 0ear 1Bou%hou8- '==72& This :i(( ensure that shareho(ders and +otentia( in3estors
are informed on the true finan%ia( +osition of the %om+an0 in order for them to e3a(uate the true
3a(ue of their shares&
$onclusion
There are different forms of #usiness stru%tures in%(uding so(e trader- +artnershi+- +ri3ate
%om+an0- and +u#(i% (imited %om+an0& Ea%h #usiness stru%tures has its uni9ue features :ith
3ar0ing ad3antages and disad3antages& In de%iding to start an0 #usiness stru%ture- one %onsiders
fa%tors su%h as %a+ita( re9uirements- ta8ation- size of #usiness- and esta#(ishment %ost& A so(e
trader has fe: (ega( re9uirements and does not ha3e to share an0 #usiness information :ith an0
+erson a+art from the ta8 authorities& There is a (ega( re9uirement for the +artners to share
information :ithin themse(3es regarding #usiness finan%ia( a%ti3ities and :ith ta8 authorities& A
+ri3ate %om+an0 is re9uired to +re+are finan%ia( statements ref(e%ting the true and fair finan%ia(
+osition of the %om+an0 to #e issued to the %om+an0s shareho(ders& A +u#(i% (imited %om+an0 is
re9uired to +re+are finan%ia( statements ref(e%ting the true and fair finan%ia( +osition of the
%om+an0 to #e issued to the %om+an0s shareho(ders&
FORMS OF BUSINESS ORGANISATIONS B
%eferences
Bou%hou8- $& 1'==72& Fundamentals of Business Organizations for Paralegals& UC: As+en
*u#(ishers On(ine&
Gage(- $& 1'==62& Start and Improve Your Business& Ne: Dor;: Bo$ , Boo;s on $emand&
Sing(a- R& 1'==72& Business Organization and Management& /ondon: FC *u#(i%ations&
FORMS OF BUSINESS ORGANISATIONS 6
&ppendices
Sample $ertificate of Incorporation
FORMS OF BUSINESS ORGANISATIONS 7