Forms of Business
When you decide to start a business
· Decide on a Legal Structure for Your Business
· Decide how you would like the business to be taxed.
· Choose a Business Name
· Register your business name
· Find a Business Location
· Obtain Necessary Licenses and Permits
The
Unit Trader/ The Sole Trader
Partnership
Company-(Public
And Private)
Co-Operatives
Franchise
Multinationals
Conglomerates
NGOs
State owned.
The
Unit Trader/ The Sole trader
Sole
trader also known as the sole proprietor is a single owner who pays personal
income tax on profits earned from the business.
Examples
of this type of business are grocery shop, barbershop, garage, bar, cook shop.
The advantages and disadvantages of the unit trader and the sole trader are the
same.
Advantages
of sole trader
It
is easy to start.
Owner
receives all the profits and reaps all rewards
There
is secrecy in business affairs- the owner keeps his affairs to himself without
disclosing it to anyone.
Quick
decision making
Owner
is the boss.
Freedom
to make all decisions.
Disadvantages
of sole trader
It
is difficult to get money for expansion.
Lack
of continuity
Unlimited
liability
Owner
takes all the risks and bears all the losses.
Owner
may lack special skills and ability.
Long working hours.
What
is required to start a sole trader type of business in Jamaica?
1.
The name and the address of the business
2.
Collect and complete registration Beno1 form from the Registrar of Companies.
3.
Two certified passport size pictures attached to the completed forms.
4.
Registration fee $1500.
5. Submit forms along with the prescribed fee.
6. Register with the NIS (National Insurance
Scheme) office.
7. Register with the GCT (General Consumption
Tax) office.
8. Food handlers permit if operating a bar
restaurant or hair dressing saloon.
9. License if required especially in the selling
and dealing with alcohol.
Partnership
Partnership
is a form of business organization wherein two or more persons join together in
order to carry out business with the aim of making profits.
The
individuals involved in a partnership are the partners since they own part of
the business.
Each
partner invests money, material goods, skill, and expects to share in the
profits and losses of the partnership.
What to look for in a partner
· Sound finances and stable background
· Aptitude for business or business sense
· Skills in the business you will be
undertaking.
· Trustworthiness
Business suitable as partnership
A partnership business is suitable in cases where the startup capital is neither too large nor too small; one in which people having different ability, managerial skills and expertise joined.
Examples
- wholesale and retail business, small factories,
construction, legal and medical firms.
Advantages of partnership
1. More capital is available
2. It
is easy to form
3. Special skills and ability combined
4. Workload is shared
5. More informed decision making
Disadvantages of partnership
1. Unlimited liability
2. Unsatisfactory division of profits
3. Disagreement among partners
4. Limited sources of capital
5. Lack of continuity
Types of partners
1. Ordinary partners / Active Partners:
- are partners who are actively engaged in the day-to-day function of the
business. They put in capital and are entitled to share the profits and losses
of the business.
2. Dormant partners: -are partners who
do not partake in the day-to-day activities of the partnership firm are known
as dormant or “sleeping partners”. They only put in capital and share the
profits or bear the losses, if any.
3. Nominal partners: - “do not” have
any real interest in the business. They do put in any capital, or share
profits, and do not take part in the business. He/she is only lending his name to
the firm and does not have a voice in the management of the firm. On the
strength of his name, the firm can promote its sales in the market or can get
more credit from the market.
4.
A secret partner is kept
secret from the outsiders and third parties. His/her liability is unlimited
since he/she holds a share in profit and shares liabilities for losses in the
business. He/she can even take part in working for the business.
What is required to start a Partnership business in Jamaica?
1. A partnership deeds
2. Collect Beno 2(BN2) form from the Registrar of companies
3. Three certified passport pictures for each partner. Identification card (ID) of each partner.
4. Attached pictures of each partner to the completed form and submit with the prescribed fee $1500 to the Registrar’s office.
5. Register with the NIS office
6. Register with the GCT office
7. Get food handlers permit and license if required.
Partnership Deed
Partnership deed is an
agreement between the partners of a firm that records and outlines in detail
terms and conditions of partnership among the partners. It has the force of law
and is designed to guide the partners in the conduct of the business.
Contents of a Partnership Deed:
The partnership deed must contain the following particulars:
1. The name of the firm (business).
2. The names and addresses of the partners.
3. The nature of the business
4. The term or duration of partnership.
5. The amount of capital to be contributed by each partner.
6. The drawings that can be made by each partner.
7. The interest to be allowed on capital and charged on drawings.
8. Rights of partners.
9. Duties of partners.
10. Remuneration (Salary) to partners.
11. The ratio in which the profits or losses are to be shared among the partners.
12. The basis for the calculation of goodwill at the time of admission, retirement and death of a partner.
13. The keeping of proper books of accounts and the preparation of Balance Sheet.
14. Settlement of amount on the dissolution of the firm.
15. The procedure to be adopted in case of disputes among the partners.
Rules to be followed in the Absence of a Partnership Deed:
In the absence of a partnership deed, the following rules have to be followed:
1. The partners are entitled to share the profits or losses equally.
2. Partners are not entitled to interest on their capital.
3. No partner will be allowed salary, or any other remuneration for any extra work done for the firm.
4. No interest will be charged on partners’ drawings.
5. Interest at 6 percent per annum will be allowed to partners on any loan given to the firm by them.
6. Every partner has a right to take part in the working of the partnership business
7. No person can be admitted into the firm without the consent of all the existing partners.
8. Every partner should use the partnership property for the benefit of the firm.
9. Every partner has a right to inspect the books of accounts of the firm
Importance of partnership deed
• It controls and monitors the rights, responsibilities, and liabilities of all the partners
• Avoids dispute between the partners
• Avoids confusion on profit and loss distribution ratio among the partners
• Individual partner’s responsibilities are mentioned clearly
• Partnership deed also defines a remuneration or salary of the partners and working partners. But interest is paid to each partner who has invested capital in the business.
Co- operative
A cooperative is a form of business that is owned and organized by its members. Members often have a close relationship with the business as producers or consumers of its products or services, or as its employees.
Types of cooperative
1. Retailer’s Co-operative- is a business, which operates on behalf of its members to get discounts from manufacturers and to pool marketing. Examples - grocery stores, hardware and pharmacies. These businesses are involved in “bulk buying”.
2. Workers co –operative is a business that is owned and controlled by its "worker- owners". The workers own shares of the business, and their main aim is to provide employment for their workers.
3. Consumers' co-operative is a business organized to provide its members with items they need at a cheaper rate, for example food, gasoline, and hardware.
4. Financial co –operative owned and controlled by their members who pooled their resources together such as savings in order to provide credit for members who needed it. Examples - Credit Unions that operate like a bank, the Pension fund, and Building societies.
5. Agricultural cooperatives or farmers' cooperatives are businesses where farmers pool their resources for mutual benefit. Resources -land or machinery are pooled and members’ form jointly to acquire, store, and distribute farm products. They benefit greatly from discounts and provide seeds, fertilizers, chemicals, fuel, and farm machinery for their members.
Principles of a co-operative
1. Voluntary and Open Membership-anyone can join.
2. Democratic Member Control- all members have one vote and the right to attend
general meeting
3. Limited interest on capital invested
4. Distribution of profits.
5. Member Participation
6. Education, Training, and Information
7. Teamwork among Co-operatives
8. Concern for society
Advantages of a Co-Operative
1. Bulk Buying- Purchases are made in large quantities
2. More trade discounts which lower the price
3. Little or no advertising cost which helps in the decrease of selling price of the product.
4. The consumers are protected against unfair trade because quality products are purchased directly from the producers.
5. Strength and stability.
6. Surplus shared by the members
7. Limited resources
Disadvantages of a Co- Operative
1. Cooperatives established to provide the needs of small medium income group people.
2. Insufficient finance collects from its members.
3. Managed by amateurs.
4. It lacks proper advertising
5. Lack of secrecy
Company
A company is a legal entity, one that is separate from the persons who own it. This means that it can own property, sue or be sued in a court of law in its own name. Individuals can take the company to court, not the shareholders.
The company continues to exist even if its board of directors or shareholders dies, resigns, or goes bankrupt.
The shareholders are not liable for debts beyond the amount they have invested in the business, this is called limited liability.
A board of directors is elected by shareholders at Annual General Meeting (AGM) to run the business. The board of directors’ devise plans and policies for the operation of the company.
A company can be registered as a Limited liability company or as an unlimited liability company. Limited Liability Company is either public or private.
Private Limited Company
This form of business is often run by a family or small group of owners from 2 -50 shareholders. All the shareholders have limited liability, shares are offered for sale only to members of the immediate family, employees, and past employees and NOT to the general public. The private limited company must register with the Registrar of Companies and present its memorandum of Association and its Articles of Association before it can start operating.
Advantages of Private Limited Company
1 The company has a limited life. This means that the company will last for a very long time.
2 It has a large financial base.
3 Shareholders have limited liability.
Disadvantages of Private Limited Company
1 The company cannot sell shares to the public
2 The company must file its financial reports annually.
3 It is not easy for shareholders to sell their shares.
The Public Limited Company
The Public Limited Company requires a minimum of 7 shareholders and there is no limit to its maximum.
It can offer its shares to the public, the shareholders elect a board of directors to control the decision making, develop plans and policies to guide the operation of the company.
The name of the company must end with “Limited” (Ltd). The public limited company must register with the Registrar of Companies.
Advantages of the public limited companies
1 Shareholders have limited liability
2 There is easy access to capital for expansion
3 Specialist Management is hired
4 The continuity is ensured (unlimited life)
Disadvantages of the Public Limited Company
1 Workers are left out of decision making
2 Accounts must be published annually
3 Management is separate from ownership.
4 Double taxation of the same earnings at two levels, example is taxing the earnings at the company level and then again at the shareholders dividend level.
What do you need to start a company?
• The required number of individuals to get together and put money and the agreed shareholdings level together.
• The memorandum of association
• The articles of association
• A statement of nominal capital
• A declaration signed that the company will adhere to
• All these documents must be prepared with the guidance of a lawyer and the stamp duty paid then;
• A certificate of incorporation given to the business granting permission to start operation.
Memorandum of Association
The Memorandum of Association is a legal document that presides over the relationship between the company and the outside world. It gives details such as:
1 The name of the company
2 The amount of share capital that the company may raise
3 The objectives of the company
Articles of association
The articles of association are the regulations governing the relationships between the shareholders and directors of the company. It includes:
1 Voting rights
2 Power of directors
3 The amount of money the company may borrow without consulting the
shareholders.
4 A list of directors
5 A statement of nominal capital
Conglomerates
Conglomerates - a group of companies, which makes unrelated goods / services.
Example Grace Kennedy Company Ltd
Advantages of Conglomerates
1 Strength and security
2 Risk of failure is spread.
3 There is much interaction between members in terms of staffing and promotion and job openings.
Disadvantages of Conglomerates
1. It is difficult to evaluate the group of companies because of its diversity of interest.
2. Most managers dislike control outside of their own company
3. There may be problems between lines of authority.
4. Lack of focus, and inability to manage unrelated businesses well.
5. The extra layers of management increase costs
6. Culture clashes can destroy company value.
Multinationals
Multinationals are businesses that handle production and deliver services in more than one country. It has its headquarters in one country, known as the home or parent country, and operates in several other countries, known as the host country.
Advantages of multinationals
1. Gaining a strong base into the global market
2. Low-cost locations
3. Low costs of labour
4. low-priced raw materials and distribution costs
5. Benefit in tax breaks
6. Access to new technologies and methods
7. Availability of government grants
8. The host country benefit from foreign exchange
9. They create employment.
Disadvantages of Multinationals
1. Trade restrictions imposed at the government-level
2. Taxes or tariffs imposed on imports from other countries
3. Profits are transferred to the home country
4. They do not add value locally; the welfare of the host country is not their concern. Examples of multinationals are Nestle, Texaco, Coca Cola Dell, Microsoft, and Noranda Kaiser Bauxite.
Franchise
A franchise is a right given to a businessperson or entities that sell its goods or services within a certain location,
Examples- McDonald’s, Pizza Hut, Dominos, Starbucks and Dunkin’ Donuts.
Franchisee-A person or entity to whom the right to conduct a business is granted by the franchisor.
Franchisor- is the business owning the rights to grant franchises to potential franchisees.
Advantages of a Franchise
1. Image and goodwill –Customers are more comfortable buying items from a company they trust.
2. Training – The franchisor provides l training and support to help setting up the business, along with an instruction manual telling you how to run the business and ongoing advice.
3. Saves time
4. Established Relationships with suppliers.
5. The Franchisee benefit from advertising, sharing and receiving ideas and support from other franchisees.
Disadvantages of a Franchise
1. High Costs
2. Restrictions on how to carry out business activities. You might not be able to make changes to suit your local market.
3. The franchisor might go out of business.
4. Bad reputation to the brand by other franchisees
5. It may be a problem to sell the franchise – since you can only sell it to an
individual/ entity that the franchisor permits you to sell it to.
6. All profits are shared with the franchisor
NGOs (Nongovernmental organization)
Nongovernmental organization-is an organization that conducts its events to assist other individuals, groups or causes rather than gaining profits for themselves.
They operate in diverse settings including poverty, religion, science, research, and education. Such as:
- Charity —directed at meeting the needs of disadvantaged people and groups.
- Service —provide healthcare (including family planning) and education.
- Participatory — self-help projects with local involvement in the form of money, tools, land, materials, or labor
NGOs rely on a variety of funding sources from private donations and membership dues to government contribution. NGOs sources for funding, including:
• membership dues
• private donations
• the sale of goods and services
• grants
Advantages Of Ngos
1. tax free status- they don’t pay taxes
2. limited liability- the members of the non-profit receive protection from personal liability.
Example if a legal judgment exceeds what the non-profit can pay, the claimant will not be able to collect the remainder from the organization’s members.
3. grants – they can receive grants from government, and the private individuals
4. Founders are Kept Separate from the Organization- In case there is a lawsuit, fine, debt, or similar legal matter involved with the organization, the personal assets of the individual founders are kept separate from the business structure, meaning they are risk-free.
5. Motivation and Leadership
Disadvantages of NGOs
1. lack of fund
2. low pay
3. lose its tax status if it misses its annual reporting deadline
4. Paperwork and Administrative Costs
5. public scrutiny - its finances are open to public inspection. This means that the public can get copies of tax returns and can find out its salaries and expenditure
State Owned business organization – owned and operated by the state/ government.
Advantages of state-owned enterprises
• They provide very essential services to the people at cheaper and affordable rates.
For example, electricity and water.
• Cheaper goods and services.
• They protect the consumers from being exploited by private enterprises by offering them a cheaper and better alternative.
• They create jobs for the people.
• State owned enterprises help the government to control certain strategic sectors of the economy.
Disadvantages of state-owned enterprises
• There can be high levels of corruption in state owned enterprises.
• State owned enterprises are sometimes plagued by too much political interference and control.
• Negative work attitude by workers -laziness and dishonesty.
• Bribery and corruption are more rampant in state owned enterprises- most managers of these enterprises embezzle monies and others misappropriate them, leading to the slow growth of most state-owned enterprises.
Some general procedures for all business to follow
1 Type of ownership structure
2 Registering the business
3 Licensing of the business
4 labour laws
5 Food handler’s permit
6 Price control regulations
7 General consumption tax (GCT)
8 Income tax (PAYE)
9 Zoning laws- specify which land areas may be used for homes or commercial areas.
10 Quality controls
11 Property assessments
OTHER LEGAL ISSUES RELATING TO BUSINESS
Patent this gives a person the right to invent, make, use, discover, improve an invention up to 17 years.
Copyright - gives complete rights to the originator of an
original work, including the right to copy, supply, and adjust the work. E.g.
books, maps, charts, Inscriptions, prints, musical composition, dramatic works,
photographs, paintings, motion pictures, drawings sculptures, computer
programme, sound recordings, choreography, and architectural works.
Trademark is a unique name, symbol, slogan, or crest that
identifies a product, service, or firm.
Trade
secrets-A trade secret is
something used in a company's business that (a) is not known or readily
accessible by competitors, (b) has commercial value, such as a formula,
pattern, compilation, program, device, method, technique, or process.
Source Cited
"What
are the common forms of businesses, and what structure makes the most." https://www.businesscreditfacts.com/pdp.aspx?pg=what-are-the-common-forms-of-businesses.
"What Is a State-Owned Enterprise (SOE), and How Does
It Work?." 29 Sept. 2020, https://www.investopedia.com/terms/s/soe.asp.
"What is a Non-Governmental Organization (NGO)? -
Robinhood Learn." 21 Mar. 2023,
https://learn.robinhood.com/articles/1X9Bz5vOswNbVd83I3JMNT/what-is-a-non-governmental-organization-ngo/.
"Patents | USPTO - United States Patent and Trademark Office." https://www.uspto.gov/patents
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