Discuss the types of business entities that exist. Discuss the advantages and disadvantages of each.

BSc Computing

Assignment B

Part A: Discuss the types of business entities that exist. Discuss the advantages and disadvantages of each.

For this part of the assignment I will be looking at four different types of business entities. The four types of these business organisations are:

Sole trader
Partnership
Limited liability or (joint stock) company
Unincorporated associations.

Sole Trader businesses

In this form of business organisation one person provides all the permanent finances and, in return, retains full control of their business and enjoys all the profits made by the business. The sole proprietor is likely or will eventually employ others as wage earners, but the distinctive feature is that there is a single owner of the business.

There are no legal formalities involved in setting up in business as a sole trader. However, under the business names act 1985 the owner must confirm the three basic requirements:

The name of the owner must be displayed on all business documents;
The owner must disclose information relating to ownership to anyone who has dealings with the business;
A notice concerning ownership must be displayed in the business premises.

Apart from these three there are no other legal requirements when establishing a sole trader business. The trader is required to submit accounts to the Inland Revenue expenditure taxes.

The sole trader enjoys distinct advantages:

Small start up costs. It is simple an inexpensive to set up as a sole proprietor.
Freedom and flexibility. The small business is very flexible. If one kind of activity is not profitable, the owner can quickly switch to something else.
Personal satisfaction.
Secrecy- there is no need to disclose business affairs, except to the tax authorities and to creditors when seeking for loans.
Personal control with no requirement to consult
Personal contact with staff and customers.
Enjoyment of profits. The owner keeps all the profits, though he must save enough money to pay tax, interest charges and VAT.
Financial advantages in terms of low taxes and accountancy fees.

Against these advantages there are major drawbacks:

Limited source of finance-not easy for more investments.
Restricted growth. The firm’s growth is often slow as one person can only do a limited amount of work.
Limited scope for economies of scale
Success depends on owner’s energy
The constraint of lack of time – working long hours.
Unlimited Liability. Full responsibility of all debts and other problems of the business.
High risks. The risks of failure are high as there is usually great competition.
Lack of continuity –Business stops with the owner’s death.

Looking at the above, it can be said that there are many drawbacks of being a sole trader but the good news for sole traders is that they earn and gain all the profits of the business.

Partnerships

To overcome some of the problems inherent in the sole trader form of business a partnership might be formed. A partnership is in association of individuals and is not a legal entity in its own right. It cannot sue or be sued in its own name but instead each of the partners has to be named. The individually partner can be sued and held liable for all decisions made, and all debts incurred, by other partners if these people were acting with the authority of the partnership. Therefore, one should choose business partners very carefully and draw up a legal agreement on the rights and responsibilities of each partner. This legal agreement is called the Deed Of Partnership.

The partnership agreement should deal with:

Name and nature of business and commencing date
Amount of Capital input by each partner & role of each partner
Method of sharing profits (or losses)
Voting rights. Do the partners have equal or unequal control?
Duration of partnership and method of dissolving the partnership
Arrangements to cover absence through sickness, retirement or accident.
Finance arrangements i.e. banking and insurance
Authority to sign contracts.

According to the partnership act, all partners are entitled to an equal share of the profits. However this may vary if one of the ...

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The partnership agreement should deal with:

Name and nature of business and commencing date
Amount of Capital input by each partner & role of each partner
Method of sharing profits (or losses)
Voting rights. Do the partners have equal or unequal control?
Duration of partnership and method of dissolving the partnership
Arrangements to cover absence through sickness, retirement or accident.
Finance arrangements i.e. banking and insurance
Authority to sign contracts.

According to the partnership act, all partners are entitled to an equal share of the profits. However this may vary if one of the partner’s contributions is a disproportionate amount and it will be shared accordingly.

As a business form, partnerships enjoy certain advantages over the sole trader:

Additional sources of finance. Easier to raise capital as each partner contributes a share.
Sharing of responsibilities
More profitable ideas than a sole proprietor business.
Specialisation
Sharing of losses
Greater privacy and fewer legal formalities.

Partners are fully responsible for all debts incurred.

Limited liability (or joint stock companies)

Limited liability is a great advantage. A company is legally a separate thing, which means that it has certain rights that are recognised by the courts. It can buy and sell assets; make contracts; sue other companies and individuals; and can itself be sued. Companies differ from partnerships in that act of incorporation creates a new legal entity distinct from the shareholders who own the company. Contracting of debt are actions of the company rather then individuals. Unlike other business forms, a company is unaffected by death or retirement of the shareholders. Shareholders are liable to meet the debts of the business only to the extent that they have invested in the business (only if shares are not fully paid up). The shareholders have control over the company’s affairs. Their view is heard at the annual general meeting (AGM), or at any special meetings they call. Shareholders enjoy the privilege of limited liability.

Private or Public

A private limited company (Ltd) must have two or more shareholders. Their shares cannot be sold to the general public on the stock exchange. If the Private Company is successful and wants to raise money for growth, it can offer shares to the public by making itself into a Public Limited Company or plc. The shares will then be bought and sold on the Stock Exchange.

Disadvantages of forming a limited company:

It is more expensive to set up a company than to start a sole proprietor or partnership business.
All the accounts must be audited, which means that they will have to employ an auditor as well as an accountant.
There are no legal formalities.
The company is less flexible in some ways than the sole proprietor business, as it is governed by two documents, which are drawn up when it is registered as a company.

Memorandum of Association – States the name, address and objectives of the company, how liability will be limited and the amount of capital required.
Articles of Association – This sets of rules governs the internal working of the company, which also has to be sent to the Companies Registration Office.

It is often no easier for a small private company to borrow money than a sole proprietor.

Unincorporated associations

Unincorporated associations basically are not set up to make any money, these could be the likes of trade unions, amateur sport clubs etc. Within this association it must comprise of a chairperson, secretary, treasurer, and involve AGM.

Memorandum of association

This establishes the company for strictly limited purposes, states its name, registered office and authorised capital, and determines its objects. Also the amount of capital registered in the company.

Articles of association

This is the internal regulation governing the conduct of a company and how the company will operate.
A statement detailing management of the company and its rules.

Advantages;

Liability is limited
Companies are entities in themselves by law
Company can raise more capital through shares or loans.

Disadvantages:

Members who own company may not run the company
No privacy
Must publish annual reports & accounts

Part B: An 18-month-old child is going to live with you for two weeks during your holidays. The child is mobile (walking). Undertake a risk assessment of your kitchen where you live. Identify risks and band them in order of risk. For each risk, explain the counter measures you must take to eliminate the risk to the child.

Anyone who is responsible for a child's safety including parents, grandparents, babysitters and older siblings, must have a basic understanding of the fire, burn and chemical risks in the kitchen.

Below is a table to show the risk assessments and its control measures together with the band of the risk; 1 being the worst and 3 being the least.

A few other counter measures that can be taken:-

Oven mitts or potholders should be used to remove pots and pans from the stove, just to avoid scalding the child. Keep pot handles turned in so the pots cannot be pulled off or knocked off the stove.
Cookies and other foods should be stored away from the stove area so no one will be tempted to reach across a hot burner. Store potholders, paper towels, seasonings and other cooking items at a safe distance from the stove because a curious child may reach across to grab an item.
Establish a "SAFE AREA" in the kitchen where a child can be placed — away from risk, but under continuous supervision. Also, consider establishing a "NO ZONE" directly in front of the stove. The child can be taught to avoid this area. Mark the zone with yellow tape, a piece of bright carpet or other material.
Use a fill-through-the-spout teapot to reduce the risk of hot water-associated scald burns. The central handle, the single, small opening, and a "spout whistle" are all safety features.

CF102 Assignment B – Science and Technology Based Organisations

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