Start & Run a Coffee Bar. Tom Matzen

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СКАЧАТЬ Decision-making process. Decisions are made exclusively by the sole owner, who has complete authority and freedom to move. The owner does not have to obtain approval from partners or shareholders or a board of directors.

      (e) Sole ownership of profits. The proprietor does not have to share the profits with anyone. The profits generated by the business belong to one person. The sole owner decides how and when the money will come out of the business.

      (f) Ease of terminating/sale of business. Apart from legal responsibilities to employees, creditors, and perhaps clients, you can sell the business or close it down at your will. It is also relatively easy to roll a sole proprietorship into a corporation later, if you wish to.

      (g) Flexibility. You are able to respond quickly to business needs with day-to-day management decisions governed only by various laws and common sense.

      2.1b Disadvantages

      (a) Unlimited liability. The sole owner’s personal assets, such as house, property, car, and investments, are liable to be seized if necessary to pay for outstanding debts or liabilities. As mentioned earlier, the proprietor and the business are deemed to be one and the same in law.

      (b) Less financing capacity. It is more difficult for a proprietor to borrow money than for a partnership with various partners or a corporation with a number of major shareholders. A lender looking for security and evidence of outside resources can turn to other people connected with the business rather than to just the one person in a proprietorship. A partnership or corporation can give an investor some form of equity position, which is not available in a proprietorship.

      (c) Unstable duration of business. The business might be crippled or terminated upon the illness or death of the owner. If there is no one to take over the business, it may have to be sold or liquidated. Such an unplanned action may result in a loss.

      (d) Sole decision making. In a partnership or a corporation, there is generally shared decision making or at least input. In a proprietorship, just one person is involved. If that person lacks business ability or experience, poor decision making can cause the business to suffer.

      (e) Taxation. At a certain level of profit there are tax disadvantages for the sole proprietor.

      (f) Customer perception. Some customers and creditors may have the negative perception that your business is short term if you do not incorporate.

      2.2 Partnership

      A partnership is usually defined as an association of two or more persons to carry on a business with a view to making a profit. The partnership is created by a contract, either verbal or written, between the individual parties.

      The partnership agreement, sometimes called articles of partnership, is absolutely necessary in this kind of business structure. The agreement normally outlines the contribution of each partner in the business, whether financial, material, or managerial. In general, it defines the roles of the partners in the business relationship. There are many different roles for partners, as listed in section 2.2c below.

      If you are considering a partnership relationship, you should see your lawyer and accountant after considering the advantages and disadvantages described.

      2.2a Advantages

      (a) Ease of formation. Legal formalities and expenses in forming a partnership are few compared to incorporating.

      (b) Pride of ownership and direct rewards. Pride of ownership generates personal motivation and identification with the business. Profits could be increased if more people have a vested interest in seeing the business do well.

      (c) Availability of more capital. A partnership can pool the funds of a number of people compared to a sole owner who has only his or her own resources to draw upon, unless loans are obtained.

      (d) Combination of expertise and talent. Two or more partners, by combining their energies and talents, can often be successful where one person alone would fail. This is particularly true if the business demands a variety of talents such as technical knowledge, sales ability, and financial skills. It is important that working partners bring complementary skills to the business, thereby reducing the workload of each partner.

      (e) Flexibility. A partnership may be more flexible in the decision-making process than a corporation, but less so than a sole proprietorship.

      (f) Relative freedom from government control and special taxation. Compared to a corporation, a partnership is relatively free of restrictions and bureaucratic red tape.

      2.2b Disadvantages

      (a) Unlimited liability. The major disadvantage of a partnership is the unlimited liability. This unlimited liability is much more serious than in a proprietorship because all the partners are individually and collectively liable for all the debts and liabilities of the partnership. Each partner’s personal assets are liable to be seized, if necessary, to pay for outstanding business debts.

      (b) Unstable duration of business. Any change in the partnership automatically ends the legal entity. Changes could include the death of a partner or the admission or withdrawal of a partner. In each case, if the business is to continue a new partnership agreement must be written.

      (c) Management of difficulties. As mentioned, when more than one owner assumes responsibility for business management, there is a possibility that differences of style, priorities, philosophy, and other factors will arise. If these differences become serious disputes and are unresolved, the partnership may need to be terminated, with all the financial and personal trauma involved. It is difficult for future partners to foresee whether or not personalities and methods of operating will clash.

      (d) Relative difficulty in obtaining large sums of capital. This is particularly true of long-term financing when compared to a corporation.

      (e) Partnership agreement problems. The larger a partnership becomes, the more complex the written agreement has to be to protect the rights and identify the responsibilities of each partner. This can result in additional administration and legal costs.

      (f) Difficulty of disposing of partnership interest. To withdraw capital from the business requires approval from all other partners. This takes time and involves legal and administrative expenses.

      2.2c Kinds of partners

      An ostensible partner is active in the business and known as a partner.

      An active partner may or may not be ostensible as well.

      A dormant partner is inactive and not known to be a partner.

      A secret partner is active but not known as a partner.

      A silent partner is inactive and not known as a partner.

      A nominal partner СКАЧАТЬ