TYPES OF

BUSINESS
ORGANISATIONS
UNIT 3
3 MAIN TYPES OF BUSINESS
ORGANISATIONS

Sole Limited
Partnership
Proprietorship Company
• 1 owner • 2-20 partners • Private(1-50)
• Referred as • Ordinary • Public (>2)
entrepreneur • Limited
 Features:
• Owns the business
• Manages business on his own, often with

Sole Proprietorship family members involved

• Solely responsible for business profit and
loss, decision making
• Entrepreneur who takes the risk of
establishing a business for profits
Sole Proprietorship
Advantages: Disadvantages:

• Simple setup, inexpensive. Needs to register • Small size due to limited capital, lacks scale
with Registrar of Business. Easy to dissolve to bargain with suppliers
when business fails. • Unlimited liability towards business debts,
• Personal motivation to succeed and makes bears all risks, may lose personal assets
all decisions. • Lack of continuity, business may close
• Direct ownership and control over when owner retires of dies
employees, operation matters, customers
and suppliers
• Lower personal tax for profits earned
 - Usually by professional business eg law firms, doctors, accountants,

Partnership -
architects
Most have Partnership agreement where ALL partners must sign, stating
their roles and duties
- Ordinary partnership: all partners assume unlimited liability towards
business debt, may lose personal assets to make good business debts
- Limited partnership: partners’ liability is limited to the capital invested in
the business. Must have at least 1 partner assuming unlimited liability.
Register with Registrar of Companies.
- Management and control are usually in the hand of ordinary partners
- Partners Agreement states:
- Capital contribution by each partner. Usually an agreed interest is
payable based on the capital contribution.
- Distribution of profits. If not stated, then equally distributed to all
partners
 Roles of partners
Different partners bring different strengths, may contribute
money, time, special expertise, reputation or a good location to
the business.
3 types of partners:
Active partners – involved in managing the business
operation, draw salary, receive sales commission or bonus if
they are the main partners generating revenue
Sleeping partners – contribute capital but little involvement in
managing the business. Usually inactive, but will vote and
contribute to major decision making
Nominal partners – partners in names only with no role in
managing the business. They have no share in the profit and
loss of the business.
Advantages of Partnership
Simple setup

Availability of capital – more partners to contribute capital, allows business to expand.

Expertise – different partners may bring their expertise to the business including networks of business clientele and
contacts, reputation to increase business profitability
Team effort – more business efficiency with synergy from all the partners

Limited liability – only for limited partners

Continuity – partnership dissolves when any partner dies. The other partners can draw up a new partnership
agreement to continue their business.
Lower tax – partners are subject to personal income tax
 Disadvantages of
Partnership
Unlimited liability – for partners apart from limited
partners
Group agreement & commitment – difficult to reach
consensus, inefficient in decision making. Once a
commitment is made, binding on all partners.
Disagreement may cause dissolution of partnership.
Lack of continuity – Partnership dissolves when any
partner dies, incapacitated, retire or become bankrupt
Limited capital contribution – subject to a maximum
of 20 partners’ contribution limiting further
expansion.
Limited Companies Registration with Registrar of Companies(ROC)
-
– incorporated under Memorandum of Association: state company name,
address, objectives, liability of shareholders, capital
Companies Act to be registered.
- Article of Association: rules governing the internal
management of the business including the different
classes of shares and their rights, the appointment,
powers and duties of its board of directors
Raise funds from public share sale
- Prospectus is required to be published when
inviting public to raise capital through shares sale. It
describes the history of company, capital and classes of
shares and other relevant info on the company.
Features of Companies
Legal entity
Separate entity from shareholders, can sue or be sued, can own assets
and enter into contracts
Limited liability of shareholders
Shareholders do not lose beyond the amount of capital invested, will
not involve personal assets.
Ownership of company
Determined by the number of shares held by each shareholder
Management of company
By Board of Directors (BOD) elected by the shareholders. BOD
employs salaried managers, CEO.
Types of limited companies
- Private limited companies , ie Pte Ltd
- Public limited companies, ie Ltd
Profits subject to Corporate Tax
Features of Private limited companies
Restricted transfer of shares – requires consent of other shareholders

Less costly registration than public companies

Number of shareholders – between 2 to 50

Limited capital raised due to limitation on number of shareholders

Commonly found with family-owned business

Need not publish its balance sheet unless due to arrangement with other companies or banks

Director must be shareholder (???)

Features of Public limited companies
Shares are listed on a Stock Exchange, hence can buy or sell through the Stock Exchange, ie transferable.

Can invite public to subscribe to shares – need prospectus. Can raise more capital to support expansion.

More costly to register, more compliance requirements

Minimum 2 shareholders (?) , no maximum limit

Control of company is with those holding the largest amount of shares

Business is run by Board of directors who need not be shareholders

Must publish balance sheet available to public, copy sent to ROC

Advantages of Limited companies
Access to capital
- Public companies can raise larger amount of capital through share issues and
bank loans
Expansion of business
- More capital allows expansion, leading to greater purchasing power and
economies of scale from bulk purchase of goods or services
Continuity
- As a separate entity from shareholders, companies can be permanent.
Shareholders can transfer shares allowing greater continuity.
Limited liability
-limited risk for investors/shareholders
Transferability of share ownership
- Shares can be bought or sold through the stock exchange making it easy for
shareholders to get their money back.
Disadvantages of Limited companies
More restrictions and compliance costs
- company’s formation and operation may comply with
Companies Act and Securities Act. Code of governance,
proper accounting records subject to audit, timing reporting
leads to more expenses
Lack of incentive and commitment
- Managed by salaried employees, shareholders, board of
directors with no direct personal interest and incentive to work
for business success
Tax liability
- Tax under corporate tax
Types of shares of Limited companies
Preference shares Ordinary shares Deferred shares

• Fixed dividend irregardless • Variable dividend at rate • Held by directors

of company profits declared by BOD • No voting rights and
• First claim on dividends • Receive dividend and control
and distribution of distribution of company • Claim over distribution of
company assets should assets after preference company assets after
business fails shareholders preference shareholders
• No voting rights and • Have voting rights and but before ordinary
control control shareholders