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1. Session Three:
Forms of Business
Ownership

2. A Business
A business organization in contrast to a public service
organization or a charity
It exist to provide goods and services at a profit
The business organization we are concerned with here
range from one-man business to a large public company

3. Forms of Business
There are number of business forms
In generally business can be formed in to;
 Sole trader
 Partnership
 General partnership
 Limited partnership
 Limited liability partnership
 Limited company

4. The sole trader
This is also known as
This is the simplest form of business.
It is form of business in which one person owns and
runs
The sole trader is some one who owns an
unincorporated business by him-self or her-self.

5. The owner of the business takes all the profits but
suffers all its losses and has all the problems and
worries to himself.
The legal requirements for setting up such business are
minimum

6. Waliga ma samaysay ganaci aad keli u
leedahay?
Waa maxay faa’idooyinka iyo faa’ido
darrooyinka kali-ganacsigu?
La wadaag ardayda

7. Advantages of the Sole Trader
 The formalities for starting up are minimum
 Complete autonomy to run the business as the
individual wishes
 The profits of the business belong to the trader
 No public disclosure of accounts

8. Disadvantages of the Sole
Trader
 The individual as a manager has to be responsible for
all aspects of the business
 (marketing, sales, product development
finance etc.)
 The sole trade is entirely responsible for the debts of
the business

9. Partnership
A partnership is a form of business that two or more
individuals own and operate together
usually not more than twenty, persons
members of the partner are owners of the property and
liable for its contracts and debts
Partners legally share a business assets, liabilities, and
profits according to the terms of a partnership
agreement

10. The partnership agreement is a legal document that
states all of the terms of operating the partnership for
the protection of each partner involved
Such an agreement can specify the right and obligation
of each partner
Banks often want to review the partnership agreement
before lending the business money

11. Waligaa ma gashay ganacsi shuraako ah
Waa maxay caqabadaha

12. Characteristics of partnership
Agreement: there should be agreement to form a partnership.
(persons who are not competent to contract cannot be
partners)
There must be a business: the agreement executed by
persons should relate to a business, and such business should
be lawful.
Sharing the profits and losses: the profits or losses of
business must be clarified as per the agreement.

13. Characteristics of partnership
Participation in business: business should be carried by all
or any one of the partners.
Unlimited liability: the liability of the partners of the firm is
unlimited.
This means ; the personal assets of the partners

14. Types of Partnership
Commonly, there are two types of partnership
 General Partnership (GP)
 Limited Partnership (LP)
There can also exist;
 Limited Liability Partnership
 Corporation

15. General Partnership (GP)
general partnership is a business owned by two or
more individuals who agreed to run the business as
partners or co-owners.
This is a partnership in which all owners share in
operating the business and in assuming liability for the
business’ debts.
Partnership agreements play a major role in general
partnerships, so to spilt duties and shares

16. Limited partnership ( LP)
This is a partnership with one or more general partners
and one or more limited partners
Limited partners only serve as investors for the
partnership
Typically, a limited partners does not have decision-
making rights.

17. They get ownership but don’t have as man risk and
responsibilities as a general partner
Limited partners can lose their status if they become too
involved in managing the company.

18. Limited Liability Partnership
(LLP):
This is another type of partnership but different from
the general and limited in terms of risk liability
It is mainly used in skill and service oriented forms of
businesses
This type of partnership was created to limit the
disadvantage of unlimited liability

19. LLP limited partner’s risk of losing their personal assets
to only their own acts and omissions of people under
their supervision.
In an limited liability partnership, each partner is not
responsible or liable for another partner’s misconduct or
negligence.

20. Advantages of Partnership
 Quicker to establish
 More - financial resources
 Shared management and united /complementary skills
and knowledge.
 Risk Sharing
 Freedom from double taxation
 Longer survival if partners commit

21. Disadvantages of Partnership
 Difficult of finding partner
 Divided Authority
 Possible conflict among partners
 Lack of trust and confidence
 Risk of joint responsibilities
 Unlimited liability
 Lack of continuity

22. Corporation or Limited Company
A corporation is an independent legal entity owned by
shareholders,
the shareholders decide on how the company is run and who
manages it
The capital of the company is divided into small units called
shares. The persons who contribute to the capital of the company
are called “share-holders”.
It is limited liability; shareholders may take part in the profits
through dividends but are not personally liable for the
company’s debts.