SC3 – Business Organization Lim Sei Kee @ cK

Different types of business organization Sole proprietorship Partnership Limited company Cooperatives

Sole proprietorship Most businesses in the Brunei are small businesses, owned and operated by one person. In most cases, these businesses operate as a “sole trader”. Many traders in the service sector (e.g. hairdressers, gardeners, plumbers and electricians) use the sole trader option, as do people who run part-time or seasonal businesses.

Why is the sole trader such a popular form of business organization?  The key reason – it is simple and cheap to set up and operate in this way.

Sole proprietorship Being a sole trader is the simplest way to run a business: it does not involve paying any company registration fees; keeping records and accounts is straightforward, the sole trader gets to keep all the profits.

The sole trader simply registers as being “self-employed”. The profits earned by a sole trader are included in the personal income of the business owner.

Partnership A partnership is a business where there are two or more owners of the enterprise. Most partnerships are between two and twenty members.

A partner is normally set up using a Deed of Partnership A partner is normally set up using a Deed of Partnership. This contains: Amount of capital each partner should provide (i.e. starting cash). How profits or losses should be divided. How many votes each partner has (usually based on proportion of capital provided). Rules on how to take on new partners. How the partnership is brought to an end, or how a partner leaves.

The advantages of remaining a partnership rather than becoming a private limited company are: Costs money to set up limited company (may need to employ a solicitor to set up the paper work). Company accounts are filed so the public can view them (and competitors). When a partnership finishes then, depending on how the Deed of Partnership is set up, each partner has an agreed slice of the business.

Limited Company Incorporating business activities into a company confers life on the business as a "separate legal person". Profits and losses are the company's and it has its own debts and obligations. The company continues despite the resignation, death or bankruptcy of management or shareholders.

There are four main types of company: (1) Private company limited by shares (2) Private company limited by guarantee (3) Private unlimited company (4) Public limited company (PLC)

Cooperatives A co-operative is where a number of individuals or businesses work together to achieve a common purpose. They are normally formed so individuals and small businesses can benefit from being part of a larger group, meaning they have more power to buy or bargain.

There are three main types of co-operatives: Retail co-operatives Marketing or trader co-operatives Worker co-operatives

Cooperatives The objectives are normally more focused on the members of the co-operative, the local community and the world community. Though profits are required to enable them to reinvest in their business, they will not be a primary objective.

Problems The system of one member one vote in some societies means a long, drawn out decision-making process Co-operatives may find it difficult to raise finance since banks are not so willing to lend them money because their main aim is not to make a profit Idealistic and ethical aims may not be agreeable with all members, so creating unrest and disharmony

Activity for the day List the advantages and disadvantages: Sole proprietorship Partnership Limited company