Forms of business organisations and arrangements - Part 2
Yvonne Harvey, Contributor

Archbishop of York, The Most Rev. Dr. John Sentamu, greets teacher Florence Williamson and students of the St. James Preparatory School, when he visited the institution recently. - JIS

Hi. This week we continue looking at the forms of businesses in the private sector of a mixed economy.

Last week, we looked at the sole trader. The many disadvantages of the sole trader have encouraged many to turn this business into a partnership.

The Partnership

Partnerships consist of two to 20 part owners engaged in business with a view to making a profit.

Examples of partnerships can be found among many professionals, such as lawyers, doctors, dentists, accountants, stockbrokers and jobbers, etc.

Characteristics of Partnerships

1. Partners usually run their business based on what is written in their partnership deed. In the absence of this deed, partners make reference to the British Partnership Act of 1890. This act, among other things, states that profits and losses are to be shared equally.

2. Agreement on the conduct of the business is usually by unanimous vote.

3. Such businesses should be registered with the Registrar of Companies, which will require information on the business, such as its name, type of business, names and occupations, if any, of partners, etc.

4. Partners will either share management functions, agree that one partner should serve as manager or they will employ a manager.

5. When a partner leaves or dies, the partnership is dissolved.

6. There are four basic types of partners: ordinary partners (active or general partners), sleeping (dormant) partners, limited liability partners and unlimited liability partners. There must be at least one ordinary partner in limited partnerships. Limited partners do not take part in management.

Legal Aspects

1. Partners have a partnership deed which is normally written up by a lawyer.

2. The business should be registered with the Registrar of Companies.

Advantages

1. More capital can be raised than in the sole trader type business.

2. Partnerships are fairly easily formed and start-up costs are low.

3. The business benefits from varied ideas and abilities of partners.

4. Specialisation among managers increases output.

5. The partnership is more efficient and a more controlled business than the sole trader.

6. Workload can be shared. This allows partners to be able to take holidays.

7. Limited government interference.

8. Partners maintain close contact with employees and customers.

Now let us consider the disadvantages.

Disadvantages

1. Unlimited liability for ordinary partners and for unlimited partnerships.

2. Lack of continuity.

3. Disagreements often occur among partners.

4. All partners will lose if one partner makes a bad decision.

5. Capital is still limited since there can only be a maximum of 20 partners.

6. Difficulty in finding suitable partners.

Many partners see that they can gain more advantages by turning their business into companies. There are TWO main types of companies in the private sector of a mixed economy: the private company and the public company.

Private Limited Companies

This refers to an association of persons between one and 20 in number. Private companies may be limited liability companies or unlimited liability companies. They are usually limited liability companies. The members of a company are referred to as shareholders.

Characteristics of Private Limited Companies

1. This type of business is usually a family affair.

2. They must be registered with the Registrar of Companies. Registration requires certain information to be provided in a document known as the 'Articles of Incorporation'. In Jamaica, there is a New Companies Act which came into being on February 1, 2005. It would be good for you to do some research on this act to understand the formation of private limited companies.

When the registrar is satisfied that all aspects of forming the company have been complied with, they will issue a Certificate of Incorporation which gives the shareholders authority to carry on trade.

3. The company is a separate entity from its shareholders. Charges can, therefore, be brought against the company, but not against individuals.

4. Finance is usually through private means: borrowing from financial institutions, government agencies and share and debenture capital.

5. Private companies do not make a public appeal for share capital.

6. The business enjoys limited liability.

7. The private company has, 'Co. Ltd.' printed at the end of its name.

8. The life of the company is independent of the life of the shareholders. If a shareholder dies, the company continues to exist.

Legal Aspects

1. The private company must be registered with the Registrar of Companies.

2. The business is considered as a separate entity from its members.

Advantages

1. A larger capital base can be obtained than with the sole trader and the partnership. This means they can expand more.

2. Privacy is retained as the company does not publish its accounts.

3. Continuity. The company may have unlimited life.

4. There is limited liability for shareholders.

5. Most often, the business is restricted to family members.

Disadvantages

1. It is not easy to transfer shares.

2. Capital and, therefore, growth may still be limited.

3. The public issuing of shares is not allowed by law.

4. Annual financial reports must be filed with the Registrar of Companies.

5. Most often, the business is restricted to family members who may lack management skills and expertise.

Work on this question for your homework.

(a) Define 'partnerships' and 'private limited companies'. (4 marks)

(b) (i) List THREE types of partners. (3 marks)

(ii) State THREE characteristics of partnerships. (3 marks)

(c) List the names of THREE private limited companies. (3 marks)

(d) What is the meaning of the term 'limited' in the names of the companies listed above? (2 marks)

(e) State THREE characteristics of private limited companies. (3 marks)

(f) Give ONE advantage and ONE disadvantage of private limited companies.
(2 marks)

Total marks: 20

See you next week.

Yvonne Harvey teaches at Glenmuir High School.