Business Organization: Sole Proprietorship and Patnership

CONTENT

• Meaning
  • Sole Proprietorship
  • Partnership

DEFINITION

Business organization are basically divided into two : A. Private sector firmsB. Public sector firms.

Private sector firms constitute business units that are owned and managed by private individuals . These  business include : 1. Sole proprietorship 2. Partnership  3. Co-operative societies  4. Private and Public limited Liability Companies.

Public sector firms or enterprises, on the other hand, are business units owned exclusively by the government.

SOLE PROPRIETORSHIP

This form of business may be defined as a business owned, established, financed and controlled by one person only with the aim of making profit. The owner can employ others to work for him and pay them wages or that he can own more than one shop . It is the oldest and cheapest form of business organization and can also be called one- man business or sole – trader

CHARACTERISTICS AND FEATURES

1.  It is owned by one person
2. The source of capital comes from the owner
3. The motive of formation is for profit making
4. The owner have unlimited liability
5. It is not a legal entity
6. It is the commonest oldest and simplest form of business unit

EVALUATION

1. Who is a sole trader?
   1. Mention five characteristics of a sole trader.

ADVANTAGES

1. Small Capital
2. It is easy to establish without any legal or formal process
3. Quick decision can be made
4. It foster better interpersonal relationship between the owner and his employees
5. There is privacy in the business
6. All the profits made belong to the owner alone
7. After sales services can easily be rendered
8. It can fit into any environment

DISADVANTAGES

1. His capital is limited
2. The owner has unlimited liability
3. The business is not a legal entity
4. Limited scope of decision and policy making
5. The death of the owner may end the business
6. Inability to face stiff competition
7. He work too long hours every day

EVALUATION

1. List and Explain four advantages of a sole trading.
   1. Discus five disadvantages of sole trading.

DEFINITION AND MEANING OF PARTNERSHIP

A partnership business may be defined as a business organization where two or more persons enter into a legal agreement to form a business with the sole aim of making profit. The membership should not be more than twenty (20) persons but where the partnership wants to perform banking functions, the members should not be more than (10)

FEATURES / CHARACTERISTICS

1. It is owned by two ( minimum ) to twenty ( maximum )
2. The liabilities of the partners are unlimited
3. Source of capital is from contributions of the partnership motive for formation is for making profit
4. It is not a legal entity
5. Method of capital withdrawal or distribution must be outlined in the partnership deed

PARTNERSHIP DEED

Partnership Deed are the agreements, rules and regulations guiding the members of a partnership business.  The deed contains some or all of the following;

1. Name of partners
2. Names and nature of business
3. Amount of capital contributed by each partner
4. The role of each partner in the business
5. How profit and losses are to be shared
6. how long the business shall last
7. Rights of partners and methods of dissolution when necessary
8. Whether salaries shall be paid to all or any partner method of settling disputes /discussions / decisions e.g. by voting

EVALUATION

1. What is partnership?
   1. State five of  its features.

TYPES OF PARTNERSHIP

a) Ordinary partnership : – All partners have equal responsibilities and bear all risks equally and profit are also shared equally as well.

b) Limited Partnership :- The liabilities of the partnership are limited to the capital they contribute and they do not take equal part in the management of the business . But as requested by the partnership law at least one of the partners in a limited partnership must have unlimited liabilities in the business.

KINDS OF PARTNERS

1. Active Partner:- This partner takes active part in the formation , financing and management of the business . If agreed upon in the partnership Deed , salary is paid to him.
2. Sleeping or Dormant Partner :- This partner only contributes part of the capital used in the formation and running of the business but does not take part in the management . He takes part in the sharing of profit and losses.
3. Nominal or Passive Partner:- This partner exist only in name or word because he contributes nothing but his name in the formation of the business

EVALUATION

1. Define Deed of partnership.
   1. Itemize five of the content of a Deed of partnership.

ADVANTAGES

1. More capital is available compared to a sole trader.
2. Joint and better decisions are made.
3. There is increase in production.
4. Application if division of labour is enhanced.
5. There is high degree of privacy
6. Abundant skills and talents are available
7. Exit of a member may not end /affect the business
8. There is room to withstand competition
9. Sharing of risks and liabilities

DISADVANTAGES

1. The business is not a legal entity
2. Partners have unlimited liabilities
3. Delay in decision making

3. Limited capital available maybe inadequate
4. Introduction of new partner or exit of old one may end the business
5. A partner cannot make secret profit.

EVALUATION

1. What are the essential features of the partnership form of business?
2. Why do people prefer the partnership?

READING ASSIGNMENT

Amplified and Simplified Economics for SSS by Femi Longe Chapter 7 and 8  Pages 73-88

Fundamentals of Economics for SSS By. R.A.I. Anyanwuocha. Chapter 6 pages 41–42

GENERAL REVISION

1. What are the problems partners are likely to face.
   1. State three condition suitable for the formation of a partnership.
2. Economic problems arises because a country’s  resources are limited in relation to her unlimited wants. Identify and explain this economics problems.
3. What do you  understand by wealth?

WEEKEND ASSIGNMENT

SECTION A.

1. One main benefit of partnership is? A. the possibility of raising funds on the stock exchange B. the possibility of attracting twenty one or more members C. that members can specialize in various function D. that it enjoys it enjoys it own separate legal entity

2.  In ordinary partnership the risk are A. borne by the workers  B. borne by the creditors C. shared among the partners D. under taken by the active partner

2. A major disadvantage of partnership form of business is that A. every partner has to be consulted during decision making B. partners could be too friendly with their customers C. affairs can be kept private D. partners can take long holidays
3. Which of the following is not a feature of a sole trader A. decisions can only be taken by 10 people B. he provides capital to start the business. C. there is unlimited liability. D. continuity is doubtful.
4. One of the advantages of a sole trader is that A. it can fold up in case of death , lunacy or insolvency B. risks are unlimited  C. technological progress is out of reach D. initiative can be used in all cases
5. In a sole proprietorship decision are made by the A. government B. owner

C. management D. board of directors

SECTION B

1. Explain five content of the partnership agreements
2. The sole proprietorship form of business is the commonest in Nigeria why?