BUSINESS FINANCE

Assignment # 01

Topic: Business and its types

Submitted to: Respectable Ma’am Humaira
Submitted by: Noorullah
Semester: 4th
Reg# FA09-BBA-127
Submitted Date: 15 February, 2011

MANAGEMENT SCIENCES
CIIT ISLAMABAD CAMPUS

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Businesses are often referred to as organizations. An organization is a body that is set
up to meet needs.

Business organizations are satisfy needs by providing people with goods and services

All organization will:

 Try to achieve objective

 Need to be directed
 Have to be accountable
 Have to meet legal requirements

PRIVATE SECTOR BUSINESS ORGANISATION

The private sector includes all those business which are governed by individuals. The
types of business in the private sector can vary considerably. Some are small retailers
with a single owner. Other are large multinational companies.

Business will vary according to legal form they take and their ownership.

 Unincorporated businesses.
These are business where there is no legal difference between the owners and
the business. Everything is carried out of the owner. These are tend to be small
and owned by one or few partners
 Incorporated businesses
An incorporated body is one which have its separate legal identity from its owner
There are different types of business organizations in the private sector , their
legal status and their ownership as follow

1.THE SOLE TRADER

It is a simplest and most common form of private sector business and is run by one
person or owner and may employ other people for help. It can be found in many type of
production.
In the primary sector many farmers and fishermen operate like this and in secondary
small scale manufactures builders and construction firms.

It supplies wide range of services like hairdressing

Retailing, gardening and other household services. We can find many sole trader
business then others

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ADVANTAGES

1. The sole trader will not face a lengthy setting up period

2. Any profit made after tax is kept by the owner
3. The owner is in complete control and is free to make any decision
4. The owner has flexibility to choose a working hour and are free to take holiday
whenever he wants.
5. Due to their small size can offer a personal service to their customers
DISADVANTAGES
1. Sole trader have unlimited liability
2. Although independence is advantage, it can also be disadvantage. A sole
trader might prefer to share decision making
3. The money used to set up business is owner saving. It may also come from
bank loan. Sole trader may find it difficult to raise money this means that
money for expansion must come from profit or savings.
4. Because sole traders are unincorporated, the owner can sued by customers
in the event of a dispute.
5. The business may rely on the ability and drive of one person. if that person
loses interest or dies then the business will cease.

2.PATNERSHIPS

A partnership is an arrangement where entities and/or individuals agree to cooperate to

advance their interests. In the most frequent instance, a partnership is formed between
one or more businesses in which partners (owners) co-labor to achieve and share
profits or losses. There are no legal formalities to complete when a partnership is
formed.

ADVANTAGES

1. There are legal formalities to complete when setting up the business

2. Each partner can be specialise. This may improve the running of that business,
as partners can carry out the tasks they do best.

3. Partner can share the work load

4. Since partnership business tends to be larger than sole trader

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 5. There are more than one owner so more finance can be raised than if the firm
was sole trader.

DISADVANTAGES

1. The individual partners have unlimited liabilities. Under the partnership act.
Each partner is equally liable for debts

2. Profit has to be shared among all partners.

3. Partner may disagree

4. The partnership ends with the death of one partner.

5. Any decision made by the partner on behalf of the company is legally binding
on all other patners.

3.COMPANIES
Corporation is defined as a legal entity or structure created under the authority of a
state's laws, consisting of a person or group of persons who become shareholders. The
entity's existence is considered separate and distinct from that of its members. Like a
real person, a corporation can enter into contracts, sue and be sued, pay taxes
separately from its owners, and do the other things necessary to conduct business.

ADVANTAGES

1.Limited liability
One of the key reasons for forming a corporation is the limited liability protection
provided to its owners. Because a corporation is considered a separate legal entity, the
shareholders have limited liability for the corporation's debts. The personal assets of
shareholders are not at risk for satisfying corporate debts or liabilities.

2.Corporate tax treatment.

Since a corporation is a separate legal entity, it pays taxes separate and apart from its
owners (at least in the typical C corporation). Owners of a corporation only pay taxes on

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corporate profits paid to them in the form of salaries, bonuses, and dividends. The
corporation pays taxes, at the corporate rate, on any profits.

3. Attractive investment

The built-in stock structure of a corporation makes it attractive to investors.

4. Capital incentive

The stock structure also allows corporations to attract key and talented employees by
offering them an ownership interest in the form of stock options or stock.

5. Owner/employee

A business owner who works in his or her own business may become an employee and
thus be eligible for reimbursement or deduction of many types of expenses, including
health and life insurance.

DISADVANTAGES

1.Fees

It costs money to incorporate. There are four types of fees: a fee to file the Articles of
Incorporation with the Secretary of State, a first-year franchise tax prepayment, fees for
various governmental filings, and attorneys' fees. But every year, tens of thousands of
businesses choose to incorporate online without the use of an attorney.

2. Formalities

The proper corporate formalities of organizing and running a corporation must be

followed, to receive the benefits of being a corporation.

3. Paperwork

Paperwork is a huge component of the corporate formalities that must followed. Reports
and tax returns must be compiled and filed in a timely fashion; business bank accounts
and records must be maintained and kept separate from personal accounts and assets;
records must be kept of corporate actions, including meetings of shareholders and
Board of Directors; and licenses must be maintained.

4. Disclosure of names of corporate officers and directors

Most states do not require that names of shareholders be a matter of public record;
however, many states require that the names and addresses of corporate officers and
directors be listed on one or more documents filed with the Secretary of State.

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5. Dissolution

Since corporations have a perpetual existence, states provide a mechanism for

dissolving a corporation and liquidating its assets. Dissolution does not happen
automatically. A corporation can be dissolved voluntarily or involuntarily. A corporation's
officers and directors are charged with responsibility for dissolving the corporation,
including gathering corporate assets, paying creditors and outstanding claims, and
distributing the remaining assets to shareholders.