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Ownership Structures

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by

Jesse Buchan

on 29 September 2014

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Transcript of Ownership Structures

Introducing...
This is my Dad. He's a carpet layer. Until 5 years ago, he was a sole trader.
Sole Trader
- A small business that is owner operated.
Nowadays Dad has a business partner. His name is Mal too. To distinguish the two, let's call him 'Malcoholic'.
Partnership
- A legal agreement between 2-20 people to run a business in common.
Note: Partners will sign a ‘partnership agreement’, this is a written document that will solve many arguments or disputes.
Advantages!
Sharing
- partners can share the workload and decision making.
Investment
- more partners = more investment into the business.
Skills
- new partners may have different skills and talents.
Disadvantages
Disagreements
- partners may disagree business objectives
Risk
- poor decisions of one partner will bind all other partners.
Private Limited Company (Ltd)
5 years into the future... Malcoholic and Malfunction have grown their business and decided to change their partnership to a Private Limited Company. They are now ACME Flooring Ltd.
A company is a separate legal entity from it’s owners i.e. It exists separately from it’s owners.
Perpetual Succession - A company will continue to exist even if one of it’s owners dies.
Owners are called ‘shareholders’. Shareholders buy shares which represent part ownership in the company.
1. What is the definition of a sole trader? [2]
2. What is the definition of a partnership? [2]
3. Explain the key difference between a sole trader and a partnership? [2]
4. Why might a sole trader want to become a partnership? [4]
5. In your own words describe non-perpetual succession. Use an example. [4]
Test your knowledge...
Shares can be sold to family and friends to raise additional funds for the business.
The company cannot sell shares to the general public.
Advantages vs. Disadvantages
Shareholders have
limited liability
. If the business fails they can only lose the amount they invest in the business.
To sell or transfer shares in a Ltd all shareholders must agree.
The financial accounts of a Ltd must be made available to all shareholders.
Public Limited Companies (PLC)
10 years into the future... ACME Flooring is expanding rapidly and the two Mal's need more capital to expand internationally. They decide to become a Public Limited Company. They are now
ACME Flooring PLC
.

PLC's and LTD's have lots in common, but also some key differences.
Can only sell shares to family and friends.
Do not have to make their accounts completely public, only to shareholders.
Can sell shares to the public.
Financial accounts must be made available to the public.
Shareholders elect a board of directors to run the company. They do not run it themselves.
Both are types of companies.
Shareholders have limited liability.
Legal requirements involved to set one up.
Owners can keep control, so long as they own more than 50% of the shares.
Private Limited Companies (Ltd)
Public Limited Companies (PLC)
In common...
Activity - The NZX New Zealand Stock Exchange

Using the following website (https://www.nzx.com/markets/NZSX/indices/NZ50) to find the Top 50 public limited companies (PLC's) on the New Zealand stock exchange.

Choose any 5 companies on the stock exchange and write the following information into your exercise book.
- The name of the company
- The three letter trading code of the company
- The market value (price to buy) one share.
- The number of shares issued.
- The 'market value' of the company (price of share x number of shares issued)
Ownership Structures
Explain the differences between sa sole trader and a partnership.
Explain the principle non-perpetual succession.

Potential profits
- as the sole owner of the business, the sole trader will keep 100% of the profits.
Control over decision making
- as a sole trader you have full control over all business decisions.
Flexibility
- can be their own boss and choose their own working hours
Advantages
Disadvantages
Long hours
- This can cause stress and mean that the business owner has less leisure time.
Non-perpetual succession
- Once the owner dies, the business cannot continue. This is because they are considered the same ‘legal entity’ (the same legal person.)
Ownership
Structures

Complete the fill in the gaps activity and stick it into your workbook.
Full transcript