Definition
Is an organization or firm that deals in the production or nglish-swahili/distribution” target=”_blank”>distribution of commodities usually for the purpose of making profit. It may be set up by an individual or group of individuals and its size depends on the amount of capital invested.
FORMS OF BUSINESS UNIT
(i) Public sector
(ii) Private sector
PUBLIC SECTOR
The public sectors comprise of business organization owned by the government. The sector consist of the following;
- Public cooperation
- Public companies
- Local government authorities
- Parastatals
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PRIVATE SECTOR
The private sectors comprise of business organization owned by private individuals. The sector consist of the following;
- Sole proprietorship
- Partnership
- Private companies
- Cooperative society
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SOLE TRADER
Is a person who owns a business singly. He is the only owner of the business, he provides all the necessary capital, employs all the necessary labour and bears all the risk of the business.
Characteristics of a sole trader
- Owned by one person.
- Provides capital himself.
- Earns profit and bears loss.
- The main final authority on all affairs of the business versus liabilities or assets of the business is limited.
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UN LIMITED LIABILITIES
It occurs when the business and the owner are not separated.
ESTABLISHING OF A SOLE TRADER BUSINESS
-Presence of the accepted location.
-Place should be recognized by the government policy.
Finding capital
-Money being invested to start the business.
-Submission of provision income for tax assessment (TRA) calculate according to income quarrying.
Obtain trading license
Is a document which gives power to start the business.
Starting operation
Soon after trade license has been issued the aim commencing the business.
A sole trader business is very flexible
Change the nature of the business any time without offending any body.
ADVANTAGES OF SOLE TRADER
1.Organization is very simple
He takes all the decisions no necessity to call a meeting.
2. He takes all the profit and bears the loss.
3. Contact with costumers
He is able to establish a direct contact both with his employees and any problem can be solved easily.
4. Business is very flexible
He can change the nature of the business at any time without asking for permission.
5. He enjoys top secret
He is the only person who knows the business secrets.
6. Need for small capital
The business can be established with any amount of money.
DISADVANTAGES
- Unlimited liabilities
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When he enters into serious loss his personal resource is taken as security to cover bad debts.
- Capital resource is limited
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Resources are small hence no expansion.
- Limitation of talent
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Every person has limitation, nobody is well in every aspect that’s why there is division of labour and specialization.
- He bears the loss alone
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Sole trader is the only person who owns the business therefore he suffers all loses which occur.
- Lack of continuity
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Performance of sole proprietorship is always uncertain and difficult to maintain. The success of sole proprietorship depends on the personal efforts and abilities of the owner. In case the owner dies, the business is adversely affected. The business may even collapse.
PARTNERSHIP
A partnership is a business organisation formed and owned by two or more people known as partners to carry out business with an aim of making profit.
OR
Is the association of two to twenty peoples carrying on a business in common with a view of making profit.
FEATURES OF PARTNERSHIP
i. They are formed by a minimum of two and a maximum of twenty in the case of ordinary partnerships and a maximum of fifty in the case of partnerships formed by professionals such as doctors, lawyers and accountants.
ii. The partners provide capital jointly in the proportions agreed either from personal savings or loans from banks and other financial institutions.
iii. The action of one partner is binding to all other partners. For instance, any debt incurred by one partner on behalf of the business is binding to all partners. The liability is spread among all partners in proportion of their contribution to partnership capital.
iv.Partners usually share duties and responsibilities in the management and operation of business as spelt out in the partnership deed.
v. Legally, there is no distinction between the partnership business and its owners, That is the business is not a legal entity. If the business fails to pay its debts, the partners will be required to contribute from personal sources to pay up the debts.
vi. Each partner acts as an agent of the business. Partners can therefore sell and buy on behalf of the partnership.
vii. The profit made by the business belongs to the partners jointly. This profit is divided in the proportions agreed upon in the partnership deed.
viii. In case the business makes a loss, the loss is shared by partners in the proportions agreed in the partnership deed.
ix. All business decisions are made jointly by the partners through constitutions, discussions, consensus and through majority vote.
FORMS OF PARTNERSHIP
- Temporary partnership
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This is formed for a specific period or for a specific purpose.
2. Permanent partnership
Is the partnership which is formed for a long time the end is not known
TYPES OF PARTNERS
1. According to the rule played by them
- Active partner
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An active partner is also known as working partner. He or she manages the day to day affairs of the business on behalf of the other partners on top of the profit share, he or she is entitled to a salary
- Dormant partner
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He is also known as sleeping partner or financing partner. Such partner does not participate in the management of the partnership business. He invests capital in the business but his share of profits will generally be lower than of the other partners.
2. Classified according to liabilities for firm debts or unlimited
-General partner
A person who liability towards the firm is limited.
-Unlimited partner
A person whose liability of the firm debt is limited usually the capital contributed by him.
LIMITED LIABILITIES
Occur when business and the owner are separately entity i.e. not close relationship between the owner of asset towards firm debt.
3. Classified according to age
-Major partner
Is a partner who is over 18 years of age. He is liable for all the debts of business.
-Minor partner
Under 18 age he contributes capital, share profit but he is not ready or able for the firm debt but his capital contribution.
4. According to capital contribution
-Real partner
Person who contributes capital share profit and loss.
-Quasi partner
Who don’t contribute any capital, take part in business but allows the firm to use his name as partner. He is not liable for the firm debts in the most of the cases, but he gets share from the profit.
The agreement is called partnership deed
PARTNERSHIP DEED OR PARTNERSHIP AGREEMENT
This is the written document which governs members in the partnership firm. It includes the following;
Contents of the partnership deed
Partnership deed would usually state the following
1) Name of address firm
i.e. Baraka business enterprises.
2) Name, address and occupation of each partner, Director, accountant.
3) Type of partner; Active, dormant, and capital to be contributed by each partner.
4) The ratio in which profit and loss would be shared by the partner
5) Right of each partner i.e.
- Drawings
- Salary
- Interest
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6) Method of calculating goodwill start at the time of nglish-swahili/distribution” target=”_blank”>distribution.
7) The duration of the partnership i.e.
-
Temporary
OR
- Permanent
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8) The procedure to be taken during dissolving partnership.
9)Purpose of establishing the partnership
RIGHTS AND DUTIES OF A PARTNER
- Indemnity of a partner for liability
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If the partner use excess expect in conduct the business firm business must indemnity.
2. Displaying utmost good faith
If the partner provide property or funds.
It should be discounted by the firm and the partners should the material facts.
3. No new partner may be included without permission or information.
No new member admitted without the consent of all partners.
4. No partner are personally liable for debts incurred by the firm except quasi partner.
5. Every partner has a right to act on behalf of the business e.g. Sign and provide information.
6. If a partner have a private business that competes with the partnership all profits made by him should be surrendered to the firm.
ADVANTAGES
- Raise more capital
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Partner can use more capital because of capital contribution
2. Work is divided
There is specialization and division of labour
3. Decisions shared
4. Better combination of talents [ skills]
Partners sharing ideas from each other hence leads to added knowledge to the members
5. Losses and liabilities are shared
6. Formation is fair and simple
There is no legal or complicated formality during formation
7. The expansion of the business due to capital accumulated
8. In the event of a difficult partner, partners are likely to come up with a solution
DISADVANTAGES
- The liabilities of a partner is unlimited
- Profit is shared
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When profit is distributed to partners it may reduce the amount
- Temporary
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Duration /period of time
- The business is affected by the death of one partner or bankrupt
- Delay in decision
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Since all major action must be taken by the consent of all partners they often be delayed hence cause risk or loss.
DISSOLUTION OF PARTNERSHIP
Definition
The dissolution is wind up to the firm in venture
A partner notifies the other partner in the following are:
- If the partner is temporary.
- If partnership notifies the other the other partner right to dissolve.
- If a partner became insane bankrupt or due to order made the winding of the partnership.
- If the partnership became unlawful doing against of the partnership agreement.