Strongpreneur#Starting A Business
January 17, 2019 227
Strongpreneur#Starting A Business
January 17, 2019 227
Business means commerce. It consists of all activities aimed at the production, manufacture and the distribution of goods and services. Individuals or groups of people can undertake it since every business is aimed at profit, no business can continue in existence when it is operated under loss.
Selecting a Form of Business Ownership
The three forms of business organization are:
They have their peculiar advantages and disadvantages. It is difficult for anyone to claim categorically that one form is that best guaranteed out of the three. Selecting a form of business to operate therefore is a crucial and complex decision to make requiring the potential business operator to weigh all the intrigues that are connected with each form.
Things to consider include the available resources and with the main objective of establishing the business.
Some of these objectives include:
The decision to select the form of business organization will surely depend in part upon at least one or a combination of the above objectives. Nonetheless, whatever is the objective the potential business owner needs to be well advised that for a successful operation and survival of the form of organization chosen must be directed at earning a reasonable profit or at least stay solvent. Otherwise, continuous losses will easily exhaust the available resources and force the organization to close down.
There are different forms of business organizations. Business can be Sole Trader, Partnership, Limited Liability Company, Cooperative Society and Statutory Corporations. The Civil Service and Local Authorities form another type of business units. For our study, our emphasis will be on the first three.
The Sole Trader/Proprietorship
This type of business is also called One-Man-Business or Sole Proprietorship. It is so called because one person owns it. The title does not, however, mean that only the owner works in the business but only owns the ownership. It is the oldest form of business organization and the easiest to form. It is an ideal type of business for one who wants to be his own boss. His wife and other members of his family may aid a sole trader or he may employ other people to work for him but the management is in his hands. Examples are the retailers, hairdressers, shoemakers, tailor, lawyers, doctors etc. The main objective of the sole trader is to be his own boss while his secondary objective is profit making.
The capital to be used in the business of the sole trader depends on the nature of the business. He may obtain his capital from his savings, he may borrow from his relations, wife, and friends; the bank may also lend money to him if he is the bank’s customer.
Advantages of Sole Proprietorship
Disadvantages of Sole Proprietorship
A partnership is the coming together of two or more persons in a business with a view to making a profit. Partnership, according to the partnership act of 1890 (Nigeria), is defined as “the relationship which exists between persons carrying on a business in common with a view of making a profit”. A nonprofit organization is not a partnership. A partnership firm may come into existence.
We have two types of partnerships namely: Ordinary or general partnership and limited partnership.
Characteristics of Partnership (General Partnership)
The partnership Act of 1890 (Nigeria) is the controlling force of this type of partnership, unless where the partners agree otherwise.
The Act provides thus:
Types of Ordinary or General Partnership
(a) Active Partner
An active partner is one who takes an active part in the day-to-day management of the firm. He can be the manager, director or supervisor of the partnership firm. Normally, this type of partner qualifies for a salary (if partners so agree) since he devotes all his time to the administration of the business.
(b) Sleeping or Dormant or Silent partner
This partner only contributes capital to the partnership firm and does not take part in the management of the business. If, for example, Mr. ABCD and Mr. QRST are partners in contracting business and Mr. ABCD is a public servant in one of the statutory corporations obviously, he will not have time to give active service in the firm like the others. Certainly, Mr. ABCD will rely on the others in whatever they do in the management of the firm. Mr. ABCD here is sleeping or dormant or silent partner in the partnership firm.
(c) A nominal partner can be called Ostentatious Partner
This fellow allows his name to be used in the partnership, but he never takes part in the management of the firm. He must be a reputable fellow in the area where the firm is established for his name to be used. He may not share in the profit of the partnership firm.
Advantages of the Ordinary or General Partnership
A limited partnership is another type of partnership. For a limited partnership to be effective there must, at least, be one ordinary partner who will be responsible for the debts of the firm in case the firm goes into liquidation.
The limited partnership has members whose liabilities are limited amount contributed as capital in the firm. If for, example, a limited partner invests N10,000 in the firm he is not responsible for the debts of the partnership firm above the N10,000 he invests. The N10,000 is the limit of his liability in the partnership. The limited partner should normally have no right to take part in the management of the firm. He cannot manage a business for which he cannot be held liable in case of liquidation.
Characteristics of the Limited Partnership
The limited partnership, unlike the general ordinary partnership, is governed by the Act called the Limited Partnership Act, it is this Act that brought about this type of partnership.
Partnership Deed or Agreement
When people come together to carry on business with a view to making a profit they may have what should guide their activities that are to say that the partnership is formed by consent. The guiding principles may be oral or written. The deed of the partnership is an agreement setting out the term of the partnership. This agreement is prepared to be the guiding principle to the partners in case of dispute. The deed varies with the nature of the business.
The terms may include:
In the law of partnerships, dissolution takes place when a change occurs in the composition of its members. In certain cases, there may be technically dissolution when for example, a new partner is admitted to an already existing partnership the admission, however, will not lead to cessation of business but rewriting of the partnership deed to incorporate the change in membership.
Dissolution may take place when any of the following occurs
Dissolution of Partnership by the Court of Law
Dissolution might be obtained from the court of law in the following instances:
Public Joint Stock Companies or Public Limited Liability Companies
The word company has varied meanings attached to it. However, its meaning at any moment will depend on the context. A partnership firm using the word ‘company’ does not use the word company to be a company as but to show that apart from the partners mentioned there are others in the partnership firm.
The company is legally defined as ‘an artificial person with rights and liabilities’. A Joint Stock Company may be defined as an ‘association’ of persons whose purpose is for carrying on a business and the persons contribute money to common stock and in return for money contributed share in the profit, if any, of the business in form of what is called dividend. Furthermore, a joint stock company is quite distinct from the members. In other words, the company is a legal personality.
It can sue and can also be sued to court for any action which is illegal. The debts of joint-stock companies are not those of its shareholders or members since the company is a separate legal entity. This is why the company is regarded as a legal personality.
Type of Companies
We shall first of all attempt to know how the companies we have today came into existence.
The Chartered Companies
Chartered companies form the oldest type of companies that came to be in England in those years of Queen Elizabeth I. These companies came into existence as a result of the charter granted to them by the Crown an example is Bank of England. Nowadays, only associations of non-commercial purpose receive a charter in England. An example in Nigeria is the Institute of Chartered Accountants of Nigeria which got its charter through a Decree.
They are companies formed by special acts of parliament. These statutory companies are monopolistic in their services. Examples are Nigeria Airways and Aviation Authority, National Electric Power Authority, and Nigerian Coal Corporations. Some of them in Nigeria came recently into being as a result of Military Decrees (when the Military was ruling the country). Examples are Housing Corporations, Water Corporations, and Agricultural Corporations. These companies, however, provide some public services in return for the monopoly they enjoy.
These companies are the most common or we may rightly say, the usual type of companies. They are registered under the various Acts of Parliament. Such Acts as 1908, 1929 and 1948 (in England), and 1968 and 1973 Decrees (in Nigeria) which govern the establishments of companies in Nigeria.
Under registered companies we have the following types:
Formation of a Public Company
The formation of a company invites the services of a solicitor. This is because Acts of Parliament or Decrees establish companies and as such legal technicalities must be adopted in their formation.
The law establishing registered companies tries to state the number of people who can form these companies. It states that any seven or more persons may form a public company while any two or more persons may a private company. For the establishment of the company to be legal the persons must be associated for a lawful purpose.
The documents to be prepared for people wishing to form and own a company may include the followings:
We, therefore, turn our attention to know the contents of the two documents mentioned above.
The Memorandum of Association
This document contains the external relations of the company. It has six main clauses as follows:
Articles of Association
This document deals with the internal rules or regulations concerning the internal management of the company. The founders must sign the document drawn.
It has the following as the contents:
Registration of a Company
After preparing the two documents mentioned above, other documents must have to be drawn before the company can be registered.
Such other documents include:
A Certificate of Incorporation
When the necessary documents have been drawn and submitted to the Registrar of Companies in accordance with the company law a ‘Certificate of Incorporation’ is issued. This certificate is to recognize the company as a corporate body and is thereby allowed to commence normal business. It is the company’s birth certificate.
The certificate is displayed in the company’s registered office with these information:
It is pertinent to note here that when a private company is incorporated, that is registered in accordance with the law it can commence business. On the other hand, a public company must obtain a second certificate, often called the ‘Trading Certificate’ before it can commence business or exercise its borrowing powers.
When a company is formed, the founders or promoters are faced with the problem of finding the capital for the commencement of the business of the company. They will like the public to subscribe to the shares. In order to let the public have insight into the company, a prospectus is used.
The prospectus is given a statutory definition which states:
Prospectus means ‘any prospectus notice circular advertisement or other invitation offering to the public for subscription or purchase any shares or debentures of a company’.
It is ‘an invitation to offer’ inviting prospective investors to apply for shares on or before a given date. The pieces of information it contains are so detailed that it enables investors to forecast the viability of the company which consequently induces them to invest in the company. The prospectus states the capital of the company details of shares, names, and addresses of the directors, time of opening of subscription lists and the amounts payable on application and allotments of the shares.
Private Joint Stock Companies
Private Joint Stock Company came into being as a result of the 1967 companies Act. A private Joint Stock Company is an ideal business unit for members of a family. This company can be defined as one which, by its article of association.
Differences Between a Public Company and a Private Company
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