Four Forms Of Ownership

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There are many different types of ownerships which a business can adopt. Amongst others, four forms are a sole trader, partnership, company and close corporation. This report will cover and compare these four forms of ownership. Sole trader A sole trader is a business owned by one person. With a sole trader, the business is not a separate legal entity. This means that the owner has full liability in his personal capacity for debt of the business in their personal capacity. The owner contributes capital to the business at his own digression and this is means that the capital contribution to the business is limited to the capacity that the owner can contribute capital. The capital is debited to an account call Capital Contribution. The net profit at the end of the year is transferred to the Capital Contribution. The owner is taxed in his personal capacity for the …show more content…

A partnership is funded by the capital contributed by each of the members. A partnership is not regarded as a separate legal entity and therefore the partners are jointly and separately responsible in their personal capacity for the debts of the business. In addition to the ledger accounts of a sole trader, partnerships have a few additional accounts. Each partner has their own capital, drawings and salary account. Current accounts for each partner, interest on capital, the appropriation account are accounts that are used to distribute the net profit of the business. The net profit for the year is transferred to the appropriation from where it is distributed as per the partnership agreement. Partners are taxed in their personal capacity for their share of the net profit of the company – the partnership is not taxed. Partnerships do not need to prepare financial statements for independent, external

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