Forms of Ownership – Grade 10 Business Studies (Ch. 3)

25 Q&A flashcards summarising key concepts on liability, tax, continuity, sole traders, and partnerships from Chapter 3: Forms of Ownership.

What does liability refer to in the context of forms of ownership?

Who (owner or business) is responsible for paying the debts of the business.

Who can have limited or unlimited liability—the business or the owner?

Always the owner; a business itself is never described as having limited or unlimited liability.

What is the consequence for an owner with unlimited liability when the business cannot pay its debts?

The owner’s personal belongings may be sold to cover the business’s debts.

If an owner enjoys limited liability, what is protected?

The owner’s personal assets are not at risk if the business’s assets cannot cover its debts.

In South Africa, how are individuals taxed on income?

On a progressive scale—higher income is taxed at a higher percentage (up to 45 %).

At what flat rate are registered companies currently taxed on profits in South Africa (2020)?

28 % proportional (plus an additional 20 % dividends tax).

What determines whether a business has continuity of existence?

Whether it is a registered legal entity separate from its owners.

How is management typically structured in a company?

Shareholders elect a Board of Directors that manages the business (separation of ownership and management).

What is ‘capital-size of the business’ referring to?

The amount of money required to establish and run the business.

List the main factors an entrepreneur should consider when choosing a form of ownership.

Legal persona, liability, tax implications, continuity, management & control, capital requirements, formation procedures.

How many owners does a sole trader (sole proprietorship) have?

Exactly one owner.

Does a sole trader have a separate legal personality?

No; the business cannot be registered separately from the owner.

Describe the liability of a sole trader.

Unlimited liability—the owner is fully responsible for all business debts.

Who pays tax on the profits of a sole proprietorship?

The owner, in his/her personal capacity under the progressive tax system.

Give two formation advantages of a sole trader.

Quick to establish and no registration costs.

State two managerial advantages of being a sole trader.

Owner keeps all profits and can make quick decisions without consulting others.

Name two disadvantages of a sole trader related to growth and responsibility.

Limited capital (only one owner) and the owner must handle all business responsibilities.

What event automatically ends a sole proprietorship?

The death or retirement of the owner (no continuity).

Define a partnership.

A verbal, written or tacit agreement between 2–20 people to combine money and skills in a business.

Does a partnership have separate legal personality?

No; the partners themselves are the legal entities.

Explain ‘joint and several liability’ in a partnership.

Each partner is individually responsible for the entire debt; a creditor may sue one partner for all debts, who can then claim from the others.

How are profits and losses shared in a partnership?

According to the ratio set out in the partnership agreement.

Give two advantages of a partnership over a sole trader with respect to resources.

More owners can contribute greater capital and combine diverse skills, leading to synergy.

State two disadvantages of partnerships related to decision-making and liability.

Decisions are slower because all partners must be consulted; partners have unlimited, joint and several liability.

What happens to a partnership if one partner dies or retires?

The partnership ceases to exist; a new agreement is required for the business to continue.