ASSIGNMENT #1

NAME: M FAHAD BATAVIA

CLASS: BBA 8 Smchs

ID: 11184

FACULTY: Sir Muhammad Sharif

SUBJECT: Fundamentals of corporate governance

Answer 1#

Sole Proprietorship Partnership Corporation

Sole proprietorship is also called When two or more individuals sign The company structure is the most
individual proprietorship or “one man” a legal agreement to conduct growing. The corporation is a distinct,
business where only one person who is business and share their income, a stockholder-owned legal body. A general
responsible for every activity done. It is partnership enterprise is formed. corporation may have an infinite number
of shareholders who are shielded from the
the earliest form and it is the There are liabilities are unlimited.
company's creditors because of the
organization where one person gets There are four different types of
independent legal existence of the
complete control over the business, for active partner, nominal partner, company. The personal responsibility of a
bearing the risk and all profit and loss sleeping partner and minor stockholder is usually limited to and
belong to him. Sole Proprietorship can partner. Active partner is also no more to the value of the investment in
also called as self-employed. The called as working or managing the company
business is exclusive in the hands of an partner. Sleeping partner does who Private Limited: Members were 2-50
individual. For example bakery, general have not participated in the day to Public Limited: Members were 7 Unlimited
stores, restaurants, barber shop, day business activities. Nominal
doctor’s clinic, beauty parlours etc. partner does who simply lends his
name to the firm is called nominal
partner. Minor partner does who
have 18 year age below.
Answer 2#

Advantages of Sole Proprietorship Disadvantages of Sole Proprietorship

1) Ease of Formation: 1) burden of unlimited liability:

A sole owner is the easiest form of business to set up. If you run It drawback only his business property, but also his personal
your business under your own name. property is liable to pay his business.

2) Free From legal Restrictions: 2) limited managerial ability:

There is no special act governed the working of sole One man, however competent he may be, is not likely to be
proprietorship unlike a partnership and cooperation company. an expert in all matters of business.
Its activities are governed by minimum government regulation.

3) Effective Management And Control: 3) limited Capital:

The proprietor has the exclusive right of control over his The resources of one man, however he may be rich, are
business management and control of sole trader become more limited. Further, there is also a limit to the amount of loan
effective. that is to be raised.

4) Business secrecy: 4) limited Expansion:

Others do not know the secret of business success of a sole Limited Managerial ability and capital resources of the sole
trader. trader do not allow the expansion of the sole trading
business beyond a certain point.

5) Quick Decision: 5) uncertain duration:

In all business matters he can take quick decision on the vital A sole trading business can also disturb the smooth running
issues and promptly put them into effect. of his business with his death, insolvency or disability, his
business also ends.

6) Flexibility: 6) Chances of wrong duration:

As a sole trader has full control over his concern's affairs he can The running of a sole trading business is a mailer of
easily make changes to meet the needs of changing times and individual judgment and skill there is no body to assist him in
circumstances. taking any decision.

7) Direct Motivation: 7) Absence of specialization:

A sole trader is the sole recipient of profits of the business. The sole trader has himself look after too many tasks i.e.
financing, managing, advertising, accounts etc.
8) Direct Relation with Customers:
A sole trader is in a position to maintain personal contract with 8) Weak Bargaining Position:
his customer. That why reputation increase in sales for A sole trader is not in a position to extend any controlling
business. influence over the market.

9) Element of growth and development: 9) Possibility of Premature Death:

In a usually small business can maintain a close touch with his The ease of dissolution and may discourage serious thought
employees. and action resulting in premature death of the business.
10) Ease of Dissolution: 10) Difficulty in procuring loan:
It is entitled to realize money from business debtors even after Too much secrecy, availability of only personal security and
the dissolution of the business. small size of the business create difficulty for the sole owner
in raising adequate loan.
Advantages of Partnership Disadvantages of Partnership
1) Ease of Formation: 1) Uncertain Duration:
They are Partnership is the easiest form of business to set up. Partnership suffers from the uncertainty of existence. It’s
If you one or more easily owned to form a firm. generally comes to an end on the death, insolvency of a
partner.

2) Combination of ability and skill: 2) Possible of disagreement:

Partners among themselves provide various sorts of talents It is generally observed that there is friction and lack of
necessary for handling the problems of the firm. harmony among the partners after the firm has worked for
worked for same time.

3) Adequate Capital and Credit: 3) lacked of coordination:

The combine resources or saving of many individuals would be Each partner wants to run the business in his own way. If
certainly large than the limited capital of a sole trader again as accord
a firm require more resource more partners can be admitted. of any work is not reached, it often result in suspension of
that work.

4) Flexibility 4) lacked of secrecy:

A Partner is formed by an agreement, so the line of business This happens because all partners know business secrets
can be changed easily if the need arises. while in case of proprietor they remain confined to single
individual.

5) Protection from unnecessary risk: 5)Unlimited liability:

The burden of unlimited liability check the partner to take Partnership is liable for the debts of the firm to an unlimited
undue risk, thus partnership is providing hindrance in the way extend.
of dangerous speculation.

6) Incentive to Work Hard: 6)Limited resources:

Like sole trading, ownership and risk go together in the The resources of the firm are limited because of limited
partnership also, the whole profit goes to partners and all number
losses are borne by them. Of persons that can join the firm.

7) Advantages of Specialization: 7) Delay in decision making:

Partners in a firm may perform those duties for which they are Delay in decision making due to difference among the
best suited. One partner may be in change of accounts; the partners may result into missing of business opportunities
other may supervise correspondence, another mar look after particularly
sales etc. those which have arisen suddenly.

8) Division of risk: 8) Possibility of Fraud:

A partnership firm enjoys the advantage of distributed risk over Non registration of the partnership firm increases the
the sole trading concern. possibilities of fraud being committed by partner against
each other.
9) Coordination decision making: 9) Non-Transferability of interest:
Since responsibility and reward are linked in partnership and A partner cannot transfer his interest in the firm to outsiders
since liability of each partner is unlimited, partners tend to be without.
cautious in business dealings.

10) Cooperation Among partners: 10) Lack of Public Confidence :

The success of the business of partnership firm depends upon The affairs of the firm are not legally controlled. Its accounts
mutual trust and confidence. need not to be published.

Advantages of Corporation Disadvantages of Corporation

1) Deduct the cost 1) Difficulty of Formation:
The costs of the service given to workers and officers can be The company promotion is not an easy task. A number of
reduced by businesses. stages are involved in company promotion. The suitability of
a particular type of business is to be decided first.

2) Limited Liability: 2) Separation of Ownership and Management:

The liability of shareholders, unless and otherwise stated, is Public business ownership and management is in different
limited to the face value of shares held by them or guarantee hands. The owners i.e., shareholders play an insignificant
given by them. role in the working of the company.

3) Perpetual Existence: 3) disadvantages of Factory System:

Deaths, insanity, insolvency of shareholders or directors do not The organizational structure of an enterprise contributes to
affect the company’s existence large scale development. The disadvantages of the factory
system are related to joint stock firms as in sanitation, air
4) Efficient Management: pollution, town congestion.
Ownership is independent from management in business form
of organization. It allows the organization to select experts and 4) Fraudulent Management:
skilled persons for the management of different business The promoters and directors may indulge in fraudulent
functions. practices. The management is in the hands of those persons
who have not invested much in the company.
5) Economies of Large Scale Production:
The organization can coordinate production on a large scale, 5). Lack of Secrecy:
with the availability of large resources. Increasing the scale and The management of companies remains in the hands of
size of the company would result in manufacture, buying, many persons. Everything is discussed in the meetings of
promotion, and operation economies etc. Board of Directors.

6) Transferability of Shares: 6) Delay in Decision-making:

Public business shares shall be free to be transferred. A No single person may make a policy decision in company
shareholder can dispose of his shares at any time when the form.
market conditions are favorable or he is in need of money. All big decisions are either made by the board of directors,
or referred to the general building.

7. Ability to Cope with Changing Business Environments: 7) Concentration of Economic Power:

The present business enterprises operate under uncertain The type of the business allows in a few hands to focus
economic and technological environments. Technological economic strength. Some individuals become directors in a
changes are taking place every day. variety of companies and try to formulate policies that serve
their own interests.
8. Diffused Risk: 8) Excessive State Regulations:
A limited number of people bear the burden in single trade and A large number of rules and regulations are framed for the
in partnership companies. Additional uncertainties prevent working of the companies. Also for the internal service,
them from taking on new projects due to fear of risk. businesses would have to follow the rules

9) Democratic Set-up: 9) Conflict of Interests:

The values of shares are generally small. It enables persons with The decision-making power in the hands of the Board of
low incomes to purchase the shares of companies. Directors and the appointed officers. Sometimes, it happens
Shareholders come from all walks of life. that the Board of Directors and the executives may fulfill
their personal interests by taking certain decisions. These
decisions may not be good for the health of the corporation.
For e.g., they may decide to pay themselves higher salaries
out of the profits, or, they may purchase luxury offices for
them with expensive facilities, etc.

10) Social Benefits: 10) Doubling taxation

The corporate form of the organization mobilizes the scattered In case of corporations there is double taxation. The
savings of the community. corporate income is first of all taxed at a flat rate and the
dividends paid to shareholders are then charged.