ENEL4EBH1: Engineering Business

Corporate Business

DNE4EB1 ENGINEERING BUSINESS

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Types of Business

1.1

Sole Proprietorship

Definition : A Sole Proprietorship is a business that is owned by one person

In this type of business, all the resources and assets of the business belong to the
owner. The owner is responsible and personally liable for all debts and claims
against the business.
Advantages
The owner has direct control of all the activities of the business and receives all the
profits. The business can adapt quickly to change when required.
Disadvantages
The owner has to carry out all the activities of the business by himself with no one to
assist during busy periods or when the owner is sick or on leave. The ability of the
business to obtain funds depends on the credit worthiness of the owner.
1.2

Partnerships
Definition : A Partnership is a business formed by a contract between two or more
people to set up and run a business. The maximum number of partners is usually no
more than 20.

The persons who make up the partnership share the profits amongst themselves in
accordance with the partnership agreement.
Advantages
The business can be more efficient due to the combined skills and experience of the
partners. The workload can be shared amongst the partners and the absence of a partner
due to illness or leave should not have a major impact on the business. Finance will be
easier to obtain than a sole proprietor as the value of the combined assets of the partners
can be used as security in obtaining loans.
Disadvantages
If the business is not able to meet its debts then the personal assets of the partners can be
attached. As more than one person is involved in decision making the response to

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ENEL4EBH1: Engineering Business

Corporate Business
changes in the business environment will be slower than a sole proprietor. A change in
the ownership of the partnership requires the partnership to be dissolved and reformed.
1.3

Limited Liability Companies

There are two types of companies, private companies and public companies.
The main difference between private and public companies is that the general public
can invest in a public company by buying shares in that company whereas in a
private company the shares are held by a limited number of shareholders who
usually have some connection with each other. A private company can have
between one and fifty members and a public company must have at least seven
members with no upper limit. The control of the company is vested in the board of
directors and a general meeting of the shareholders. The number of shares that a
shareholder has determines the amount of influence that that person has in the way
the company operates. Profits may be distributed among the shareholders as
dividends or reinvested in the company.
Advantages
The company is a separate legal entity and as such the assets and liabilities of the
company are kept separate from those of the owners. Due to the fact that the
company is usually large the number of people in management are able to provide
more skills and experience that will enable the company to operate more efficiently.
The company due to its size will also be able to raise funds more easily.
Disadvantages
The legal requirements that a company has to meet are more onerous than sole
proprietorships and partnerships.

1.4

Close Corporations
A Close Corporation is a separate legal entity with the number of members between
one and ten persons. To become a member a person has to contribute money,
resources or skills to the corporation.
Advantages
The corporation is a separate legal entity and as such the assets and liabilities of the
corporation are kept separate from those of the members. The legal requirements
that the corporation has to meet are fewer than that of a company.

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ENEL4EBH1: Engineering Business

Corporate Business
1.5

Conglomerates

Definition : A giant corporation that controls many small companies producing different
and usually unrelated goods and services.
Conglomerates are formed to protect total sales from changes in the economy or in
consumer demand. A conglomerate can usually offset losses in some of its operations
with profits in others. However a recent trend has been for conglomerates to unbundle
i.e. sell off, usually to employees or directors, some of the companies they own.
1.6

Incorporated Companies

1.7

Co-operatives

1.8

Informal Businesses

1.9

Joint Ventures

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