| Form 4 Economics Chapter 9 |
|
After revising for chapter 9, you
MUST be able to
State the definition of firm
State the features of sole proprietorship, partnership, private and public limited
companies and public enterprises
State the advantages of sole proprietorship, partnership, private and public limited
companies and public enterprises
State the disadvantages of sole proprietorship, partnership, private and public limited
companies and public enterprises
State the differences among preference shares, ordinary shares and debentures
State the advantages of setting up public corporation
| Features
of sole proprietorship and partnership |
| Advantages
that are common to sole proprietorship and partnership |
Simple set
up procedure
The
profits tax rate is lower than that of a limited company
They have
strong working incentive because they can keep all the profits and try to avoid losses as
their
liability is unlimited
| Advantages
that partnership over sole proprietorship |
A
partnership has a wider source of capital because there are more partners to provide
capital
In a
partnership, the scope of specialization is wider because partners have different
abilities and they
can specialize in different jobs
| Advantages
that sole proprietorship over partnership |
Faster
decision-making as he does not need the consent of others and so time is saved in making
decisions.
| Disadvantages
that are common to both partnership and sole proprietorship |
Unlimited
liability
The sole proprietor ( every partner ) is liable for all his
debts, and has to use his personal property to pay
his debts. The risk is high
Lack of
continuity
The
business can be terminated easily and this makes it unsuitable for carrying out long-term
investment
| Features
of a limited company |
 Limited liability
Shareholders' loss
is limited to the amount they have invested in. They need not use their personal
properties to pay off debts |
Lasting continuity
The bankruptcy,
retirement or death of any shareholders will not affect the existence of a limited company
as it has an independent legal identity |
Independent legal status
The company is a
legal entity and is responsible for any legal charges against the company |
| Advantages
of a limited company |
Limited liability
Shareholders' loss is limited to the amount they have invested in. They need not use their
personal
properties to pay off debts
Lasting continuity
It can continue in business for a long time and it is a suitable form of business
ownership for firms
having long-term investment
Wider
source of capital
It can issue shares to raise capital and so can expand easily to enjoy the benefits of
economies of
scale
| Disadvantages
of a limited company |
More complicated set up procedure
Higher profits tax rate
Longer time in making decisions as proposals are needed to
be discussed among
different
departments.
| Advantages
of public enterprises |
They can have an adequate capital supply as government can
collect taxes to
finance the company
They can obtain more update information and have better
planning
The government collects taxes from the higher income group
and provides services
which are used
mainly by the poor. This can help to narrow the income gap.
| Disadvantages
of public enterprises |
The production cost tends to be higher because the
government officials may not have
incentive to reduce cost as they can afford losses
They have lower incentive to improve because they will not
be rewarded even if they can
make profits
They are slow to respond to market signals as they do not
concern about the return and they
can afford losses
| Advantages
of public corporations |
They run their business on commercial principles, so they
have strong incentives to
reduce costs and
raise efficiency
They are more responsive to consumers' demand to increase
sales
| Advantages
of a public corporation over a government department |
It is profit - motive, so it has a stronger incentive to
lower production cost and it is likely to be
more efficient
than the government department
To increase sales, it tends to respond to customers' demand more quickly than a government
department. It
tends to provide services that are demanded by passengers.
More flexible operation e.g. less red-tape
Better control of employees
More innovative
| Advantages
of a sole proprietorship over a limited company |
The set up cost of a sole proprietorship is lower
It is easier to set up and dissolve a sole proprietorship. Sole proprietorship is more
suitable to
business with sudden ups and downs
The profit tax rates for sole proprietorship are lower
Sole proprietorship allows keep its business secret. It does not need to disclose its
accounts.
Unlimited
liability