Partners expect their business relationships are going to last for ever. However, most do not. There are possibilities that problems may occur when the entrepreneur realizes he or she is not in charge of his or her own company. Even when partnerships work, there are always fears that the partners will develop different business goals. Partners may dissolve or terminate the partnership. Thus dissolution occurs when a general partner ceases to be associated with the business. This may be as a result of:
Expiration of a time period or completion of the project undertaken as delineated in the partnership agreement.
Expressed wish of any general partner to cease operation. Expulsion of a partner under the provisions of the agreement.
Withdrawal, retirement, insanity, or death of a general partner (except when the partnership agreement provides a method of continuation).
Bankruptcy of the partnership or of any general partner.
Admission of a new partner resulting in the dissolution of the old partnership and establishment of a new partnership.
A judicial decree that a general partner is insane or permanently incapacitated, making performance or responsibility under the partnership agreement impossible.
Mounting losses that make it unpractical for the business to continue.
Impropriety or improper behaviour of any general partner that reflects negatively on the business.
Termination on the other hand is the final act of intentionally closing the partnership as a business. This can occur after the partners have agreed to cease operations and all affairs of the partnership have been concluded.
3.2.12 Advantages
Limited liability of shareholders Ability to attract capital
Ability to continue indefinitely Transferable ownership
Separation of ownership from management Legal entity distinct from its owners
3.2.13 Disadvantages
Cost and time involved in the incorporation process Double taxation
Charter restrictions
Extensive legal requirement and restrictions Potential for diminished management incentives Potential loss of control by the owners
Difficulty of termination
Possible conflict with stockholders and board of directors
Co-operative
A form of business ownership which involves a collective ownership of a production, storage, transportation or marketing organisation is what is referred to as a co-operative. Some individuals dislike the notions of having owners, managers, workers and buyers as separate parties with separate goals for business organisation. They envision a situation whereby people will co-operate with one another as an association and share the wealth more evenly. This is what necessitates the form of business ownership referred to as cooperatives.
Types of Co-operative
1) Consumer/producer co-operative 2) Workers co-operative
3) Finance co-operatives
Co-operatives allow small businesses to obtain quantity discounts on purchases, reducing costs and enabling the co-operative to pass on the savings to its members.
3.2.14 Summary
It goes without saying that it is not easy to choose the best form of business organisation. It is evidence as outlined in this chapter that an entrepreneur may participate in the business world in a variety of ways. He/She can start a sole proprietorship, partnership, corporation, or cooperative, joint ventures, syndicate or buy a franchise and be part of a large corporation. There are advantages and disadvantages to each. But whichever one is selected there are risks no matter which form is selected. Before you decide which form is for you, you need to
Access the nature, goals and anticipated future of the business. Determine the resources, capabilities, and risk level of the owner. Review your current and expected tax situation.
Understand the laws of your state and other jurisdictional regulations relating to forms of business ownership.
Involve professional advisers, such as an attorney and an accountant to advise and assist with the decision process and take the appropriate action (Scarborough et al, 2009).
Review Questions
(i) The dissolution of partnership occurs when a general partner ceases to be associated with the business. True or False?
(ii) Bankruptcy of the partnership or of any general partner may cause dissolution of same. True or False?
(iii)A form of business ownership which involves a collective ownership of a production, storage, transportation or marketing organisation is what is referred to as a Partnership. True or False?
(iv) The three types of co-operatives are ---, --- and ---
Ans: Consumer/producer co-operative, Workers co-operative and Finance co- operative
3.2.15 Tutor Marked Assessment
1) One of these is not an issue that an entrepreneur should consider in choosing a form of business:
a) Tax consideration b) Liability exposure c) Ideas d) Business goals e) Cost of formation
2) All these are advantages of sole proprietorship except:
a) Privacy b) Time commitment c) Maximum incentive to succeed d) Least cost of start up e) Flexibility of operation
3) --- partner is one who takes active role in the management of the company but they are unknown to the outsiders as partners.
a) Sleeping b) Silent c) Secret d) Nominal e) Limited
4) --- is a form of business that the maximum of people that can form it is twenty.
a) C corporation b) Partnership c) Professional corporation d) S corporation
e) Joint venture
5) --- partners are also known as dormant partners.
a) Sleeping b) Silent c) Secret d) Nominal e) Limited
6) This is a form of business an entrepreneur should be involved in when he/she has no knowledge of how to conduct business in another country.
a) franchise b) Syndicate c) Joint venture d) Partnership e) Co-operative
Tutor Marked Assessment [Essay]
1) What factors should an entrepreneur consider before choosing a form of ownership?
2) What are the key differences between sole proprietorship, partnerships, and corporations?
3) What are the types of partnership that you know? 4(a) Describe the types of franchising that you know. (b) Describe the following
i. Joint ventures ii. Syndicate iii. Cooperatives
References
Kurtz, David L. (2009). Contemporary business. 12th ed.Neil marquash,U S.166 – 181.
Lawal, A. A. (1993). Management in focus. Sahanit Nigeria Limited,Nigeria, ,212-226. Nickels, William G., Mchugh, James M. & Mchugh, Susan M. (Understanding business.7th ed. McGraw – Hill Irwin, 140 -170.
Oluwafemi, O. J. (2000). Understanding Nigerian business environment: A book of readings. Edited by Asika, N. M. & Odugbesan, A. O.,Concepts Publication Limited,Shomolu,Nigeria, 42-55.
Scarborough, Norman M., Wilson, Douglas L. & Zimmerer, Thomas W. (2009). Effective small business management: An entrepreneurial approach. 9th ed. Pearson Prentice Hall,New Jersey, 74 – 103.