Sunday 3 January 2010

Ch.8 Forms of ownership

I'm not going to bold key words since i)Almost all words is key words here; ii)Bolding kills me, meh. Please wait for the .doc file (Maybe pdf lol) for chapter 8-11. 1) Public ownership It includes two types of ownerships: government departments and public corporations. It refers to the ownership of government or its agencies with the right of possess, control, use and dispose of property. Government departments are the government organizations owned, managed and financed by the government. It provides public services to society by a low price. Examples include Fire Services Dept. and Water Supplies Dept.. Public corporations is the firms incorporated by statute, owned by the government but financially independent of the government, and the government appoints a board of directors to manage it. They provide specific public services according to commercial principals. Examples include the Airport Authority and the Hong Kong Science and Technology Parks. 2) Private ownership There’re five types of private ownership. The two with unlimited liability is called sole proprietorship and partnership. The three with limited liability is called private limited company, public limited company and listed company. (We denote its short form by SP, P, Pr, Pu and L for the five types of companies here.) Difference between owners with limited and unlimited liability: 1) Limited (unlimited) liability --(no) separate legal existence from the owners, the (owners) company are fully responsible for the debts and obligations of their business. Shareholders’ loss is confined to their investment in limited company. 2) Unlimited liability also means the owners own properties, make contracts and engage in lawsuits by themselves, not the company. Limited liability gives separate legal status to the company. Other features of company: 1) Number of owners: SP: 1 P: 2 or more Pr: 1-50 Pu/L: unlimited 2) Simple and inexpensive set-up procedures for SP/P – register with Business Registration Office of the Inland Revenue Dept. and obtain a Business Registration Certificate. But for limited companies, they have to register with the Companies Registry to obtain a Certificate of Incorporation and pay a capital fee. 3) Companies with unlimited liability have limited source of capital while limited companies have wider source of capitals since they can issue shares. 4) Owners of company of SP and P has the right to possess, use, earn income from and transfer properties related to his business, Every partner makes decisions on behalf of the firm even without the consent of other partners by legally bindings. Partners bear collective responsibility and have higher risk than SP. 5) SP and P usually manage their business themselves. With more partners, they can have a wider scope of specialization in management. For limited companies, management and owners (shareholders) are separated usually. 6) As SP and P can keep all of the profits, they have a stronger incentive to improve efficiency (maximize profits). But for managers in limited companies, they won’t earn much more even they raised the profit; so they have a weaker incentive to improve the efficiency. 7) Consultations among partners gives them a better (prudent and feasible) decisions than SP. But that will decrease their flexibility. Limited companies do more consults before they make decisions; therefore they have even lower flexibility. 8) Since owners manage their business in SP and P, they can establish close relations with employees and customers. It enhances employees’ morale and customers’ loyalty. But for limited companies, since owners don’t involve in the management, owners’ relationship with employees and customers become more distant. 9) Only Pu and L is required to disclose the financial account to public. 10) SP can transfer his business freely. Partners can transfer his ownership after the consent of other partners. Shareholders in Pr ask board director’s approval before he transfer his ownership. Shares can be transferred without restriction for Pu/L. 11) SP/P will end when there’s an admission, withdrawal, bankruptcy or death of any owners. Limited company ends only when it’s liquidated. 12) In Hong Kong, SP/P have a lower profit tax rate than limited companies. While limited companies have a higher profit tax rate. Other differences between private and public limited company: 1) Pr can’t invite public subscription for its shares while Pu can. 2) Pu is also a listed company when the transactions of the shares of that company are conducted in stock exchange. We form a sole proprietorship when we have a small amount of capital and limited specialist skills; partnerships formed when each partners trusts each others, they may have different specialist skills so that they can share their expertise and share the cost of equipment. For SP/P, they can obtain capital through retained profits, owners’ savings and borrowings. For limited company, they can also issue shares and debentures and borrowing from banks. A share or stock is the certificate of ownership (owners) which enables the shareholder to share the profit (dividends) refer to the company’s profit and its dividend policy. A bond or debenture is the certificate of debt (creditors) which enables the bond holder to earn interest until redemption or the maturity date. They can a fixed interest. Features: 1) Shareholders may not receive dividends depending on the profit and dividend policy. 2) Shares have no maturity dates while bonds have. Priority of payment upon liquidation: secured creditors, liquidators, government and employees, unsecured creditors (bond holders) and shareholders.

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