Characteristics of Business Types: A Comparative Study

2. Control and Management

How decisions are made depends heavily on the business structure.

In a Sole-Proprietorship, the owner has total control and manages all daily activities. Similarly, in a Conventional Partnership, the general or active partners manage the business.

However, companies operate under a more complex "separation of ownership and control" model. Both Private and Public Limited Companies are controlled by a Board of Directors (BOD). While the BOD makes high-level strategic decisions, they typically employ professional managers and workers to handle the day-to-day operations.

Exam Tip: If a question asks who is responsible for the strategic decision-making in a company, the answer is the Board of Directors (BOD), not the individual shareholders.

3. Liability and Taxation

Liability is perhaps the most critical characteristic for an entrepreneur to understand, as it determines personal financial risk.

Liability: Personal vs. Limited

• Unlimited Liability: In both Sole-Proprietorships and Conventional Partnerships, the owners have unlimited liability. This means if the business cannot cover its debts, the owners' personal assets (such as their homes or cars) can be seized to pay off business losses.
• Limited Liability: In Private and Public Limited Companies, liability is limited to the amount of capital the shareholder has contributed. The owners' personal assets are protected from the company's creditors.

Tax Consideration

The way profits are taxed also differs significantly:

• Individual Rates: Profits from sole-proprietorships and partnerships are not taxed as separate business entities; instead, they are taxed at the owner's individual income tax rate.
• Corporate Rates: Companies are taxed at a corporate rate. For example, company profit is subject to a 24% corporate tax rate on net annual profit.

4. Profit Division and Financial Disclosure

Finally, we look at how money is distributed to owners and how much information the business must share with the public.

Division of Profit

• Sole-Proprietorship: The owner keeps 100% of the profit.
• Partnership: Profits are divided based on a partnership agreement. If no agreement exists, the Partnership Act 1961 dictates that profits are shared equally, regardless of how much capital each partner contributed.
• Companies: Profits are distributed to shareholders in the form of dividends. Companies often retain a portion of the profit to reinvest in business activities rather than distributing it all.

Financial Statements Disclosure

Transparency requirements increase as the business type becomes more public:

Summary Comparison Table

To help visualize these differences, refer to the summary below based on the characteristics identified in the study materials: