All businesses need to raise finance to run a business

Jun 27th, 2015
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Abilene Christian University
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This is money which comes from the owner/s own savings It may be in the form of start up capital - used when the business is setting up It may be in the form of additional capital – perhaps used for expansion This is a long-term source of finance

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Long Term Sources of FinanceFORMS OF BUSINESS OWNERSHIPSole proprietorshipDecision-making issimpleCan be set up easily &inexpensivelyThe owner receives allincome from business.Income is taxed at onlyone level (that of theowner).Subject to fewregulationsUnlimited liability.Limited life of theproprietorshipThe business has limitedaccess to additionalfunds.PartnershipThe general partners aredecision-makers.The owners (the partners)divide income according topartnership agreement.Income is taxed once.Set up with easeFew government regulationsUnlimited liability for eachpartner.A limited life of partnership.Limited access to additionalfunds.CorporationThe separation of ownershipand decision-making.Distinct legal entityLimited liabilityThe business enterprise has alife in perpetuityAccess to additional fundsthrough the sale of new shareof stock.Income is distributedaccording to proportionateownership.Double taxation on incomeRegulated by Companies ActCorporationPrivate CompanyMinimum 2 personsMaximum Shareholders 50Public subscription not allowedRestricted rights to transfer sharesPromoters enjoy unchallengedcontrol over the firmFirms ability to raise capital islimitedPublic CompanyMinimum 7 personsUnlimited ShareholdersPublic subscription allowedFree transfer of sharesFirm can raise substantial fundsCumbersome procedure forFormation Public Company is the most appropriateform of organisation as Lim

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