It is a corporate business that belongs to one person. They are the most common forms of business organization, because they are so easy to get started. Creating it does not require authorization from any government agency. Generally the company requires little or no capital investment.
A sole proprietorship provides an excellent model to demonstrate accounting principles as it is the simplest form of business organization. But in the business world you will rarely find financial statements for these organizations.
Most sole proprietorships are relatively small businesses with no obligation to present financial statements. Your accounting information needs basically consist of the data used in daily business operations, the balance in the company's bank account, and the receivables payable.
In fact, most sole proprietorships do not prepare formal financial statements, unless some special needs arise. For accounting purposes, each business organization, including sole proprietorships, is treated as a separate entity from the other activities of its owner.
This allows us to measure the performance of the business separately from the other financial matters of its owner. However, under the law, a sole proprietorship is not a "separate" entity from its owner. By law the owner is the "entity" and the sole proprietorship represents only some of its financial activities. The fact that the company and its owner are legally "one and the same" explains many of the distinctive features of this form of organization. Characteristics of a single owner company
- Ease of Training: This explains why they are so common. The assets of the company: They really belong to the owner, since the company is not a "legal entity" it cannot own property, therefore, the owner can transfer assets to the outside or inside of the company according to his will. The business does not pay income taxes: Tax laws do not consider the business as a separate form from the other financial activities of its owner. Consequently, the company does not file income tax returns or pay these taxes. Instead, the owner must include the net income of the company from her personal income statement. The company does not pay wages to the owner:The owner is not working for wages. The owner's compensation consists of the net profit or net loss of the business. Any withdrawal of money from the business by its owner must be recorded by debiting the owner's current account and is not recognized as a salary expense. The owner is personally responsible for the debts of the company:This concept, called unlimited personal liability, is very important and deserves special attention. The owner of a sole proprietorship is personally liable for all business debts, unlimited personal liability is the biggest disadvantage of this form of organization. All other ways to limit your personal liability for business debts, but not the sole proprietorship.
Advantages of this company
- Training facility The company does not pay double taxation The company does not pay wages to the owner The owner has full authority
Disadvantages of this society
- The owner is personally liable for the company's debts Has a limited life Does not have the facility to accumulate capital Limited capital
On the balance sheet of a sole proprietorship, total equity is represented by the balance in the owner's equity account. Investments in assets by equity are recorded by crediting this account. Withdrawals of assets by the owner are recorded by debiting the owner's checking account.
At the end of the accounting period, the current account and also the income statement are closed in the owner's capital account. The only financial reporting obligation of many sole proprietorships is the information that must be included in the owner's personal income tax return.
For this reason, many sole proprietorships base their accounting procedures on income tax rules, and not on generally accepted accounting principles. The net income must be sufficient to compensate the owner for three factors:
- Personal services provided to the company Invested capital The degree of financial risk that the owner is assuming.
For a business organized as a corporation, creditors generally base their loan decisions on the relationship between assets and liabilities on the corporation's balance sheet. But if the business is organized as a sole proprietorship, the balance sheet is less useful to creditors.
The capacity of a sole proprietorship depends on the creditworthiness of the owner and not on the relationships between assets and liabilities that appear on the company's balance sheet. Business creditors may ask the owner to provide personal financial information. They can also research the owner's credit history using credit investigation agencies.
Small companies may not have the resources to establish sophisticated internal control structures, nor the need to do so. The financial information they develop is usually audited. Federal securities laws apply only to publicly owned companies. The risks of a sole proprietorship are often borne by the owner who may have little accounting experience.
Liquidation of a sole proprietorship
It is settled with the death of the owner or mismanagement of the owner causing losses greater than or equal to the equity.
Societies in collective name
Collective partnership is defined in North American law as "a partnership of two or more persons to carry out, as joint owners, a business in order to obtain profits."
Partnerships are a popular form of organization because they provide a convenient and inexpensive means of combining the capital and special skills of two or more people. Society is not a separate legal entity in itself but simply a voluntary association of individuals.
Essential characteristics of this society
- Ease of formation: A society of persons can be created without legal formalities. When two or more people agree to become partners, such agreement constitutes a contract and a partnership of persons is automatically created. The contract must be written to avoid future misunderstandings or disagreements. Limited life: A partnership can be terminated at any time by the death or retirement of some of the members of the firm. Other factors that can determine the termination of the partnership include bankruptcy or incapacity of a partner, the expiration of the period determined in the partnership contract. The admission of a new partner or the withdrawal of an existing one means the end of an old partnership, although the company may continue with the intention of forming a new partnership.Mutual Representation: Each partner acts as an agent of the company, with the authority to sign contracts for the purchase and sale of goods and services. The mutual representation factor suggests the need for great caution in selecting a partner. Partnering with someone who is irresponsible or lacks integrity is an intolerable situation. Unlimited liability: Each partner is personally responsible for all the debts of the firm. The lack of some cap on a partner's responsibility can inhibit a wealthy person from joining society. Co-ownership in the assets and profits of the company:When a partner contributes a building, inventory or other property to a partnership, he no longer retains any personal rights to the assets he contributes. The properties are the sole and exclusive property of all the partners.
Advantages of this company
Perhaps the most important advantage in most partnerships is the opportunity to raise enough capital to get a business going. Forming a partnership is much easier and less expensive than organizing a joint stock company.
Members of a partnership have more freedom from government laws and flexibility of action than owners of a joint-stock company. Partners can withdraw funds and make decisions of all kinds without the need for formal meetings or legal procedures.
Disadvantages
Limited life, unlimited liability and mutual representation. Also, if a company requires a large amount of capital, the partnership is less effective in raising funds than a joint-stock company.
Cooperatives
Definition: a cooperative is a group of people with some economic, physical needs in common who come together for the purpose of serving as a medium and the community that surrounds them.
Cooperatives as an economic institution
Cooperatives must always aspire to develop as a strong and efficient company, it is used by its associate to achieve and improve the economic situation, since the cooperative aims to solve the socioeconomic problems of its members.
Constitution of the cooperative company
- Assembly of cooperatives (bringing together at least 10 Cooperatives). Minutes are drawn up to the assembly of cooperatives in five copies. Authorization is requested from the secretary of foreign relations. Copies are sent to the assembly and the secretary of industry and commerce. registers the act in the national cooperative registry, thus the cooperative society is legally born.
Importance of Cooperatives
The importance of cooperatives lies in the fact that through the application of a true cooperative system with all its established rules, norms, procedures and principles, it will be indisputably a tool for economic, social and intellectual development.
The effect of the cooperative movement in countries like: Great Britain, Sweden, Germany, etc. is highly remarkable. Here in the Dominican Republic on February 27, 1964, Law 121 was enacted, and said law was published in Official Gazette Number 8828, on January 29, 1964; which determines and establishes the conditions under which cooperatives can be established. And his article Number 1 says: "Non-profit companies of natural or legal persons are cooperatives."
Stock Company or Stock Companies
A corporation is a legal entity that has a separate and distinct existence from its owner, "it is an artificial person" who has rights and obligations as a natural person. A corporation, being a legal person, can own properties in its name. The assets of a corporation belong to the company and not to the shareholders. A corporation has the legal status before the law, that is, it can have a claim or sue another person.
Advantages of this company
- Shareholders have no personal responsibility. The creditors of a corporation are entitled to the assets of the corporation, not the assets of the shareholders. The money shareholders risk by investing in a corporation is limited to the value of their investment. Ease of capital accumulation. The ownership of a corporation is guaranteed by the transfer of shares. The sale of capital of a corporation in a unit of one or more shares allows large and small investors to participate in the ownership of the company. Negotiability of the shares. Shares can be sold from one shareholder to another without dissolving the business organization; large corporations can be bought or sold by investors in markets, such as the New York Stock Exchange.Continuous experience. A limited company is a legal person with unlimited experience. Professional management. The shareholders elect a board of directors that is responsible for managing all the company's businesses.
Disadvantages of this society
- High taxes. The income of a partnership or sole proprietorship is variable only with personal income of the owners of the business. Greater regulation. When a corporation is organized under the terms of state laws, these same laws provide considerable regulation of the company's activities. Separation between the right of ownership and control. The separation of functions between property and administration can be advantages in some cases but in others a disadvantage.
Income tax in the financial statements of this company
Since a corporation is a separate legal entity subject to income tax, the major of a corporation must include accounts to record income taxes. The s / r taxes are based on the companies' profits and at the end of the year before preparing the financial statements, the s / r taxes are recorded using an adjusting entry.
The partnership contract
Although a partnership can be formed by verbal agreement, it is highly advisable to find a partnership agreement in writing, which summarizes aspects of mutual understanding of the partners on aspects such as:
- Name of the partners and the duties and rights of each one. Value of the contributions of each partner including the valuation procedure of any non-cash assets invested or withdrawn by the partners. Methods of distribution of profits and losses. Withdrawals allowed to each partner.
Accounting of the society of persons
The accounting of a partnership is the same as that of a single owner, except that it maintains separate capital and withdrawal accounts for each of the partners. A distinctive feature of the accounting of a partnership is that the net income of the business is divided among the partners in a manner stipulated by the partnership contract.
Liquidation of a partnership
A partnership ends or is dissolved when a new partner joins or an old partner retires. The termination or dissolution of a partnership, however, does not necessarily indicate that the business should be dissolved. Often the company continues with little appearance of change in the composition of the firm. The termination of a partnership indicates that a change has occurred in the members of the firm, which may or may not be followed by a liquidation.
The process of breaking up and dissatisfying a society of people is called liquidation. The liquidation of a company leads to the termination of the company. If this is not going to continue, the assets must be sold, the obligations paid, and the remaining money distributed to the partners.
Formation of a Limited Company or Stock Company
A corporation is created under the constitution of a document issued by the state. Once the constitutional document has been approved by the entity in charge, the shareholders of the new company meet in turn and elect the directors and other employees of the company.
Organization cost
The costs necessary for the formation of a corporation include paying the state for function rights, paying legal fees to attorneys for their service in relation to the statutes, paying promoters, and a variety of additional expenses to give you existence the company.
Shareholders' rights
- Vote to elect executives and therefore be represented in the company Participate in the profits receiving dividends declared by the board of directors Participate in the distribution of assets in case of liquidation Subscribe additional shares.
Functions of the Board of Directors
The primary functions of the board of directors is to manage the corporation and protect the interests of the shareholders. The specific duties of directors include:
- Declare dividends Assign salaries to employees Review internal employee system Review internal system with auditors Organize important contracts
Functions of the public limited company
These constitute the top tier of professional managers appointed by the board of directors to choose the company.
- The accountant or chief accountant The treasurer The secretary
Stock companies like corporations is a form of commercial body. The ownership of a company by shares is divided between its shareholders, who participate in the profits and losses in proportion to the number of shares they have. The liability of a shareholder is limited to the scope of his investment in shares; and in his absence, there is no personal liability of the shareholders for the company's obligations. The company has its own personality and can sue or be sued on its own behalf.
Limited Partnership:
This society is made up of two types of partners:
- a) The limited partners, with joint and several liability against the company's commitments b) The limited partners, with liability limited to the amount of their contribution.
The commercial code governs the nature of this company in this way:
“The limited company is contracted between one or many responsible and joint partners, and one or many partners, simple lenders of funds, which are called limited partners or limited partners. It is governed by a company name that must necessarily be that of one of the responsible and supportive partners ”.
When there are many jointly-named partners, whether they run the company all together, or one or many run it for all, the company is at the same time a company in collective name with respect to them, and a limited company with respect to simple fund lenders. ".L
"The name of a limited partner cannot be part of the business name."
"The limited partner is not responsible for the losses, but until the concurrence of the amount that he has put or should put in the company."
What mainly characterizes the limited partnership is the existence of two kinds of partners: limited partners and limited partners.
If the company is made up of several limited and limited partners, with respect to the former it is a collective name, and with respect to the latter, in limited partnership.
When several people enter into a partnership agreement without specifying its nature, it must be presumed that it is in the collective name, if none of its clauses reveals the willingness of some of the partners to restrict their liability to the amount of their contributions.
When the intention is to create a limited partnership, it must be formally declared, or its intention must be stated unequivocally in the stipulations of the partnership.
The convention of the parties, their nature, the intention of the taxpayers of the company is what determines its character, regardless of the qualification that has been given; and in case of doubt, the courts will restore their true character to the conventions.
SINGLE OWNER COMPANIES
Contributed by: CLARIBEL ARIAS DUVERGE - [email protected]
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