Book-keeping · Lesson 13

Sole proprietorship, partnership, companies, cooperatives; sources of capital

WAECNECO

What the syllabus asks

WAEC: Business Organisations (sole proprietorship, partnership, joint stock companies, cooperative societies; features, advantages and disadvantages) and Sources of Capital. Links to Commerce cm units.

NECO: Business Organisations (sole proprietorship, partnership, joint stock companies, cooperative societies; features, advantages and disadvantages) and Sources of Capital. Links to Commerce cm units.

What you will learn

Classify business organisations in the private sector.
State the features, advantages and disadvantages of a sole proprietorship.
Explain partnership, the partnership deed and the rules without a deed.
Share partnership profit using an appropriation account.
Distinguish private and public companies and shares from debentures.
Describe the types and features of cooperative societies.
Classify sources of capital and calculate the cost of loans and hire purchase.
Choose a suitable source of capital for a business.

Key points

Private sector forms: sole proprietor, partnership, company, cooperative.
Sole proprietor: one owner, unlimited liability, all profit.
Partnership: 2 to 20 partners; deed sets terms; no deed means equal shares.
Interest on capital and partners’ salaries are appropriations, not expenses.
Company: separate legal person, limited liability, perpetual succession.
Ltd: 1 to 50 members, ₦100,000; Plc: public shares, ₦2,000,000.
Shareholders own; debenture holders lend.
Cooperatives: one member, one vote; dividend on purchases.
Sources: internal or external; short, medium or long term.
Match long-term needs to long-term funds.

Start here: Meaning and classification of business organisations

A business organisation is a unit formed to produce goods or render services in order to make profit, or to serve its members. Every business needs an owner (or owners), capital, management and records. The form of organisation chosen decides who owns the business, who bears the losses, how profits are shared, how much capital can be raised, and what books and accounts must be kept.

The WAEC syllabus covers four forms in the private sector:

Sole proprietorship (one-man business, sole trader).
Partnership.
Joint stock companies: private limited companies (Ltd) and public limited companies (Plc).
Cooperative societies.

In the public sector, government owns businesses such as public corporations and government companies. These are studied in Commerce; here we focus on private businesses and how they are financed.

Registration in Nigeria

Businesses are registered with the Corporate Affairs Commission (CAC) under the Companies and Allied Matters Act 2020 (CAMA 2020). A sole proprietor or partnership that trades under a name other than the owners’ own names registers a business name; a company is incorporated and receives an RC (registration) number. Cooperative societies register with the cooperative department of the state government (or federal department for federal societies).

Worked example 13.1

Classify: (a) Mama Nkechi’s provision shop in Aba, owned and run by her alone; (b) three friends running a printing press in Ilorin under a written agreement; (c) a cement company whose shares are bought and sold on the Nigerian Exchange; (d) a group of cassava farmers in Benue who buy fertiliser together and share the surplus according to their purchases.

Solution. (a) Sole proprietorship. (b) Partnership. (c) Public limited company. (d) Cooperative society (a producers’ or multipurpose cooperative).

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Practice questions

1. A business owned and controlled by one person is a

sole proprietorship
partnership
cooperative
public company

Show answer

A: sole proprietorship
One owner.

2. The liability of a sole proprietor is

limited to capital
limited by guarantee
nil
unlimited

Show answer

D: unlimited
Personal assets at risk.

3. Under CAMA 2020, a partnership of more than 20 persons for profit must generally

become a cooperative
have no deed
register as a company
dissolve at once

Show answer

C: register as a company
Section on associations over 20.

4. Without a partnership deed, profits are shared

by age
equally
by capital
by drawings

Show answer

B: equally
General law rule.

5. Without a deed, interest on a partner’s loan of ₦1,000,000 is

₦50,000 (5%)
₦100,000
nil
₦10,000

Show answer

A: ₦50,000 (5%)
5% a year.

Key words

Sole proprietorship: Business owned and controlled by one person.
Partnership: Two or more persons carrying on business in common for profit.
Partnership deed: Written agreement setting out partners’ terms.
Unlimited liability: Owner’s personal assets can pay business debts.
Limited liability: Owner loses no more than the capital invested.
Joint stock company: Business owned by shareholders with separate legal personality.
Perpetual succession: A company continues despite changes in members.
Debenture: Long-term loan to a company carrying fixed interest.
Dividend: Share of company profit paid to shareholders.
Cooperative society: Voluntary democratic association serving members.
Ploughed-back profit: Profit retained and reinvested.
Collateral: Security pledged for a loan.

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