1. BUSINESS UNITS
Definition
Is an organizationor firm that dealsin the productionor distributionof
commoditiesusuallyfor the purposeof making profit. It may be set up by
an individualor group of individualsand its size depends on the amount of
capitalinvested.
FORMS OF BUSINESS UNIT
(i) Public sector
(ii) Privatesector
PUBLIC SECTOR
The public sectorscompriseof businessorganizationowned by the
government. The sector consist of the following;
 Public cooperation
 Public companies
 Local government authorities
 Parastatals
PRIVATE SECTOR
The privatesectorscompriseof businessorganizationowned by private
individuals. Thesector consist of the following;
 Sole proprietorship
 Partnership
 Privatecompanies
 Cooperativesociety
SOLE TRADER
Is a person who owns a business singly. He is the only owner of the
business, he providesall the necessarycapital, employsall the necessary
labour and bearsall therisk of the business.

2. Characteristicsof a sole trader
 Owned by one person.
 Providescapitalhimself.
 Earns profit and bears loss.
 The mainfinal authorityonall affairsof the businessversus liabilities
or assets of the business is limited.
UN LIMITED LIABILITIES
It occurswhen the business and the owner are not separated.
ESTABLISHING OF A SOLE TRADER BUSINESS
-Presenceof the accepted location.
-Placeshould be recognized by the government policy.
Finding capital
-Money being invested to start thebusiness.
-Submissionofprovision incomefor tax assessment (TRA) calculate
according toincomequarrying.
Obtain trading license
Is a document which givespower to start thebusiness.
Starting operation
Soon after tradelicense has been issued theaim commencing thebusiness.
A sole trader business is very flexible
Changethe natureof the businessany timewithout offending any body.
ADVANTAGES OF SOLE TRADER
1.Organizationisvery simple
He takesall the decisionsno necessity to call a meeting.

3. 2. He takesall the profit and bearsthe loss.
3. Contact with costumers
He is able to establish a direct contact both with hisemployees and any
problem can be solved easily.
4. Business is very flexible
He canchangethe natureof the business at any timewithout asking for
permission.
5. He enjoys top secret
He is the only person who knows the business secrets.
6. Need for small capital
The businesscan be established with anyamount of money.
DISADVANTAGES
 Unlimited liabilities
When he enters intoserious loss his personal resourceis takenas security
to cover bad debts.
 Capitalresourceis limited
Resources aresmall hence no expansion.
 Limitationof talent
Every person has limitation, nobodyis well in every aspect that'swhythere
is divisionof labour and specialization.
 He bearsthe loss alone
Sole trader is the only person who owns the businesstherefore he suffers
all loses which occur.
 Lack of continuity

4. Performanceofsole proprietorship isalwaysuncertainand difficult to
maintain. Thesuccessof sole proprietorship dependson the personal
efforts and abilitiesofthe owner. In casethe owner dies, the businessis
adversely affected. The businessmay even collapse.
PARTNERSHIP
A partnership isa business organisationformed and owned by twoor more
people known as partnerstocarryout businesswith an aim of making
profit.
OR
Is the associationoftwo to twentypeoples carrying on a businessin
commonwith a view of making profit.
FEATURESOF PARTNERSHIP
i. They are formed by a minimum of twoand a maximumoftwenty in the
caseof ordinarypartnershipsand a maximumof fiftyin the case of
partnershipsformed byprofessionals such as doctors, lawyers and
accountants.
ii. The partnersprovidecapitaljointlyin theproportionsagreed either from
personal savingsor loans from banksand other financialinstitutions.
iii. The actionof one partner isbinding toall other partners. For instance,
any debt incurred by one partner on behalf of the businessis binding toall
partners. Theliabilityis spread among all partnersin proportionof their
contributiontopartnership capital.
iv.Partnersusuallyshare dutiesand responsibilitiesinthe management and
operationof businessas spelt out in the partnership deed.
v. Legally, there is no distinctionbetweenthepartnership businessand its
owners, That is the businessis not a legal entity. If the business fails to pay
itsdebts, the partnerswill be required tocontributefrom personalsources
to pay up the debts.
vi. Each partner actsasan agent of thebusiness. Partnerscanthereforesell
and buy on behalf of thepartnership.

5. vii. The profit madeby the businessbelongs to the partnersjointly. This
profit is divided in the proportionsagreed uponin the partnership deed.
viii. In case thebusiness makesa loss, the loss is shared by partnersinthe
proportionsagreed inthe partnership deed.
ix. All business decisionsaremadejointly by the partnersthrough
constitutions, discussions, consensusand through majorityvote.
FORMS OF PARTNERSHIP
1. Temporary partnership
Thisis formed for a specific period or for a specific purpose.
2. Permanent partnership
Is the partnership which isformed for a long timethe end is not known
TYPES OF PARTNERS
1. According to the rule played by them
 Active partner
An activepartner isalso known as working partner. He or she managesthe
day to day affairsof the businesson behalf of the other partnerson top of
the profit share, he or she is entitled to a salary
 Dormant partner
He is also known as sleeping partner or financing partner. Such partner
does not participateinthemanagement ofthe partnership business. He
invests capitalinthebusiness but his share of profitswill generally be lower
thanof the other partners.
2. Classifiedaccording to liabilitiesfor firm debts or unlimited
-General partner
A person who liabilitytowardsthefirm is limited.
-Unlimited partner

6. A person whose liability of the firm debt is limited usually the capital
contributed byhim.
LIMITED LIABILITIES
Occur when businessand the owner are separatelyentityi.e. not close
relationship betweentheowner of asset towardsfirm debt.
3. Classifiedaccording to age
-Major partner
Is a partner whois over 18 yearsof age. He is liable for all the debtsof
business.
-Minor partner
Under 18 agehe contributescapital, shareprofit but he is not readyor able
for the firm debt but his capitalcontribution.
4. According to capital contribution
-Real partner
Person who contributescapitalshareprofit and loss.
-Quasi partner
Who don’t contributeanycapital, takepart inbusinessbut allows the firm
to use his name as partner. He is not liable for the firm debtsin the most of
the cases, but he gets sharefrom the profit.
The agreement iscalled partnershipdeed
PARTNERSHIP DEED OR PARTNERSHIP AGREEMENT
Thisis thewrittendocument which governsmembersin the partnership
firm. It includes the following;
Contents of the partnershipdeed
Partnership deed would usually statethefollowing

7. 1) Nameof addressfirm
i.e. Baraka businessenterprises.
2) Name, addressand occupationof each partner, Director, accountant.
3) Type of partner; Active, dormant, and capitaltobe contributed byeach
partner.
4) The ratioin which profit and loss would be shared by the partner
5) Right of each partner i.e.
 Drawings
 Salary
 Interest
6) Method of calculatinggoodwillstart at the timeof distribution.
7) The durationof thepartnership i.e.
 Temporary
OR
 Permanent
8) The procedure tobe taken during dissolving partnership.
9)Purposeof establishing thepartnership
RIGHTS AND DUTIES OF A PARTNER
1. Indemnityof a partner for liability
If the partner useexcess expect in conduct thebusinessfirm businessmust
indemnity.
2. Displaying utmost good faith
If the partner providepropertyor funds.

8. It should be discounted bythe firm and the partnersshould the material
facts.
3. No new partner maybe included without permissionor information.
No new member admitted without theconsent of all partners.
4. No partner arepersonally liablefor debtsincurred bythe firm except
quasi partner.
5. Every partner hasa right toact on behalf of the business e.g. Signand
provideinformation.
6. If a partner have a privatebusinessthat competeswith the
partnership allprofitsmadeby him should be surrendered to the firm.
ADVANTAGES
1. Raise morecapital
Partner canuse more capitalbecauseof capitalcontribution
2. Work is divided
There is specializationand divisionof labour
3. Decisions shared
4. Better combinationoftalents [ skills]
Partnerssharing ideasfrom each other henceleads to added knowledge to
the members
5. Losses and liabilitiesareshared
6. Formationisfair and simple
There is no legal or complicated formalityduringformation
7. The expansionof the business due to capitalaccumulated

9. 8. In theevent of a difficult partner, partnersarelikely to come up with
a solution
DISADVANTAGES
 The liabilitiesofa partner isunlimited
 Profit is shared
When profit is distributed topartnersit mayreducethe amount
 Temporary
Duration/period of time
 The business is affected by the death of one partner or bankrupt
 Delay in decision
Sinceall major actionmust betakenby the consent of all partnersthey
often be delayed hence causerisk or loss.
DISSOLUTION OF PARTNERSHIP
Definition
The dissolutionis wind up to the firm in venture
A partner notifiestheother partner inthe following are:
1. If the partner istemporary.
2. If partnership notifiestheother the other partner right todissolve.
3. If a partner becameinsanebankruptor due to order madethe
winding of the partnership.
4. If the partnership becameunlawfuldoing against ofthe partnership
agreement.
JOINT STOCK EXCHANGE
Definition
Is a cooperativeassociationofa person formed to a certainspecific function

10. Or
Is cooperativebody is created under the law and has an entityof its own
quiteseparatelyfrom the membersthat comprises.
TYPES OF COMPANIES
1. Statutorycompany
2. Registered company
STATUTORY COMPANY
Is a companycreated byact of parliament.
REGISTERED COMPANY
Are those formed and registered under the companiesact 1962 cap 486.
TYPES OF REGISTERED COMPANY
Registered companiescanbefurther classified intothe following groups
1. According tothemember
2. Privatecompany2-50
3. Public companies
Characteristicsof private companies
1. Can have two to fifty members
2. Sharesare not transferableor sold
3. Owned by family
4. Can start businesssoon after owning a trading certificate
5. It is not required to publish itsaccount
PUBLIC COMPANIES
Are companiesowned by the public [government]
Characteristicsof public companies
1. Can be any number starting from 7 no maximum
2. Owned by the public

11. 3. Sharescanbe transferred
4. Can start businesssoon after given certificateincorporate and
certificateoftrading.
5. Must publish its accounts
According to liabilities:
1. limited companies
Is the liabilityofthose membersin limited resourcesdo not involve in
serious firm debt
2. Unlimited liability
Is the one of the liabilityof those membersislimited
Or
Privatepersonresourceare involved in seriousfrom debt
Liabilitiesquaintest
Is the companywhich do not issue shareor own becauseitsdebt with
businesse.g. Simba sportslimited
PUBLIC LIMITED COMPANIES
Is the companywhich is owned by the government where by the liabilityof
the membersis limited toa stated amount
IMPORTANCE /FEATURESOF PUBLIC LIMITED COMPANIES
-Owned by public
-Legal personality
-They have an entityof them own quiteseparatelyfrom membersthat
constitutethem
-Limited liabilities

12. -The liabilitiesofshare holder is limited should be published to thea/c in
government media
-Capitalisdivided into transferableshare
-The capitalofthe companyis divided intoa number of shares each shareis
transferable
-Perpetualsuccession
-The companyexist identityfill itsdissolved does not affect by death or
insanity
-They have minimum ofseven members to the maximum
-Common seal/law
-Sincethe companiesareseparateentityit will be necessaryfor it to sign
papersand documents
-The owners have no direct contactwith theemployees or customers
FORMATION OF COMPANIES
The person who want to establish companyhe is required to fill the
following documentsto the legislator of the companies
 Memorandum ofassociation
 Articleof association
 List of directors
 A statement signed bydirector stating thattheyagreeto act on behalf
of thecompany
 A declarationthat thenecessaryrequirements
 Certificateof trading /startbusiness
 Certificateof incorporation
MEMORANDUMOF ASSOCIATION
Is the document tobe prepared when forming a companywhich define the
power and limitationof the companywith outsiders.
CONTENTSOF THE MEMORANDUMOF ASSOCIATION

13. Name clause
Thisclause states the nameof the companythe last word of thename
should be limited to serve as a reminder to the people dealing with the
companythat theliabilityof its membersislimited.
Situation clause
Statethelocationof a placewhere the companyhasbeen allocated OR
Every companymust have a registered office, where itsoffice is situated
and noticecanbe put.
Objective clause
Thisclause statesthe purposeof establishment ofthe company
Capital clause
Thisclause statesthe sharecapitalwhich thecompanywishes to have
Liability clause
Thisclause states that the liabilitiesof the membersshall be limited
Declaration clause
Thisis thelast clause which statesthe desire for membersto engage
themselves into a public limited company.
ARTICLE OF ASSOCIATION
Is the document which lays down the rules and therequirementsof the
companyinternalorganizationof the company.
CONTENTSOF ARTICLESOF ASSOCIATION
 The rightsand powers of each type of shareholder.
 The powers of directors.
 The methodsof conducting meetings.
 The issue and transfer of shares.
CERTIFICATE OF TRADING

14. Is the document issued by the register whoallows the company to
commenceitsoperation.
CERTIFICATE OF INCORPORATION
Thisdocumentsare presented to the registrar ofcompaniesand everything
found satisfactory, a certificateof incorporationmaybeissued. Thisbrings
the companyintothe existenceas a separatelegal entity.
SHARES
A share is a unit of capitalof Joint StockCompany.
Types of shares
 Ordinaryshares
 Preferenceshares
ORDINARY SHARES
Is the kind of share which do not occursor carrya fixed rateof returns
PREFERENCESHARES
Is the kind of share which carryfixed rateof returnpreference shareholder
have a first right dividend
DIVIDEND
Is the profit distributed toshareholders in the limited company[only for
those who joint /sharethe capital]
Types of reference shares
1. Accumulative preferenceshares
Those shares areentitled to a fixed rate dividend till they arepaid.
2. Non accumulative preference shares
These are entitled to a fixed rateof dividend but only for the year for which
a dividend is declared.

15. 3. Redeemable preference shares
Are shareswhich are brought backbythe companyafter a stated period
Irredeemable preference shares
Sharescan’t be brought backbythe company
DEBENTURES
Is a unit of loan of a limited company
Types of debentures
Classificationaccordingtothe securitypledged against them
1. Naked debentures
Are debentureswhich do not have securitypledgeagainst them
Classificationaccording to the redemption
Redeemable debenture
Are never refunded the money borrowed against them remainsoutstanding
of thefull companyisliquidated
Debentures differ from shares in the following aspects;
1. Shareis a unit of capitalwhiledebentureisa unit of loan
2. Shareis paid a dividend while debentureispaid interest
3. Most share holders have the right to vote or favours the company
while debentureholders they don't have the right tovote.
4. Return on share is not restricted whiledebenturerulesis restricted to
a certainpercentage
ADVANTAGES OF PUBLIC COMPANIES
1. The liabilitiesofthe members is limited
2. Raise capital

16. -Companyis better placed to raiseamount of capitalthrough high
profit
3. Largescale production
-Largesum of money enable largeproductionhencehigh profit
4. High dividend causeshareincrease
-It is value sharein the market
5. Sharesare freely transferable
-Memberscansell shares to another person
6. Employees maybe allowed to buy shares hence becomeshareholder
7. Management iscontrolled by directorswhoexpect to lead efficient
cooperation
8. Perpetualsuccession
The companyhas a continuousexistenceand arenot affected by
 Death
 Bankrupt
 Insanity