Creditor and owner’s position with regard to risk, income and control in the business?

The owners make permanent investment of fund in the business. The creditors on the other hands, advance loan in the business for short, medium, and long term in the form of money, property. First of all, we will discuss about the position of owner as regard risk, income and control in the business.

Owner position with regard to Risk, Income, Control

Owner position with regard to Risk:

The position of owner in the business is very risky. In the sole proprietorship, the individual owns the business and assume all risk and receive 100% profit. In case of loss the liability of owner is unlimited .the same position of partnership in partnership business. As the owner in sole proprietorship as well as in the partnership have unlimited liability. They, therefore assume too much financial risk. If at any time the business debts exceed business assets, they not only loose entire investment in the business. In case of joint stock Company the liability of owners are limited to the extent of value shares only. So there is a loss the owner losses a part or full value of his original investment.

Owner position with regard to Income:

The sole proprietorship allows the owner to receive the amount which is left after meeting all the business expenses.

In case of partnership, the profit and loss are divided according to the capital contribution or as per agreement of the partnership.

In case of joint stock Company the investors receive the dividends which are declared by the board of directors.

Owner position with regard to Control:

In the sole proprietor ship the individual operate the business himself for his own personal interest. We may transfer some control to an employee for performing a particular duty.

In partnership the function of business are divided by mutual agreement among the partners. One partner of the firm may take the responsibility of production ,the another may be take in charging of meeting of product, the third of maintaining the books of accounts.

In case the join stock company the shareholders are the owners. A large numbers of share holders are interest in dividend and rise in the value of share. The share holder transfers the control to the elected board of directors, which plans and implements the policies in the business.

Creditor position with regard to Risk, Income, Control

Creditor position with regard to Risk:

In a sole proprietorship. If the firm is dissolved, the individual has to bear the losses in full. All the assets of individual are available to satisfy the claim of the creditor of the business. In case of partnership, if the creditor is not able to recover the debts from the assets of business, than he can choose to sue all the partners in business to recover his debt from their personal properties. In case of joint stock Company the creditor have a prior clam on the assets of the business. In the creditors among themselves, there is a ranking of claims.

Creditor position with regard to Income:

As regards income of the creditors, it doesn’t fluctuate with the earring of the business. The rate of interest to the creditors is limited per agreement to the amount loaned to the business. The rate of interest to the creditor as compared to the rate on the owner’s capital is usually low. However the income of the creditor is more certain than that of the owners.

 Creditor position with regard to Control:

As a matter of legal right, the creditors can’t claim any share in the management of the business in all three forms of business organization.