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Business ventures summary
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TOPIC 1: BENEFITS OF A COMPANY ABOVE ANOTHER OWNER FORMSTERM DEFINITION
Form of ownership The legal position of the company and the way it owned.
Annual General A meeting to be held once a year in which the shareholders will receive
Meeting (AGM) a report in which they say how well the company risk.
Securities Stocks and bonds issued by a company.
The document outlining the rights, responsibilities and duties of
Memorandum of
shareholders and directors are set out (serves as a co-creation of a
Incorporation (MOI)
company).
A document contains extensive provisions relating to the matters relating
Partnership agreement
to the partnership and the partners.
Prospectus is a document that invites the public to buy securities /
Prospectus
shares.
Legal Personality A business has its own legal status, trademark and owned assets.
An amount of money regularly (usually annually) paid by a company to
Dividends its shareholders from the profits (or reserves). Dividends are paid out per
share.
ABBREVIATIONS & ACRONYMS:
CC Closed Corporation
BK Beslote Korporasie
(PTY) Ltd. Property Limited
(Edms) Bpk. Eiendoms Beperk
INC. Incorporated
Geink. Geïnkorporeer
JSE Johannesburg Stock Exchange
JEB Johannesburgse Effekte Beurs
Ltd. Limited
Bpk. Beperk
SOC State Owned Company
NPC Non-Profit Company
NWM Nie-winsgewende Maatskappy
SAID Suid-Afrikaanse Inkomstediens
MOI Memorandum Van Inlywing/Inkorporasie
CIPC Companies and Intellectual Property Commission
KMIE Kommissie vir Maatskappye en Intellektuele Eiendom
2
,IMPORTANT CONCEPTS
1. CAPITAL
Money or assets offered by the owners to start the business.
2. LEGAL PERSONALITY
Companies and CCs have a legal personality. This means that they legally be seen as
separate from their owners. Partnerships and Sole Proprietor businesses has no legal
personality and is therefore seen as one with their owners. Businesses with legal
personality may enter into contracts in its own name, may sue and can be sued - and
their respective owners.
3. CONTINUITY
The ability of the business to continue after the death or retirement of the owner or more
than one of the owners.
4. LIABILITY
Liability refers to the responsibility of the owner for the debts of the business.
Limited liability means the owner(s) (can be shareholders or members) can only lose their
investment in the business in the event of a business being declared insolvent (or
bankrupt). The owners will not lose their personal assets.
Unlimited liability means that the owner(s)s may lose their personal assets if the business
is declared insolvent, because they have to accept full responsibility to pay off the
company's debt.
5. TAX
Rates depend on the legal personality of the business.
Sole Proprietors and Partnerships pay taxes on a sliding scale to a maximum of 45%,
depending on the amount of income of their owners.
Close Corporations and Companies are legal entities and pay 28% tax on their profits,
and a further secondary tax of 20% on profits paid out to members or shareholders. The
tax amounts can vary each year, and should be adjusted according to the amount to
be determined by the Finance Minister in the National Budget.
6. ESTABLISHMENT PROCEDURE
The legal procedures / route a business must follow before it can start trading.
7. SEPARATE AND SIMULTANEOUS
This refers to businesses with more than one owner and means that all owners are
responsible for each other's actions and for the debts of the business.
3
,Discuss/Explain/Describe CHARATERISTICS, ADVANTAGES & DISADVANTAGES of forms of ownership.
1. SOLE PROPRIETOR
1.1. CHARACTERISTICS:
CHARACTERISTIC DESCRIPTION
NAME No legal requirements regarding the name of the business.
NUMBER OF OWNERS Only one owner
MANAGEMENT Can make quick decisions without consulting others.
CAPACITY Easy to control because it is a small business.
There are no legal and administrative formalities in the form of a sole
LEGAL REQUIREMENTS
proprietorship.
The unlimited liability and the private property of the owner can be used
LIABILITY
to pay the business’s debts.
A sole proprietor is not a legal entity and agreements entered into by the
LEGAL PERSONALITY
owner in his / her personal capacity.
CONTINUITY No continuity as business is dependant of the owner.
Personal debt and business debt is one and therefore capital should be
CAPITAL
carefully spent and managed.
The profit of the company belonging to the owner, as there is no
PROFIT SHARING
distinction between the owner and the enterprise.
Depending on how much income is earned by the owner, his / her tax
TAXATION
rate will be lower than the corporate tax rate.
1.2. ADVANTAGES AND DISADVANTAGES:
ADVANTAGES DISADVANTAGES
Easy & cheap to establish. Unlimited liability.
Quick decision-making. Has no legal personality & continuity.
Owners receive all the profit. Owner accepts all risks.
General experience in all aspects. Owners focus on some aspects and neglect
In contact with customers, suppliers and others.
employees. Owners are overworked.
Capital is limited.
No job security.
4
, Discuss/Explain/Describe CHARATERISTICS, ADVANTAGES & DISADVANTAGES of forms of ownership.
2. PARTNERSHIP
2.1. CHARACTERISTICS:
CHARACTERISTIC DESCRIPTION
NAME No legal requirements regarding the name of the business.
NUMBER OF OWNERS 2 or more
MANAGEMENT Partners share responsibilities and they are all involved in decision making.
CAPACITY Expansion is possible because more partners join partnership.
No legal formalities to start, only a written partnership agreement is
LEGAL REQUIREMENTS
required.
Partners have unlimited liability and are jointly and seperately liable for the
LIABILITY
debts of the company.
LEGAL PERSONALITY Partnership has no legal personality.
There is no continuity because if there are two partners and one dies, the
CONTINUITY
business can not continue as a partnership.
Partners combine capital and may also borrow capital from financial
CAPITAL
institutions.
PROFIT SHARING Profits are shared according to the partnership agreement.
TAXATION Partnerships do not pay taxes, partners pay personal income tax.
2.2. ADVANTAGES AND DISADVANTAGES:
ADVANTAGES DISADVANTAGES
Relatively easy & cheap to establish. Unlimited liability.
More capital than a sole proprietor Has no legal personality & continuity.
business. Partners may disagree.
Easier to get credit. Decision making takes time.
Expenses, responsibilities and tasks are Capital is limited to the number of partners
shared. allowed.
All benefit from profit. A partner's dishonesty affects the rest.
5
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