Forms Of Ownership

• Continuity: continue to exist even if a change of ownership takes place
• Transferable Shares: Shareholders can sell their shares at any time without affecting the operation of the business.
• Separate Legal Entity: A corporation has its own legal identity, separate from that of its owners or managers.
• Securities: shares and bonds issues by a company
• Limited Liabilities: the loss of business will not exceed the amount invested in the business by owner
• Double Taxation: The profits earned by the corporation are taxed twice - once as corporate income and again when distributed as dividends to shareholders.
• Share Capital: Money raised through issuing shares to investors.
• Unlimited Liabilities: full legal responsibility that business owners and partners assume for all business debts
• Memorandum of Incorporation (MOI): the document set out the rights, responsibilities and duties of shareholders are directors, serves as a constitution
• Company: A company is a legal person who has the capacity and power to act on its own
• Directors: people elected to the board of a company by shareholders to represent their interests
• Audit: a process where an organisation's accounts are checked to make sure its financial operations are honest
• Form of Ownership: the legal position of the business and the way its owned
• Sole Trader/Proprietor: a business owned and controlled by one person who makes all the decisions and takes all responsibility and profit from business
• Advantages of a Sole Trader/ Proprietor

  • start anytime
  • owner runs business as they see fit
  • assets and profits are owner's
  • owner makes decisions
  • requires little capital
  • simple management structure
  • adaptable
  • no legal process/requirements
  • personal contact between owner and customer
• Disadvantages of a Sole Trader/ Proprietor

  • owner contributes skills, time, energy
  • lack of continuity
  • Limited Capital
  • unlimited liability
  • cash flow is a problem
  • restricted business growth
  • no legal entity
  • difficult to attract skilled employees
  • lack of knowledge, the business fails
• Partnership: an agreement between two or more parties that have agreed to finance and work together in the pursuit of common business goals
• Advantages of a Partnership

  • Shared responsibility and contribution
  • Easy to establish
  • combined skills and knowledge
  • taxed in personal and individual capacity
  • personal interest in business
  • attract employees with option of becoming a partner
  • share profits, motivation
  • Easy to raise capital
• Disadvantages of a Partnership

  • Disagreements lead to slow decision making
  • Bad decision of partner can lead to losses
  • Lack of Continuity
  • Unlimited Liability
  • Joint liability (each partner)
  • Shared profits
  • Profit loss if partner leaves/ bankrupt
  • Lack of Capital and cash flow
  • Not equally contributing
• Close Corporation: company whose shares are held by a select few individuals who are usually closely associated with the business
• Advantages of Close Corporation (CC)

  • Few Legal Requirements
  • Legal entity, continuity of existence
  • converted to Private Company- Members becomes shareholders
  • Limited liability
  • Exempt from CIPC from auditing financial statements
• CIPC: Companies and Intellectual Property Commission
• Disadvantages of Close Corporation (CC)

  • Limited growth (max 10 members)
  • personal liability for loss caused
  • Audited financial statements required for loan
  • Company Tax (28%)
  • Difficult to leave (everyone must agree to let go of members interest)
  • Taxed on income and Standard Tax of Company (STC)
  • Double Taxation
• Private Company: a voluntary association of one of more people
• Advantages of Private Company (Pty) Ltd

  • Capital raised by issuing shares to members
  • Voluntary Auditing
  • Opportunity for less taxation
  • Long-term growth opportunity
  • Legal identity, limited liability
  • Board of Directors (expertise)
  • Liability on directors who knowingly participate in fraud
  • Private financial statements
  • Continuity of existence
• Disadvantages of Private Company (Pty) Ltd

  • Can't raise funds from public
  • costs and formalities when formed/ difficult to establish
  • Double taxation (company income and dividends)
  • Require lot of capital to start
  • More shareholders, less profit
  • No personal interest
  • Auditing is extra cost
  • Must prepare annual financial statements
• Personal Liability Company: a voluntary association of one or more people, used by lawyers, engineers, accountants
• Advantages of Personal Liability Company (Inc)

  • Few transparency and disclosure requirements
  • Must include Board ot atleast 1 director
  • Not made to attend Annual General Meeting (AGM)
  • Auditing is optional, not have to lodge with CIPC
  • Shareholders have right of pre-emption (knowledge)
  • Personal Liability on those who knowingly participated in fraud
• Disadvantages of Personal Liability Company (Inc)

  • Difficult and expensive to establish
  • Large management structure, decision making takes time
  • Cannot sell shares to public
  • No personal interest
  • Auditing is an extra cost
  • Double taxation (company tax and dividends)
  • Unlimited liability
  • Shareholders appoint wrong director
  • Meeting with at least 3 shareholders present
• Cooperative: A business owned and controlled by its members.
• Public Company: voluntary association of one or more persons
• Advantages of Public Company (Ltd)

  • Legal personality
  • No shareholder limit
  • Capital raised by issuing shares to public
  • Attracts small investors (easily transferrable shares)
  • Public access to financial statements
  • Regulatory requirements protect Shareholders
  • Keep shareholders informed
• Disadvantages of Public Company (Ltd)

  • Double Taxation (company tax and dividends)
  • Complicated to start and establish (MOI)
  • Auditor required, expensive
  • Stocks traded publicly
  • Report to major shareholders annually
  • More shareholders, less profit
  • Shareholders allowed little/ no input
  • Public finances can be used by competition
• Debenture: medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest
• State Owned Company: legal entity created by government to take part in commercial activities on its behalf
• Advantages of State-Owned Company (SOC)

  • profit can finance other departments
  • offer essential servies
  • Reasonable prices
  • coordinated planning, central control
  • income used to finance social programmes
  • Creates jobs for all skill levels
• Disadvantages of State-Owned Company (SOC)

  • Poor management, not always efficient as private sector
  • inefficiency due to size
  • Rely on Gov. subsidies
  • no share in profit, lack of incentive
  • Gov. lose money through business, met by taxpayer
  • difficult to raise capital, shares aren't tradable
  • Strict regulations to raise capital
  • Audited financial statements required
• Subsidies: sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low
• Non-Profit Company: an association incorporated not for gain
• Advantages of Non-Profit Company (NPC)

  • Legal personality, directors liable for loss or damage caused
  • Unlimited liability
  • Assets and liabilities separate from members
  • profits only used to advance objectives
  • members can exercise power in meeting (appoint/ remove directors, assets)
  • Prepare financial statements yearly, no auditor needed
  • Not made to attend AGM