BMA chapter three

• Objectives

  • Discuss the characteristics of the various business formats available in South Africa
  • Compare and contrast the advantages and disadvantages of the various business formats
  • Analyse the business environments within the context of southern Africa
  • Discuss the purpose of a SWOT analysis in the business context
  • Evaluate a vision and mission statement for a business within southern Africa
  • Explain the influence of the fourth industrial revolution (4th IR) on the business formats and business environment within a southern African context
• Establishing a business is supportive of the entrepreneurial process in which ideas are formulated and plans are put in place to develop and design new products or to deliver a service based on consumer demand and preferences
• The chapter focuses on identifying the various types of business formats that exist in South Africa which entrepreneurs wanting to start-up their own businesses can use
• Issues such as the legal obligations, naming requirements, taxation, dividends, responsibility and accountability will be discussed
• Factors influencing business formats

  • The purpose of the business
  • Legal obligations
  • Liability and accountability
  • Continuity
  • Management participation
  • Capital
  • Dividends/Profit sharing
  • Taxation
• Sole proprietors


  • The most simplistic and easiest business format
  • Very popular among small business owners
  • Owned and managed by one person who assumes all responsibilities and accountabilities
  • Not regarded as a legal person
• Partnerships


  • Easy to establish and set up
  • Affordable
  • Owner has authority and makes all decisions
  • Legal obligations are few
• Partnerships


  • Owner is liable for everything and there is no limitation
  • Limited skills and capabilities are required
  • Access to capital is limited
  • No business continuity
  • Discontinuation is easy
• Partnerships


  • Contractual or verbal agreement between 2 or more parties
  • Required by law to register with the Companies and Intellectual Property Commission
  • Maximum number of partners is limited to 20 partners
  • Each partner contributes something toward the partnership (Capital, knowledge, equipment, assists human resources or ideas)
• Partnerships


  • Each partner is individually liable for the partnership
  • Easily disposable
  • Conflict among partners in terms of management is high
  • No guarantee of continuity of the partnership
• Close corporations


  • Can no longer be established in SA
  • Changes in the regulation of CCs: The criteria for names have to be applied and followed, Audited annual financial statements are required every six months, Accounting officers must be appointed, The business rescue procedure can be used, A member of a closed corporation can be declared unfit to hold office as per the Companies Act, The dissolution or closing of a closed corporation follows the same process as that of a company
• Close corporations


  • Separation in the legal jurisdiction between the company and members
  • Limited liability for members
  • Sourcing of additional capital is possible
  • Managing is easy
• Close corporations


  • Membership is limited to 10 members
  • Members cannot be the juristic person
  • Stricker accountability and regularity rules
  • CCs can no longer be established
• Types of companies


  • State-owned companies
  • Personal liability companies
  • Private companies
  • Public companies
• Companies


  • Both natural and legal persons can be shareholders
  • No restriction on maximum number of shareholders
  • Shareholders have limited liabilities
  • Separation between ownership and control
  • Continuity of the company
  • Shares can be transferred among shareholders
• Companies


  • Significant degree of legal compliance and requirements
  • Operational costs can become expensive
  • Capacity to secure large
• Trusts


  • Registered when a trust deed is signed
  • A trust can only be established once it has been approved by the Master of the High Court, who has the jurisdiction to establish trusts
  • The trustee should manage the assets of the trust in accordance with the trust deed outlines and under the supervision of the Master of the High Court
  • Trusts are not as closely monitored and controlled as public or private companies are, yet, if money is sourced from the public through unit trusts, certain regulations must be complied with and adhered to by the trust
  • A trust has continuity and, therefore, if beneficiaries change or trustees change, the trust remains in place
• Trusts


  • Easy to establish
  • Both natural and legal persons can be a founder, trustee or beneficiary of the trust
  • Limited liability
  • Flexibility
  • Continuity
• Trusts


  • Limited access to capital
  • Conflict between parties is possible
• Social co-operatives


  • Business format established under the Co-operatives Act of 2005
  • Registration of co-operative takes places through the Department for Co-operative Societies
  • Mostly found within local communities for the purpose of creating and benefiting from economic, cultural and social aspects for the members
  • The co-operative is managed like any other company by a board of directors in which decisions are made and accepted at annual meetings
• Business location factors


  • Access to customers
  • Raw materials
  • Infrastructure
  • Technical and operational support
  • Labour
  • Weather conditions
  • Political stability
  • Community
  • Capital
  • Local government by-laws
• Internal business environment


  • Vision statement: Short and specific, Reveal the goal of the organisation, Promote change inside the organisation, Create a competitive advantage, Cement the basis for planning and decision-making, Allow a secured space in which control is applied, Motivate employees, Allow for positive changes
  • Mission statement: What is our business?, Who are the customers?, How will the product or service be supplied?, Why are we in business?
  • Objectives
  • Business functions
  • Resources: Human resources, Financial resources, Physical resources, Natural resources, Information resources
  • Entrepreneurship
  • SWOT analysis
• External business environment


  • Market environmental factors: Consumers, Durable products, Semi-durable products, Services, Competitors, New entrants to the markets, The bargaining power of customers, The bargaining power of suppliers, The availability of substitute products, Existing competitors, Labour, Intermediaries, Suppliers, Strategic alliances
  • Macro-environmental factors: Technological factors, Economic factors, Political/legal factors, Social/cultural factors, Ecological or physical factors, International factors