Entrepreneurship Development

BBA 307

FORMS OF BUSINESS
OWNERSHIP

9/7/2022 1
 BBA307 Entrepreneurship Development
BBA 307
9/7/2022 2
 OUTLINE

• Different types of ownership

• Factors affecting to select types of ownership
• Characteristics of different ownership

BBA307 Entrepreneurship Development

9/7/2022 3
 Learning Outcome

PO KL CO Course unit Description Outcome

Able to identify the process of setting up a venture
PO1 K3 CO2 Forms of ownership and understand the process of fund raising and
documentation required for the same.

BBA307 Entrepreneurship Development

9/7/2022 4
 Learning Objective
Students will get to know about:
Factors to considered before choosing a form of ownership

The forms of Ownership

Companies:
Sole proprietorship Partnership Public company Corporative Franchise
Private company

BBA307 Entrepreneurship Development

9/7/2022 5
 Choosing a form of ownership

• There's no best form of ownership.

• The best form of ownership depends on the entrepreneurs
situation.
• Evaluation of the characteristics weighing pros and cons.
• Then deciding which form suits you as an owner.

BBA307 Entrepreneurship Development

9/7/2022 6
 Factors to consider
7

Control of business
Managerial ability
Cost of formation
Liability exposure
Tax consideration
BBA307 Entrepreneurship Development
9/7/2022 7
 The forms of ownership

BBA307 Entrepreneurship Development

9/7/2022 8
 Characteristics of Sole Proprietorship

• One individual.
• Simple to start and end.
• Owner is liable for all the debts of the
business.
• Capital provided by sole owner.
• Business managed by owner.
• Example: Bicycle Store Owner

BBA307 Entrepreneurship Development

9/7/2022 9
 Sole Proprietorship

Advantages
• No restrictions limits to capital
• Quick decision making
• few legal requirements
• All profits belong to owner

Disadvantages
• No legal personality
• Feeling of isolation
• Unlimited liabilities
• Lack of continuity

BBA307 Entrepreneurship Development

9/7/2022 10
 Characteristics of Partnership

• Ownership 2 or more people

• Legal requirements
• Each partner must make a contribution to the Partnership.
• Life of the Partnership is not separate from the lives of the partners
• Partners are jointly and severally liable for debts on the business.

• Example: Some lawyers form partnership to serve a wider client base

BBA307 Entrepreneurship Development

9/7/2022 11
 Types of partnerships

• General partnership: A partnership in which all partners have unlimited personal

liability and take full responsibility for the management of the business.
• Limited partnership: A partnership in which the partners’ liability is limited to
their investment.
• Joint venture: A partnership in which two companies join to complete a specific
project. The partnership ends after a specified period of time.
• Strategic alliance: A partnership in which two businesses work together for
mutual benefit

BBA307 Entrepreneurship Development

9/7/2022 12
 Partnership
13
Advantages
• Combination of new skills and ideas into a business.
• shared responsibilities for decision making
• share profits and are therefore motivated to work hard.
• Few legal requirement.
Disadvantages
• Not a separate legal entity
• Liable for the actions of the other partners
• Discussion between partners can slow down decision making.
• Problems can arise if one or more partners are lazy, inefficient or
even dishonest

BBA307 Entrepreneurship Development

9/7/2022 13
 Characteristics of companies

• A company is a legal person which has capacity and powers to act on its own (i.e. the law sees a
company in the same light as a natural person)
• The Companies Act 71 of 2008 took effect from 1 May 2011. The Act introduces fundamental
changes to South
• African company law and corporate actions. The companies are governed by the Companies
Act 71 of 2008 and
• They are incorporated in terms of the Memorandum of Incorporation (MOI).
• A company is incorporated by completing and filing a Memorandum of
• Incorporation (MOI) and a Notice.

BBA307 Entrepreneurship Development

9/7/2022 14
 Characteristics of companies

• The MOI represents the founding statement of a company under the Act.
• A company becomes a juristic person from the date and time that its incorporation is registered, as
stated in its Registration Certificate.
• A person who is an incorporator, shareholder or director is not liable for the obligations of the
company except to the extent that the Act or the company’s MOI expressly provide otherwise.
• Registration of a company is effected by signature of the MOI by the requisite number of persons
and by filing it together with the prescribed Notice of Incorporation at CIPC, together with
payment of the prescribed fee.

BBA307 Entrepreneurship Development

9/7/2022 15
 Types of Companies

Profit Companies - A company incorporated for

the purpose of financial gain for its
shareholders.
• Private company
• Public company
Non-Profit Companies to be reflected as
NPC

BBA307 Entrepreneurship Development

9/7/2022 16
 Public Company
Advantages
• Separate legal entity
• Operated by only one shareholder and 3 directors
• Easier to attract capital investment
Disadvantages
• Complicated and expensive to
• establish
• Shareholder may be allowed little or no input
• Expensive procedures to comply with reporting
regulations.

BBA307 Entrepreneurship Development

9/7/2022 17
 Private Company
Advantages
• Limited liabilities
• Directors not compelled to attend (AGM)
• Audited financial statements are optional.
• Information only available to shareholders.
• Shareholders of a right of pre- emption
Disadvantages
• The company is subjected to double taxation
• Transferability of its shares is restricted.
• Compelled to prepare annual financial statements
• Many legal requirements

BBA307 Entrepreneurship Development

9/7/2022 18
 PUBLIC vs PRIVATE Co.
Basis for Comparison Public Company Private Company

Meaning A Public Company is owned and traded A Private Company is owned and traded privately.
publicly on the stock exchange.
Use of Suffix Limited can use after the public company Private Limited can be used after the private
name (Example- ABC Limited). company name. (Example- ABC Private Limited).
Min. Members Minimum 7 members must be required to Minimum 2 members must be required to form a
form a public company. private company.
Max Members There is no maximum limit of the member in a The maximum limit of the member in a private
public company company is 200.
Min Directors At least 3 directors are required in a public At least 2 directors are required in a Private
company. company.
Start of Business Certificate of incorporation and The only certification of incorporation is required to
commencement of business is required to start the business.
start the business.
Public Subscription of Public subscription of share is allowed in Public subscription of share is not allowed in
Shares public companies. private companies.

Quorum at AGM 5 members should be present personally at 2 members should be present personally at’ AGM.
AGM.

BBA307 Entrepreneurship Development

9/7/2022 19
 Statutory Meeting The statutory meeting is compulsory. The statutory meeting is Optional.

Issue of Prospectus It is their mandate to issue the prospectus. It is not required in a private company.

Shares Share can be transferred freely in public Transfer of shares is restricted in private
Transferability companies. companies.

Managerial There is no restriction is managerial Managerial remuneration can exceed 11%

Remuneration remuneration. of the Net Profit.

Disclosure of A public company needs to disclose its financial There is no such obligation for a private
Financial Report reports quarterly and annually. company to disclose its financial results to
the normal public.

Size Generally, the size of the public company is Normally the size of a private company is
very huge. small in comparison to a public company.
But a private company also be a big
company.

Funding A public company can raise funds by issuing an Private companies can raise funds through
IPO in the general public. private investors.

BBA307 Entrepreneurship Development

9/7/2022 20
 Characteristics of Corporate Corporations

• A Close Corporation is subject to Close Corporations Act 69 of

• 1984 and the Companies Act 71 of 2008. Under the new Act, close
• corporations are treated a lot more like companies
• The name must end with the suffix CC.
• Amended founding statement CK2 is still in use.
• Liable in their personal capacity. It is a
• Separate entity that exists separately from its members
• Members of the CC both own and control the business
• Usually two or more members have to sign legal documentation
• Initial contributions are required to be made by members, but are usually nominal or it does not have to

BBA307 Entrepreneurship Development

9/7/2022 21
 Types of Corporations
• C-corporation: The most common form of corporation. It protects
the entrepreneur from being personally sued for the actions and debts of
the corporation.
• Subchapter S corporation: A corporation that is taxed like a sole
proprietorship or partnership.
• Nonprofit corporation: Legal entities that make money for reasons other
than the owner’s profit.
• Limited Liability Company (LLC): A new form of business ownership
that provides limited liability and tax advantages.
• Example: IBM, Dell, HCL

BBA307 Entrepreneurship Development

9/7/2022 22
 Corporate Corporations
Advantages
• All of advantages of a regular corporation
• Single taxation
• Avoids tax on appreciation of asset sold
• Pay SSS for employees
• Different lines of businesses as subsidiaries, simpler tax filing.
Disadvantages
• Cost and time in incorporating
• Double taxation
• Potential for diminished incentives
• Legal requirements and red tape
• Potential loss of control

BBA307 Entrepreneurship Development

9/7/2022 23
 CO-OPERATIVE:
• It is the business ownership type where the users of the products are the
owners of the company as well.
• Such a type of business is usually for the welfare of others.

BBA307 Entrepreneurship Development

9/7/2022 24
 CO-OPERATIVE
ADVANTAGES
• A cooperative can be helpful in business management especially if the company aims to serve a
particular community.
• welfare of the individuals is the first and foremost expectation through this form of business.
• Various forms within the cooperative are also available to provide you with specific
opportunities for the business.
DISADVANTAGES
• This form of business does not provide any chances of profit for the owner.
• Moreover, the presence of large stakeholders can influence effective decision-making..
BBA307 Entrepreneurship Development

9/7/2022 25
 FRANCHISE
• A franchise is a business whereby the owner licenses its
operations along with its products, branding, and knowledge
in exchange for a franchise fee.
• The franchisor is the business that grants licenses to
franchisees.
• The Franchise Rule requires franchisors to disclosure key
operating information to prospective franchisees.

BBA307 Entrepreneurship Development

9/7/2022 26
 FRANCHISE
Advantages

• Some of the widely recognized advantages of franchises include a ready-made business formula to follow, market-
tested products and services, and, in many cases, established brand recognition.
• For example, if you're a McDonald's franchisee, decisions about what products to sell, how to layout your store, or
even how to design your employee uniforms have already been made.
• Some franchisors offer training and financial planning, or lists of approved suppliers. However, despite these benefits,
success is never guaranteed.

Disadvantage

• Franchisees also lack control over territory or creativity with their business.
• heavy start-up costs as well as ongoing royalty costs
• Franchises have ongoing fees that must be paid to the franchisor in the form of a percentage of sales or revenue.
• Financing from the franchisor or elsewhere may be difficult to come by and franchisees could be adversely affected by
poor location or management.

BBA307 Entrepreneurship Development

9/7/2022 27
 SUMMARY
There are various forms of ownership including
• Sole proprietorship
• Partnership
• Companies: public company AND private company
• Corporative
• Franchise

All of these have their own advantages and disadvantages

BBA307 Entrepreneurship Development

9/7/2022 28
9/7/2022 29