Term 2 business studies notes.

Module 12
1. Corporate Social Responsibility

 Social responsibility: Social responsibility is the adoption of an ethical and moral

approach when interacting with people, the environment and society in general.

Individual Social Responsibility (ISR):

 ISR is about understanding how our actions affect people, the environment, and society.
 It involves adopting an ethical and moral approach in our interactions.
 Doing no harm and behaving positively can improve situations.
 Implementing ISR helps solve social problems and has a greater impact when more
people are involved.

Practical ways to implement ISR in the community:

People:

 Look out for signs of bullying and report it immediately.

 Actively condemn bullying and seek help from trusted individuals.
The environment:

 Set up a recycling station at home.

 Separate recyclable waste and find local recycling options.
 Reduce energy and water consumption at home.
 Turn off lights when leaving a room.
 Avoid leaving the tap running while brushing teeth.
 Use water-saving practices and find ways to save water.
Community:

 Volunteer for projects or community services.

 Reading programs at the local library.
 Spending time with the elderly.
 Helping at an animal shelter.
 Organizing food donations for the less fortunate.
 Donating old books to underprivileged schools or libraries.
 Assisting at a community vegetable garden.
Each action contributes to creating a positive impact and making a difference.
2. What is corporate social responsibility?

 CSR is a concerted effort by businesses to operate in a sustainable way.

 This means the carrying out of business operations in such a way that the present
benefits do not compromise future benefits.
 Businesses must make decisions that do not create “profit at all costs” situations and
ensure that short-term profits do not create negative outcomes in the future.

A model for corporate social responsibility: Archie Carroll's pyramid model.

The businesses' corporate social responsibilities:

Economic responsibilities

 Businesses produce goods and services to meet the needs and wants of the consumers
and to make a profit for its stakeholders (owners, shareholders, employees).
 It is the responsibility of the business to be profitable to continue to operate and survive
as well as support society in the long term.
Legal responsibilities

 It is the legal responsibility of businesses to comply with any legislative requirements.

 Operating in a consistent way in accordance with government requirements and the
law.
 Complying with all regulations.
 Supplying goods and services that meet the minimum legal requirements.
Ethical responsibilities

 The business’ ethical responsibility relates to avoiding doing harm and/or behaving in a
way that actively improves situations or does good.
 This entails more than following the laws, rules and regulations and involves following
unwritten standards and practices.
Philanthropic responsibilities

 A business’ philanthropic responsibility entails actively contributing towards solutions to

alleviate many of the socio-economic issues that are present in our communities.
 This involves being a good corporate citizen and can include getting involved in
community projects, fund raising, volunteer work, etc.

How do businesses successfully meet these responsibilities and what does it involve?

 Businesses need to adopt good corporate governance to meet their CSR responsibilities.
 Corporate governance is the system of rules, policies, procedures and processes used to
govern (direct and manage) a company.

Corporate governance, the JSE SRI and the triple bottom line

What is corporate governance?

 Corporate governance is the system of rules, policies, procedures, and processes used to
govern (direct and manage) a company.
What does good corporate governance involve?

 Good corporate governance means implementing rules and practices that ensure the
company acts responsibly.
 It requires being an ethical corporate citizen, obeying the law, and balancing profitability
with long-term sustainability.

King Report

 The King Report is a guideline for corporate governance in South Africa.

  It aims to protect and enhance the well-being of the economy, society, and the
environment.
 King IV, published in 2016, consists of 17 principles with 214 recognized practices.
 The principles address ethical culture, good performance, effective control, and
legitimacy.
 Following King IV is voluntary, except for companies listed on the Johannesburg Stock
Exchange (JSE).
 JSE-listed companies must comply with certain aspects of King IV, prioritizing it over
conflicting South African legislation.
 Courts may consider King IV in cases involving corporate governance issues.
 Implementing King IV can lead to enhanced credibility, fraud resistance, organizational
resilience, and leadership continuity.
JSE SRI

 The Johannesburg Stock Exchange launched the Social Responsibility Index (SRI) in 2004.
 It aimed to promote sustainable and transparent business practices.
 The SRI was replaced by the FTSE Russell ESG Ratings in December 2015.
 The JSE partnered with FTSE Russell to focus on environmental, social, and governance
(ESG) concerns.
 The adoption of FTSE Russell ESG Ratings created two indices:
 FTSE/JSE Responsible Investment Index: Lists companies meeting the required minimum
ESG rating.
 FTSE/JSE Responsible Investment Top 30 Index: Ranks the top 30 companies based on
FTSE Russell ESG Rating.
 FTSE Russell is a subsidiary of the London Stock Exchange Group, responsible for stock
market indices.
 The King IV and JSE/FTSE Russell ESG Ratings reflect the trend of businesses prioritizing
sustainability over profit.
Triple bottom line: profit, people, planet

 The triple bottom line is a framework that measures businesses on more than their
financial success or profitability.
 It encourages businesses to be concerned about the impact they have on their
community and the environment and looks at three key areas - profit, people, and
planet.
 Profit: Companies can adopt the principles of King IV and ensure honest financial
reporting.
 People: Workers should not be exploited, and local community members can be
employed.
  Providing skills training and assisting the community with socio-economic issues is
important.
 Planet: Production processes should minimize environmental harm, avoid resource
waste, and use sustainable energy sources.
 Responsible waste removal and recycling practices contribute to environmental
responsibility.

Module 13
Social Responsibility
Unemployment, Inequality, and Poverty

 Communities where businesses operate face challenges like low income, high
unemployment, and limited access to essential services such as healthcare and
education.
Ways businesses can help uplift their communities:
1. Employ local staff: Hiring people from the immediate community reduces
unemployment and poverty rates.
2. Volunteer opportunities: Allow employees to volunteer at charities or organize
community events to raise funds for specific causes.
 Look for local organizations in need of volunteers, such as The Beach Coop, Earth Child
Project, Surfpop, The Ark Animal Centre, and Help2Read.
3. BBBEE share schemes: Introduce schemes that provide affordable access to companies
for previously disadvantaged South Africans.
 Examples include Phuthuma Nathi, which allows black South Africans to own shares in
MultiChoice South Africa, and Vodacom's YeboYethu BEE scheme.
4. Support local entrepreneurs: Many businesses have programs to support and promote
local entrepreneurs.
 Volkswagen South Africa supports Lionesses of Africa, an organization that assists
women entrepreneurs, and Pick 'n Pay's Enterprise and Supplier Development
Programme helps selected businesses by selling their products in their stores.
5. Profit-sharing schemes: Share a percentage of company profits with employees as a
reward for their hard work.
 Euphoria Telecoms and Clicks are examples of companies with profit-sharing schemes
for their employees.

HIV/AIDS and an unproductive labour force

HIV/AIDS:

 In 2019, 7.7 million people in South Africa were living with HIV, impacting workforce
productivity and morale.
Ways businesses can address HIV/AIDS:

 Develop an HIV/AIDS policy: Establish guidelines for the workplace to address safety and
support for affected employees.
 Provide information and education: Share knowledge about HIV transmission, dispel
myths, promote compassion and care for HIV-positive coworkers, and highlight laws
against discrimination.
 Testing and treatment: Arrange for on-site testing and encourage employees to know
their status for proper treatment and prevention.
 Condom distribution: Make condoms available to employees for protection.
 Support NGOs: Provide financial assistance to organizations like The AIDS Foundation
South Africa that work with HIV-affected individuals.
 Support system and counseling: Develop a system for counseling and treatment for
employees found to be HIV positive.
Unproductive Labor Force:

 South Africa lags behind in productivity, mainly due to poor education and an unskilled
workforce.
Ways businesses can improve productivity through CSR initiatives:

 Skills and development training: Provide training in new technologies to enhance the
skills of current and future employees, offering better opportunities for higher-paying
jobs.
 Bursaries and financial support: Offer bursaries or low-interest loans to employees and
prospective students for further education, addressing the challenge of poor education
and skills.
 Examples include the Children of VW Bursary Fund, Sasol Bursary Fund, and Jakes
Gerwell Fellowship.

Education, literacy and the environment

Education and Literacy:

 South Africa's education system is unequal, with overcrowded and under-resourced

schools affecting literacy and skills.
Ways businesses can improve education and literacy:
 1. Support NGOs: Provide financial or skill-based support to organizations focused on
improving education and literacy in South Africa.
 Examples include Rally to Read, Feenix crowdfunding platform, and the School
Renovation Programme.
2. Resource provision: Deliver educational resources like books, toys, and games to remote
rural primary schools to improve literacy skills.
The Environment:

 Unsustainable use and abuse of natural resources can lead to their depletion.
Ways businesses can preserve and protect natural resources:
1. Recycle and reuse materials: Use recycled materials for products like shopping bags and
promote initiatives where community members exchange collected recycling for
monetary value.
2. Use renewable resources: Incorporate solar energy and biodegradable packaging into
business practices.
3. Support local products: Reduce carbon footprint by using locally-produced goods,
contributing to community income.
4. Efficient production and waste management: Implement processes that minimize waste
and dispose of it responsibly.
5. Adopt eco-friendly technology: Utilize new technologies that limit harmful emissions.

Module 14
Entrepreneurship
Entrepreneurship Defined:

 Entrepreneurship is the process of starting a business based on a new business

opportunity.
 Entrepreneurs take on risks and reap the rewards of their ventures.
 They combine and coordinate factors of production to create products/services for
profit.
Reasons for Becoming an entrepreneur:

 Push factors: Unemployment, lack of job security, no formal training, dissatisfaction

with current employer.
 Pull factors: Need for independence and recognition, self-actualization, personal
employment and wealth.
Role of Entrepreneurs in Economic Growth:
  Entrepreneurs contribute to economic growth by producing and selling goods/services.
 High unemployment rates in South Africa require entrepreneurs to create job
opportunities.

Qualities of Successful Entrepreneurs:

1. Opportunity seeker
2. Creative and innovative
3. Clear vision
4. Risk taker
5. Action-oriented
6. Confidence
7. Desire for responsibility
8. Willpower to overcome obstacles
9. Passion and ambition
10. Drive for success
11. Perseverance
12. Organizational skills
13. Management and leadership
14. Communication skills
15. Flexibility/adaptability
16. Energetic and highly motivated
17. High degree of commitment

Requirements for Sustainable Enterprises in South Africa:

 Making good profits

 Creating job opportunities
 Being ethical and environmentally aware
 Being socially responsible and contributing to community upliftment.

Key terms
Factors of production - The resources used to produce goods and/or services. These are:

 Land (physical resources)

 Labour (employees or human resources)
 Capital (financial resources)
 Entrepreneurship
Risk - Possibility of something bad happening.
Qualities - Distinctive characteristics possessed by someone or something.

Reasons that some entrepreneurs fail:

 A lack of persistence.
 Not being proactive.
 Not being a self-starter.
 Lack of flexibility and inability to adapt.
 Lack of skills.
 Difficulty accessing finance.
 Poor accounting records and financial management.
 Late payments by government and large corporates for services or goods.
 Widespread corruption that leads to legitimate entrepreneurs not being able to
compete for opportunities.

Module 15
Business ownership
Definitions
Legal Entity:

 A legal entity is an individual, company, or organization with legal rights and

responsibilities.
 It can enter into contracts, sue, be sued, and own property.
 Separate legal entities have their own identity, separate from the members or
shareholders.
Liability:

 Liability refers to the responsibility of the owner for business debts.

 Limited liability means owners/shareholders are not personally responsible for business
debts.
 Unlimited liability means owners/partners are equally responsible for business debts.
 Limited liability protects personal assets, while unlimited liability allows seizure of
personal assets.
Partnerships and Joint Liability:
  In partnerships, owners can be jointly and severally liable for business debts.
 Joint liability means all partners share responsibility for repaying the loan.
 If one partner cannot pay their share, the bank may pursue their assets and seek
reimbursement from other partners.

Continuity:

 Continuity refers to the uninterrupted existence and operation of a business.

 Cooperatives, non-profit organizations, private and public companies have continuity.
 Sole traders and partnerships do not have continuity as they depend on the lifespan or
health of the owner/partners.
 If an owner retires or leaves, the business ceases to exist in sole traders and
partnerships.

Sole trader, partnership, close corporation

Business ownership
Sole Proprietor:

 A sole proprietor or sole trader is a business owned and managed by one person.
 Common form of ownership for small businesses.
Characteristics of a Sole Proprietor:
Name:

 No legal requirements for the business name.

 The name can have any ending.
Legal Requirements:

 No legal or administrative formalities for formation.

 Easy and inexpensive to start.
Legal Entity:

 Sole proprietor is not a legal entity.

 Agreements are made by the owner in their personal capacity.
Ownership:

 The business is owned by the person who started it.

 Owner has complete control over the business.
Management:

 Owner makes all decisions and carries out management functions.

 Certain functions may be delegated to employees.
Capital and Cash Flow:

 Owner uses their own capital to start the business (borrowed or saved).
 Cash flow is generated by the business.
Division of Profits:

 No distinction between owner and business.

 Business profits belong to the owner.
Liability:

 Owner has unlimited liability.

 Personally responsible for all business debts.
 Private possessions can be used to pay business debts.
Taxation:

 Sole proprietors are taxed as individuals.

 Pay personal tax on business profits.
Continuity:

 Sole proprietor has no continuity.

 Limited to owner's lifespan or owner's choice to close the business.
 No special requirements to close the business.

Partnership:

 A business with a minimum of two partners, up to a maximum of 20.

 Partners share responsibilities, financial decisions, and management of the business.
Characteristics of a Partnership:
Name:

 No legal requirements for the business name.

 Partnership name can have any ending.
Legal Requirements:

 Formal partnership agreement must be drawn up and signed by all partners.

Legal Entity:

 Partnership has no legal personality.

 Agreements are made by the partners in their personal capacity.
 Partners are sued personally, not the partnership.
Ownership:

 Agreement between two or more partners.

 Partners combine labor, capital, and resources.
Management:

 Partners share responsibilities and decision-making.

 Diversity, specialization, and different skills of partners can be utilized.
Capital and Cash Flow:

 Partners combine capital and may borrow from financial institutions.

 Additional capital can be raised by adding more partners (limited to 20).
Division of Profits:

 Profits are shared according to the partnership agreement.

 Distribution can be equal or based on a ratio.
Liability:

 Partners have unlimited liability.

 Jointly and severally liable for business debts.
Taxation:

 Partnerships don't pay tax; partners pay personal income tax.

 Partners are taxed as individuals on their share of business profits.
Continuity:

 Partnership lacks continuity.

 If a partner dies or retires, the remaining partners must create a new agreement.
Transition from Sole Proprietor to Partnership:

 Sole proprietors may decide to take on partners for various reasons:

 Need for more capital to expand the business.
 Partners bring additional skills required for business growth.
 Spreading the risk among partners, rather than it falling solely on one person.
Close Corporation:

 A form of business that was popular before 2010, but no new close corporations can be
formed under the new Companies Act, 2008.
 Existing close corporations can continue or choose to change to a private company.
Characteristics of a Close Corporation:
Name:

 Close corporation name ends with "CC" (close corporation).

Legal Requirements:

 Close corporation had to be registered with the Registrar of Companies and obtained a
registration number.
 Auditing of books is optional, but an accounting officer is required to check financial
records.
Legal Entity:

 Close corporation is a separate legal entity.

 It can sue or be sued in its own capacity.
Ownership:

 Close corporation can have between one and ten owners, called members.
 Transfer of a member's interest requires approval from all other members.
Management:

 All members are involved and participate in the management.

 Financial and management decisions are shared among the members.
Capital and Cash Flow:

 Each member contributes assets or services to the corporation.

Division of Profits:

 Profits are divided based on the percentage of ownership that each member holds.
Liability:

 Limited liability for the members.

Taxation:

 Close corporation pays company tax on profits.

 Members pay personal tax on salaries or income received from the business.
Continuity:

 Close corporation can exist indefinitely or until members decide to close it down or as
determined by the legal system.

Key terms
Diversity:

 Recognizes and embraces the unique characteristics of individuals.

 Includes aspects such as race, ethnicity, gender, religion, political beliefs, sexual
orientation, age, physical abilities, and socio-economic status.
 Also encompasses personal experiences and diverse approaches to problem-solving and
creativity.
Jointly and severally liable:

 All partners share equal responsibility for any debts incurred or fulfilling the obligations
of an agreement.
 Each partner is individually and collectively accountable for the full terms of the
agreement.
Perpetuity:

 Refers to something that lasts or exists indefinitely, without an end.

 Many businesses are passed down from one generation to the next, allowing them to
continue for a long time.
 Businesses that exist in perpetuity have the advantage of building a strong reputation
and brand recognition due to their long-standing presence.
Specialisation:

 Involves focusing on a particular area or field in which someone becomes an expert.

 Individuals concentrate their efforts and develop specialized skills and knowledge in a
specific domain.
 Specialisation allows for expertise and proficiency in a particular subject or industry.

Non-profit company
Non-profit company:

 Non-profit companies, also known as non-profit organizations (NPOs), are formed with
the aim of serving a public purpose or cause, rather than making a profit.
  NPOs often fill gaps in society where the government and private sector cannot provide
necessary goods or services.
 Examples of NPOs include organizations involved in charity work, supporting specific
causes, providing essential services to society, and engaging in volunteer work.
 In South Africa, non-profit organizations commonly use three legal structures: trusts,
Section 21 companies, and voluntary associations.
Characteristics of a non-profit company:

 Name: The name of a non-profit company must end with NPC.

 Capital and cash flow: The amount of start-up capital depends on the purpose of the
company. Ongoing funding is necessary and can come from sources like Corporate
Social Investment (CSI), gifts, donations, or state subsidies.
 Division of profits: NPOs do not distribute profits among owners or shareholders.
Instead, any funds raised or generated benefit the beneficiaries of the organization.
 Taxation: NPOs are usually liable to pay taxes but can apply for a tax exemption.
 Continuity: Non-profit companies can exist indefinitely or until they are liquidated or
closed.

Trusts, Section 21 companies and voluntary associations differ in the way that they are founded
or established, their legal status, their liability and how they are governed and managed. The
table below provides a comparison of the three legal structures:

Trust Section 21 company Voluntary association

Founding document Trust deed that is Memorandum of Written agreement or
registered with the Incorporation constitution
Master of the
Supreme Court
Legal status Not a separate legal Separate legal entity – Separate legal entity – can
entity can be sued or sue. be sued or sue.
Liability Unlimited liability Limited liability Limited liability
Governance structure Board of trustees Directors and An executive committee is
makes all the business members make appointed to make
and financial business and financial business and financial
decisions. decisions. decisions.

Key terms:
Civil litigation - Legal disputes between parties seeking monetary damages, excluding criminal
accusations.
Constitution - A document that outlines the policies and procedures for managing an
organization.
Founding document - The legal document that establishes the terms and conditions of the
organization's establishment.
Governance structure - The management and operational framework of an organization,
including structures and processes that promote accountability, transparency, equity, and
inclusiveness.
Profit - The amount of money earned (revenue) after deducting all expenses.
Tax exemption - Reduction or elimination of taxes on assets and/or income.

Profit companies:

 Profit companies are formed with the intention of making money for their owners or
shareholders. They have a profit motive and aim to generate income.

Private company:

 A private company is registered with the CIPC (Companies and Intellectual Property
Commission) and has one or more directors. The shares of private companies cannot be
advertised or sold to the general public.
Characteristics of a private company:

 Name: The company name must end with (PTY) Ltd, which stands for (Proprietary)
Limited.
 Legal requirements: It must be registered with the CIPC, and a Memorandum of
Incorporation and a Notice of Incorporation must be prepared. The company must
comply with the Companies Act and other relevant laws. Financial statements of private
companies no longer require independent review, unless prescribed by regulation.
 Legal entity: A private company is a separate legal entity from its owners and can sue or
be sued on its own.
 Ownership: It must have at least one shareholder and can have a maximum of 50
shareholders. Only individuals working for the company can be shareholders.
 Management: The shareholders appoint one or more directors to make business and
financial decisions for the company.
 Capital and cash flow: Private companies raise capital by issuing shares to their
shareholders. However, they cannot publicly advertise or sell shares. Investors
contribute capital to earn profits from their shares.
  Division of profits: Profits are shared among shareholders in the form of dividends,
based on the number of shares held by each shareholder. For example, if you own 25%
of the shares, you would receive 25% of the profits.
 Liability: Shareholders have limited liability, meaning their personal assets are generally
protected in case of company debts or liabilities. However, directors can be held
personally liable for reckless or fraudulent conduct.
 Taxation: Private companies are subject to tax on their business profits and on declared
dividends.
 Continuity: Private companies exist indefinitely or until they are liquidated or voluntarily
closed.

Personal liability company:

 A personal liability company is similar to a private company, but with one key difference:
the directors of a personal liability company have unlimited liability for the company's
debts and liabilities. This means that they are jointly and severally responsible for all the
financial obligations.

Characteristics of a personal liability company:

 Name: The company name must end with the letters "Inc" (Incorporated).
 Legal requirements: The company must be registered with the CIPC (Companies and
Intellectual Property Commission), and a Memorandum of Incorporation and a Notice of
Incorporation must be prepared. Personal liability companies must comply with the
Companies Act and other relevant laws. Previously, their financial statements had to be
independently reviewed, but the amended Companies Act allows for exceptions unless
regulations require it.
 Legal entity: The owners and the company are separate legal entities.
 Ownership: There can be one or more shareholders.
 Management: One or more directors are appointed to make business and financial
decisions for the company.
 Capital and cash flow: Personal liability companies raise capital by issuing shares to their
shareholders, similar to private companies. However, they are not permitted to sell
shares to the public like public companies.
 Division of profits: Profits are shared among shareholders in the form of dividends,
based on the number of shares held by each shareholder.
 Liability: Directors have unlimited liability, meaning they are jointly responsible for the
company's debts even if they are no longer serving as directors.
  Taxation: Personal liability companies are subject to taxation on their business profits
and declared dividends.
 Continuity: Personal liability companies exist indefinitely or until they are liquidated or
voluntarily closed.

Public company:

 A public company is a type of company that is registered to sell its stocks and shares to
the general public. The buying and selling of these shares usually take place through the
Johannesburg Securities/Stock Exchange (JSE). Public companies are typically large-scale
businesses that require significant capital investment.
Characteristics of a public company:

 Name: The company name must end with the letters "Ltd" (Limited).
 Legal requirements: The company must be registered with the CIPC (Companies and
Intellectual Property Commission), and a Memorandum of Incorporation and a Notice of
Incorporation must be prepared. Public companies must comply with the Companies Act
and other relevant laws. They are also required to make a prospectus available to
shareholders. The annual financial statements of public companies must be audited and
shared with shareholders and the public.
 Annual general meeting (AGM): Public companies are obligated to hold an AGM, which
is a meeting between shareholders and directors. During the AGM, the previous year's
audited financial statements and annual report are reviewed. Important decisions may
be discussed and voted upon, and vacant positions on the board of directors may be
filled.
 Legal entity: A public company is a separate legal entity, capable of suing and being sued
in its own capacity.
 Ownership: At least one person is required to start a public company.
 Management: Public companies are managed by a board of directors consisting of three
or more competent and highly skilled individuals. The directors are accountable to the
shareholders.
 Capital and cash flow: Public companies raise capital by issuing shares to the public and
can also borrow capital by issuing debentures. To attract investors and raise capital, a
prospectus is issued to the public.
 Division of profits: Profits earned by a public company are shared among shareholders in
the form of dividends. The amount of dividends received depends on the number of
shares held by each shareholder.
 Liability: Shareholders of a public company have limited liability, meaning their personal
assets are not at risk beyond their investment in the company. However, the new
 Companies Act holds directors personally liable if they knowingly engage in reckless or
fraudulent business practices.
 Taxation: All registered companies in South Africa, including public companies, are
required to pay taxes on their income. In 2021, the tax rate for companies was 28%, and
these taxes are collected by the South African Revenue Services (SARS).
 Continuity: Public companies exist indefinitely or until they are liquidated or voluntarily
closed.

Key terms
Directors – Directors are appointed by shareholders to run or manage the company.

Prospectus – This is a written invitation to the public to buy the securities offered by a public
company. The prospectus must be registered with the CIPC and can only be issued (supplied) by
the company.

Securities – A security is a negotiable document that represents a financial value. Company

shares is an example of securities.

Shareholders – Shareholders invest money in the business by buying shares. Therefore, they
own the company.

Cooperatives

 A cooperative is a type of business where a group of people, called members, come

together to start a business and work together. They share resources, infrastructure,
and costs to benefit everyone involved.
Characteristics of a cooperative:

 Name: The name of a cooperative can have "Cooperative Limited" or "(Co-op) Ltd" at
the end if there is limited liability. Otherwise, it must have "Co-op" in the name.
 Legal requirements: Cooperatives need to be registered with the CIPC (Companies and
Intellectual Property Commission) and have documents like a Memorandum of
Incorporation and a Notice of Incorporation. They must follow the Companies Act and
other relevant laws. They also need to have their financial statements audited, unless
they have been exempted.
 Legal entity: A cooperative is a separate legal entity from its owners. This means it can
take legal actions and be held responsible for its actions.
 Ownership: Members of the cooperative jointly own and run the business. They have
equal ownership and decision-making power.
  Management: The cooperative is managed by one or more directors. The decisions are
made democratically, meaning that members have a say in the important choices.
 Capital and cash flow: Each member invests capital by buying shares in the cooperative.
Regardless of the amount invested, each member has an equal vote in decision-making.
 Division of profits: The profits made by the cooperative are shared among the members
based on the contributions they have made. Members can choose to reinvest the profits
back into the business instead of taking them out.
 Liability: If the cooperative has limited liability, the members are not personally
responsible for the business debts. However, if there is no limited liability, members are
jointly and severally responsible for the debts.
 Taxation: Cooperatives with an income of less than R14 million per year pay small
business corporations (SBC) tax.
 Continuity: Cooperatives can exist for a long time or until they are closed down or
liquidated.

Module 16
Business ownership – advantages, disadvantages and comparison
Sole Proprietor:
A sole proprietor is a business owned and managed by one person.

Advantages
Low capital required to start.
Easy to start without legal processes.
Quick decision-making and control over the
business.
Adaptability to customer needs.
Owner gets all profits and assets.
Disadvantages
Owner provides all capital.
Difficulty raising capital.
Personal liability for debts and risks.
Hard to attract skilled employees.
Cash flow and growth limitations.
Business lifespan depends on the owner.

Partnership:
A partnership is a business owned by two or more partners.

Advantages
Easy to set up
Shared resources and skills.
Attract specialized employees.
Shared workload and decision-making.
Disadvantages
Limited capital from partnership contributions.
Limited to 20 partners.
Personal liability for debts.
Difficulty reaching agreement.
 Potential for more capital with more
partners.
Close Corporation:
A legal entity with its own legal personality and perpetual succession and must register as a
taxpayer.
Advantages
Few legal requirements.
Separate legal entity.
Continuity of existence.
Limited liability for members.
Benefit from members' skills.
Non-profit Companies (NPCs):
NPCs serve a public purpose or cause and do not aim to make money.
Advantages
Can raise money through donations.
Large organizations often donate.
Unified staff and motivated volunteers.
Provide essential services.
Tax benefits and possible tax exemption.
Cooperatives:
Cooperatives are businesses formed by a group of people who share resources and costs
Advantages
Pooling of resources, assets, capital, skills,
and knowledge.
Equal share for each member.
Democratic decision-making.
Motivated members with vested interest.
Additional capital from members.
Unequal contributions may cause conflicts.
Loss of stability if partners leave.
Potential for conflicts and disagreements.
Disadvantages
Limited growth with a maximum of 10
members.
Personal liability for irresponsible actions.
Possible need for audited financial statements.
Tax obligations and higher taxes.
Difficulty in changing membership and
ownership.
Members bound by each other's actions.
Disadvantages
Reliant on donations.
Difficulty attracting skills and capital.
Time-consuming fundraising.
Adherence to management structure.
Slow decision-making.
Legal requirements and bureaucracy.
Disadvantages
Slow decision-making involving all members
Difficulty in growing or expanding.
Challenges in obtaining loans.
Shares not easily transferable.
One vote per member regardless of shares
 held.
Shared profits Dependence on member support for success.
Continuity of existence.

Private Companies:
Private companies are registered with CIPC and have directors.

Advantages
Separate legal entity.
Limited liability for shareholders.
Can easily raise capital by selling shares.
No audit or publication of financial
statements required (unless prescribed by
legislation).
Continuity of existence.
Disadvantages
Difficult and expensive to form.
Legal requirements and capital needed.
Profits shared among shareholders.
Tax on profits and dividends.
Directors may lack personal interest.
Audited financial statements may be required.
Cannot sell shares to the public.

Personal Liability Companies:

The advantages and disadvantages of personal liability companies are very similar to private
companies but with one main difference:

 The directors of a personal liability company are jointly and severally liable for all the
debts and liabilities of the company. In other words, the directors have unlimited
liability.

Public Companies:
Public companies offer stock and shares for sale to the public.

Advantages
Separate legal entity.
Limited liability for shareholders.
Easy to raise funds through share sales.
Shares can be freely bought and sold.
Disadvantages
Difficult and expensive to form.
Capital and legal requirements.
Profits shared among shareholders.
Audited financial statements required and made
public.

Accessible company information. Limited shareholder input.

Regulatory requirements protect Potential disagreements.
shareholders.
Original owners lose ownership.
State-Owned Companies:
State-owned enterprises have the government as a major shareholder.
Advantages
Profits used for government projects.
Government support keeps them operating.
Essential services available to all citizens at
reasonable prices.
Competition keeps prices affordable.
Eliminates duplication of services.
Central planning and financing social
programs.
Job creation for all skill levels.
Disadvantages
Potential inefficiencies due to poor
management.
Size can lead to inefficiencies.
Lack of incentives for employees.
Mismanagement can result in financial losses.
Taxpayers bear the burden of losses.
Difficulty raising additional capital.
Strict regulations and audited financial
statements