1. Business Studies
Grade 10

2. FORMS OF OWNERSHIP

3. Forms of Ownership
Forms of ownership refer to the type of business selected by a business owner.
Different forms of ownership are suitable for different kinds of businesses.
Factors that determine the form of ownership include:
the amount of capital needed to start a business
size of a business
income of a business
ownership of a business.

4. Concepts Natural persons All human beings. Natural persons are born.
Legal persons
Legal creations, with some characteristics of human beings, e.g. companies.
Incorporated by registration.
Unlimited liability
If the owner/partner is sued by a creditor, the owner must pay the debts even if he does not have enough money.
This means that the owner’s personal assets may be seized to pay for the debts of the business.
Limited liability
Losses are limited to the amount that was invested in a business by its owner.
Continuity
Some businesses (CC’s companies and co-operatives) continue to exist even if a change in ownership takes place, for example, if a member or shareholder dies or retires.
Surety
If a person or business accepts liability for the debt of another person or business.

5. Memorandum of Incorporation (MoI)
Concepts
Incorporators
People who complete and lodge the documents necessary for the registration of a company.
Memorandum of Incorporation (MoI)
The document that sets out the rights, responsibilities and duties of shareholders and directors.
Serves as the constitution of a company.
Director
Member of the board of a company.
Appointed by shareholders.
Manages the business and affairs of the company.
The board has the authority to exercise all of the powers of the company and to perform any of the functions of the company.
Securities
Shares and bonds of a company.
Traded on securities exchanges such as the JSE.
Securities register
A list of all securities of a company.

6. Concepts Company secretary
A person appointed by a company to provide the directors with guidance regarding their duties, responsibilities and powers.
Informs the directors of laws affecting the company.
Keeps minutes of shareholders’ meetings and board meetings.
Corporate governance
Concerned with the company’s accountability to shareholders, its ethical duties and its role as a corporate citizen.
Concerns transparency and accountability, e.g. economic, social and environmental responsibilities.

7. Different forms of ownership
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8. Different forms of ownership: Sole Proprietor
Definition:
When the owner does business without registering as a company.
Could have employees, even though sole proprietorships are owned and managed by one person.
Suitable for smaller enterprises.
Natural person.

9. Different forms of ownership: Sole Proprietor
Characteristics:
Sole proprietorships are owned and managed by a single owner.
It is simply the owner doing business – there is no distinction between the owner and the business.
Sole proprietorships are not legal entities.
Assets belong to the owner.
Profit belongs to the owner.
The owner pays tax in his/her personal capacity.
The owner is liable for all debts incurred by the business.

10. Different forms of ownership: Sole Proprietor
Advantages:
The owner can simply start doing business – there are no registration formalities.
Owner runs the business as he/she sees fit.
The owner does not need anyone else’s permission to make a business decision.
The owner usually has direct contact with consumers.
The owner is not accountable to other owners – because there is only one owner.
The success of the business belongs to owner.

11. Different forms of ownership: Sole Proprietor
Disadvantages:
Owner contributes only his/her own skills, time and energy to the business.
Sole proprietorships do not have continuity – this means that the business cannot continue to exist if the owner retires or dies.
The owner pays tax in his/her personal capacity – personal tax rates are much higher than tax rates for companies at the high end of the scale.
Capital is limited to the amount of money the owner has access to.
The owner has unlimited liability for the debt of the business.

12. Different forms of ownership: Partnership
Definition:
A partnership is where the owners do business without registering as a company.
The number of partners depends on the nature and size of the partnership.
There are four essentials of forming a partnership:
every partner must make a contribution.
the business must be carried on for the joint benefit of all the partners.
the object must be to make a profit.
the partnership contract must be legal.

13. Different forms of ownership: Partnership
Characteristics:
A partnership is an agreement between two or more persons.
Each partner makes a contribution to the partnership, e.g. skills, time, effort or money.
Partnerships are not legal entities.
Partners are jointly and severally liable for the debts of the partnership – one partner can be held liable for the total debt of a partnership. The partner who paid the debt must then collect each partner’s share of the debt from that partner.
Profits and losses are shared among partners according to the terms in the partnership agreement.
The partners pay tax in their personal capacity.

14. Different forms of ownership: Partnership
Advantages:
Responsibilities of the partnership are shared among partners.
Partners an specialise in what they do best.
Expenses of the partnership are shared among partners.
Partners can collaborate with each other before taking decisions.

15. Different forms of ownership: Partnership
Disadvantages:
Partners do not always agree – this can slow down decision making.
A bad decision by one partner can lead to losses for the partnership.
Partners are bound by the decisions of other partners.
There is no continuity – partnerships must dissolve when a partner dies or retires.
Partners have unlimited liability for the debt of the partnership.

16. Different forms of ownership: Close Corporations
Definition:
A registered business with a membership of 1 – 10 persons.
Exists under the Close Corporations Act (Act No. 69 of 1984).
Specially created for smaller businesses.

17. Different forms of ownership: Close Corporations
Characteristics:
Owned and managed by 1 – 10 members.
Name must end with the words Close Corporation or CC.
Close Corporations have continuity.
Close Corporations are legal entities.
Assets belong to the CC and not to its members.
Profit belongs to the CC and not to its members.
Tax is paid by the CC.
Members are sometimes required by creditors to stand surety for the debt of the business – this means that debts can be recovered from such members in their personal capacity.
Members may become personally liable for the debts of the CC, for example:
if the business of the CC was carried on recklessly,
grossly negligently, or
fraudulently.

18. Different forms of ownership: Close Corporations
Advantages:
Members have limited liability for the debts of the CC – unless they have stood surety.
It is appropriate for small and medium businesses.
Usually has greater access to capital than sole proprietorships.
Financial statements need not be audited.
Tax rates for businesses are lower than tax rates for individuals.
Auditing of financial statements is voluntary, except when regulations under the Companies Act require an audit.

19. Different forms of ownership: Close Corporations
Disadvantages:
Capital is limited to the contribution of up to ten members.
Creditors will normally require members to stand surety before they lend money to the CC.
All members of the CC must give their approval if a member wishes to sell his/her interest.
The financial statements of some CC’s (as determined by the Companies Act) are subject to an independent review and/or an adult.

20. Different forms of ownership: Close Corporations
The future of Close Corporations:
The new Companies Act (Act 71 of 2008) does not make provision for the formation of new Close Corporations.
However, all existing Close Corporations may continue to exist indefinitely, or until their members decide to convert the CC into a company.
Existing companies may not be converted into Close Corporations.
Existing Close Corporations will be treated as private companies.

21. Different forms of ownership: Companies
Different kinds of companies:
Different kinds of companies exist under the new companies act:
Non-profit companies
Profit companies
Private companies
Personal liability companies
Public companies
State-owned companies

22. Different forms of ownership: Non-profit Companies
Definition:
Do not exist to make profit.
Were known as Section 21 companies under the previous Companies Act

23. Different forms of ownership: Non-profit Companies
Characteristics:
Non-profit companies do not aim to make profit.
The main goal of non-profit companies is for public benefit purposes.
All income and assets of non-profit companies must be used for public benefit purposes.
Members, directors and incorporators of non-profit companies may not gain any financial benefit from the company other than reimbursement for costs incurred on behalf of the company.
The name of a non-profit company will end wit NPC.
A minimum of three directors must be appointed.
Dependant on financial support from the community, sponsorships and fundraising projects to raise money.

24. Different forms of ownership: Non-profit Companies
Advantages:
Aims at benefit the community.

25. Different forms of ownership: Non-profit Companies
Disadvantages:
Not sensitive to commercial considerations.
Difficult to raise money.

26. Different forms of ownership: Profit Companies
Formed for the financial benefit of shareholders (owners).
Four kinds:
Private company
Personal liability company
Public company
State-owned company

27. Different forms of ownership: Private Companies
Definition:
A profit company is a private company if:
its securities may not be offered to the public; and
the transferability of securities is restricted.

28. Different forms of ownership: Private Companies
Characteristics:
Name must end wit “Proprietary Limited”, or “(Pty). Ltd”.
Owned by shareholders.
Minimum number of shareholders is one.
Managed by directors.
Minimum number of directors is one.
Securities are not offered to the public.
If a shareholder wishes to sell his/her shares, these shares first have to be offered to existing shareholders.
A securities register must be kept.
Shareholders have limited liability for the debts of the company.

29. Different forms of ownership: Private Companies
Advantages:
More capital can be raised by a company than by an individual.
Creditors will be less likely to require surety from members if the company is financially strong.
Continuity of existence.
Auditing of financial statements is voluntary, except when regulations under the Companies Act require an audit.
Not necessary to appoint an auditor, audit committee or company secretary.
Not necessary to hold annual general meetings.

30. Different forms of ownership: Private Companies
Disadvantages:
Double taxation: companies pay tax on taxable income of the company and companies pay secondary tax on the dividends distributed to shareholders.
Restricted from raising funds directly from the public.
Costs and formalities associated with forming a private company.
The financial statements of some companies (as determined by the Companies Act) are subject to an independent review and/or an audit.

31. Different forms of ownership: Personal Liability Companies
Definition:
A profit company is a personal liability company if:
it meets the criteria for a private company; and
its Memorandum of Incorporation (MoI) states that it is a personal liability company.

32. Different forms of ownership: Personal Liability Companies
Characteristics:
Name must end with the word “Incorporated”, or “Inc”.
Owned by shareholders.
Minimum number of shareholders is one.
Managed by directors.
Minimum number of directors is one.
Securities are not offered to the public.
If a shareholder wishes to sell his/her shares, these shares first have to be offered to existing shareholders.
The directors of public liability companies are jointly and severally liable for the debts of the company.
People in professions such as attorneys and doctors often prefer to incorporate as a personal liability company rather than doing business as a partnership.

33. Different forms of ownership: Personal Liability Companies
Advantages:
More capital can be raised by a company than by an individual.
Creditors will be less likely to require surety from members if the company is financially strong.
Continuity of existence.
Auditing of financial statements is voluntary, except if regulations under the Companies Act require an audit.
Not necessary to appoint an auditor, audit committee or company secretary.
Not necessary to hold annual general meetings.

34. Different forms of ownership: Personal Liability Companies
Disadvantages:
Double taxation: companies pay tax on taxable income of the company and companies pay secondary tax on the dividends distributed to shareholders.
Restricted from raising funds directly from the public.
Costs and formalities associated with forming is personal liablility company.
The financial statements of some companies (as determined by the Companies Act) are subjected to an independent review and/or an audit.

35. Different forms of ownership: Personal Liability Companies
Main differences between a private
company and a personal liablility
company:
Members of private companies have limited liability for the debts of the company.
Members of personal liability companies are jointly and severally liable for the debts of the company.
The name of a private company ends with “Proprietary Limited”, or “(Pty). Ltd”.
The name of a personal liability company ends with “Incorporated”, or “Inc”.

36. Different forms of ownership: Public Companies
Definition:
A public company is a profit company that may offer its securities to the public.

37. Different forms of ownership: Public Companies
Characteristics:
Owned b shareholders.
Minimum number of shareholders is one.
Managed by directors.
Minimum number of directors is three.
Name of public companies must end with “Limited”, or “Ltd”.
Securities may be offered to the public.
A securities register must be kept.

38. Different forms of ownership: Public Companies
Advantages:
Shareholders have limited liability for the debt of the company.
Funds may be raised direcly from the public by offering securities to the public.
Continuity of existence.
Companies can raise more capital compared to other forms of business enterprise.
The prices of the securities serve as a barometer of the company’s performance.

39. Different forms of ownership: Public Companies
Disadvantages:
Double taxation: companies pa tax on taxable income of the company and companies pay secondary tax on the dividends distributed to shareholders.
Poor performance by a public company may lead to management losing their jobs.
Annual general meetings must be held – this places an administrative burden on the company.
Complicated process to incorporate a public company.
An auditor, audit committee and a company secretary must be appointed.
Public companies have extensive corporate governance duties.

40. Different forms of ownership: State-owned Companies
Definition:
A state-owned company is a registered company that is either:
owned by the state; or
is a municipality.

41. Different forms of ownership: State-owned Companies
Characteristics:
The state is the only shareholder.
Examples of state owned companies are Eskom, Telkom, SAA and the SABC.
The board of directors are appointed by the government.
The remuneration of directors is determined by government.
Name must end with “SOC Ltd”.

42. Different forms of ownership: State-owned Companies
Advantages:
State-owned businesses can be managed more efficiently as state-owned companies.
The format of the state-owned company provides a vehicle for holding state- owned businesses accountable.
State-owned companies allow for a compromise between the state’s interests and commercial considerations.

43. Different forms of ownership: State-owned Companies
Disadvantages:
It is difficult to enforce accountability.
A company secretary has to be appointed – this places a financial burden on the company.
The state as an owner is less sensitive to commercial considerations.
State-owned companies often operate at a financial loss.

44. Different forms of ownership: Co-Operatives
Definition:
A co-operative is an:
autonomous association of persons;
who are united voluntarily;
to meet their common economic and social needs;
through a jointly owned and democratically controlled enterprise;
that is organized and operated by co-operative principles.

45. Different forms of ownership: Co-Operatives
Co-operative principles:
The seven co-operative principles are (MACCDEV):
Member economic participation
Autonomy and independence
Co-operation among co-operatives
Concern for community
Democratic member control
Education, training and information
Voluntary and open membership.

46. Different forms of ownership: Co-Operatives
Co-operative values:
Co-operatives are based on the following values (SSEEDS):
Self-help
Self-responsibility
Equality
Equity
Democracy
Solidarity.

47. Different forms of ownership: Co-Operatives
Forms of co-operatives:
Primary co-operative
An association of people who work together to meet a common need.
Secondary co-operative
A co-operative formed by two or more primary co-operatives.
Tertiary co-operative
Members are secondary co-operatives.

48. Different forms of ownership: Co-Operatives
Kinds of co-operatives:
Different kinds of co-operatives include:
Agricultural co-operative
Social co-operative
Housing co-operative
Consumer co-operative
Service co-operative

49. Different forms of ownership: Co-Operatives
Characteristics:
Not driven by profit.
Reason for existence is usually service delivery.
Name must include the word “Co-operative” or “co-op” and end with the word “Limited” or “Ltd”.
Controlled by the members of the co-op.
Members have equal voting rights – each member has one vote.
Co-operatives specialize in particular fields, e.g. agricultural co-operatives and consumer co-operatives.
Returns are paid out to members.
Co-operatives must establish a reserve fund – at least 5 % of the surplus must be kept as a reserve and may not be divided among members.

50. Different forms of ownership: Co-Operatives
Advantages:
Creates an opportunity for people to work together towards a common goal.
Aims at benefiting the community.
Bulk buying often enables co-operations to negotiate good prices with suppliers.
Co-operatives are usually capable of selling goods at affordable prices because it does noet necessarily aim to make profit.

51. Different forms of ownership: Co-Operatives
Disadvantages:
Not as sensitive to commercial considerations as a company.
Not as effective at raising capital as a company.
Because the main aim of a co-operative is not to make profit, co-operatives can easily get into financial trouble.
Difficult to dispose of shares.
Subject to annual audits.
Compelled to hold annual general meetings – this is an administrative burden.

52. Activities