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Business Studies > Business Studies Chap 6 > Flashcards

Business Studies Chap 6 Flashcards

Benefits of company over other forms of ownership

1
Q

Outline the characteristics of the sole trader

A

-Is a business that is owned and managed by one person
-business has unlimited liability, and the private possessions of the owner can be used to pay the debts of the business

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2
Q

Differentiate the advantages and disadvantages of a Sole trader

A

Advantages
-No legal process and requirements
-Business requires little capital to start
Disadvantages
-Not a legal entity and no continuity
-Growth of business can be restricted due to lack of capital

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3
Q

Describe the characteristics of a Partnership

A

-Is an agreement between 2 or more persons
-Partnership has no legal personality and therefore has no continuity when a partner leaves the business

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3
Q

Distinguish between the advantages and disadvantages of a Partnership

A

Advantages
-All partners contribute to the business as responsibilities are shared among partners
-Partners can deal with problems together
Disagreement
-Partners do not always agree and that can slow-down decision-making
-A bad decision by one partner can lead to losses for the partnership

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4
Q

Discuss the characteristics of a Close Corporation

A

-A CC has its own legal personality and therefore has unlimited continuity
-Can have a minimum of one and maximum of ten members who share a common goal

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5
Q

Differentiate between the advantages and the disadvantages of a CC

A

Advantages
-A CC is a legal entity and has a continuity of existence
-Members have limited liability
Disadvantages
-A member of a CC can be held personally liable for the losses of the CC if the member’s actions are incompetent
-A CC is taxed as if it were a company, which may be higher than personal tax rates

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6
Q

Describe the characteristics of a Private company

A

-A private company is not bound to publish a prospectus when issuing shares
-Shareholders have limited liability and a separate legal entity

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7
Q

Distinguish between the advantages and disadvantages of a Private company

A

Advantages
-More opportunities to pay less taxation
-Own legal identity and shareholders have no direct legal implications/limited liability
Disadvantages
-Tax is paid on the taxable income of the company and companies pay secondary tax on dividends distributed to shareholders
-Directors do not have a personal interest in the business

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8
Q

Describe the characteristics of a Personal liability company

A

-These companies are identified by the suffix ‘Incorporated’ or INC
-A personal liability company has a separate legal personality and shareholders have limited liability

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9
Q

Differentiate between the advantages and disadvantages of a Personal Liability company

A

Advantages
-Personality companies are subject to fewer disclosure and transparency requirements
-The life span of a personal liability company is continuous
Disadvantages
-Difficult and expensive to establish a Personal Liability Company compared to CC and Sole proprietorship
-Directors of P.L.C have unlimited liability

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10
Q

Describe the characteristics of a Public company

A

-A prospectus is issued to the public to raise capital
-The company name ends with letters Ltd

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11
Q

Differentiate between the advantages and disadvantages of a Public company

A

Advantages
-Strict regulatory requirements protect shareholders
-Attracts small investors as shares can be transferred freely and easily
Disadvantages
-Stocks have to be traded publicly
-Shareholders may be allowed little or no input into the affairs of the company

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12
Q

Describe the characteristics of a State-owned company

A

-SOC is listed as a public company
-It is owned by the government and operated for profit

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13
Q

Differentiate between the advantages and disadvantages of a State-owned company

A

Advantages
-Prices are kept reasonable
-Generates income to financial social programs
Disadvantages
-Often rely on government subsidies
-Government can lose money through the business

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14
Q

Describe the characteristics of a Non-profit company

A

-Non-profit companies do make money, they Just do not make a profit
-The name of the profit non-profit must end with NPC

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15
Q

Differentiate between the advantages and disadvantages of a advantages and disadvantages of a NPO

A

Advantages
-May make a profit but may not share any of the profits with its members
-The assets of the company are in the name of the org., not in its members
Disadvantages
-Does not generate enough capital to cover their expenses
-Assets are not distributed to the members upon closing

16
Q

Explain the benefits of Legal status and liability

A

A company has its own legal status, trading name, and owns its assets

17
Q

Discuss the benefits of Profit sharing

A

Shareholders share in the profits of the company in the form of dividends

18
Q

Explain the benefits of ownership and management

A

Shareholders are able to buy and sell shares freely in a public company

19
Q

Discuss the benefits of capital and cash flow

A

A company may have more investors to fund the setting up of the business

20
Q

Explain the benefits of life span and continuity

A

Company shares can be transferred, bought, or sold

21
Q

Discuss the benefits of Taxation

A

Companies have tax benefits that other enterprises do not have. They may obtain tax rebates if they are involved in social responsibility projects

22
Q

What are the challenges of establishing a company vs other forms of ownership

A

-There may be a conflict between the owners of the company and the management in control
-A company may cease to exist if it is deregistered by CIPC

23
Q

Describe the procedure for the formation of companies

A

-Draw up a prospectus for potential investors
-File a notice of incorporation and obtain a unique registration number

24
Q

Explain the legal requirements of the name of a company

A

-Names can be reserved by a business for six months
-The name of a company is subject to approval

25
Q

Define the Memorandum of Incorporation

A

-MOI serves as the constitution of a company
-MOI describes the relationship between the business and its stakeholders

26
Q

Outline the aspects that must be included in the MOI

A

-Name of company
-Nature of the company
-Directors and officers

27
Q

Outline the Notice of incorporation

A

-Type of company
-Company name
-Registered address

28
Q

The meaning of a Prospectus

A

-A prospectus is a written invitation to convince the public to buy shares

29
Q

What is the meaning of the initial public offer

A

-This is when the company issue shares to the public for the first time

30
Q

What is the meaning of Secondary offering

A

-A secondary offering is an offering of securities by a shareholders of the company itself- which is a primary offering

31
Q

Outline the aspects that must be included in the prospectus

A

-Name of company
-Management team
-Cash flow
-Profits and losses

Business Studies (18 decks)

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