Business Studies Chap 6 Flashcards
Benefits of company over other forms of ownership
Outline the characteristics of the sole trader
-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
Differentiate the advantages and disadvantages of a Sole trader
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
Describe the characteristics of a Partnership
-Is an agreement between 2 or more persons
-Partnership has no legal personality and therefore has no continuity when a partner leaves the business
Distinguish between the advantages and disadvantages of a Partnership
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
Discuss the characteristics of a Close Corporation
-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
Differentiate between the advantages and the disadvantages of a CC
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
Describe the characteristics of a Private company
-A private company is not bound to publish a prospectus when issuing shares
-Shareholders have limited liability and a separate legal entity
Distinguish between the advantages and disadvantages of a Private company
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
Describe the characteristics of a Personal liability company
-These companies are identified by the suffix ‘Incorporated’ or INC
-A personal liability company has a separate legal personality and shareholders have limited liability
Differentiate between the advantages and disadvantages of a Personal Liability company
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
Describe the characteristics of a Public company
-A prospectus is issued to the public to raise capital
-The company name ends with letters Ltd
Differentiate between the advantages and disadvantages of a Public company
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
Describe the characteristics of a State-owned company
-SOC is listed as a public company
-It is owned by the government and operated for profit
Differentiate between the advantages and disadvantages of a State-owned company
Advantages
-Prices are kept reasonable
-Generates income to financial social programs
Disadvantages
-Often rely on government subsidies
-Government can lose money through the business
Describe the characteristics of a Non-profit company
-Non-profit companies do make money, they Just do not make a profit
-The name of the profit non-profit must end with NPC
Differentiate between the advantages and disadvantages of a advantages and disadvantages of a NPO
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
Explain the benefits of Legal status and liability
A company has its own legal status, trading name, and owns its assets
Discuss the benefits of Profit sharing
Shareholders share in the profits of the company in the form of dividends
Explain the benefits of ownership and management
Shareholders are able to buy and sell shares freely in a public company
Discuss the benefits of capital and cash flow
A company may have more investors to fund the setting up of the business
Explain the benefits of life span and continuity
Company shares can be transferred, bought, or sold
Discuss the benefits of Taxation
Companies have tax benefits that other enterprises do not have. They may obtain tax rebates if they are involved in social responsibility projects
What are the challenges of establishing a company vs other forms of ownership
-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
Describe the procedure for the formation of companies
-Draw up a prospectus for potential investors
-File a notice of incorporation and obtain a unique registration number
Explain the legal requirements of the name of a company
-Names can be reserved by a business for six months
-The name of a company is subject to approval
Define the Memorandum of Incorporation
-MOI serves as the constitution of a company
-MOI describes the relationship between the business and its stakeholders
Outline the aspects that must be included in the MOI
-Name of company
-Nature of the company
-Directors and officers
Outline the Notice of incorporation
-Type of company
-Company name
-Registered address
The meaning of a Prospectus
-A prospectus is a written invitation to convince the public to buy shares
What is the meaning of the initial public offer
-This is when the company issue shares to the public for the first time
What is the meaning of Secondary offering
-A secondary offering is an offering of securities by a shareholders of the company itself- which is a primary offering
Outline the aspects that must be included in the prospectus
-Name of company
-Management team
-Cash flow
-Profits and losses
