Chapter 3 - Establishing A Business Flashcards
From a legal perspective can a Sole Proprietorship be transferred?
Yes, it is reasonably simple. Sell business.
What are the disadvantages of a Sole Prop?
- owner liable without limit
- limited skills and capabilities
- limited access to capital
- lack of continuity
Is there a limit to the amount of partners in a partnership?
Was 20 - no longer apply
In a Partnership, may partners be natural or juristic persons?
Both
Where should a Partnership register the name?
Companies and Intellectual Property Commission
Essential characteristics of a Partnership?
- each partner has to contribute something
- must be for joint benefit
- all must share in profits
Does a Partnership have legal personality?
No, each partner has no separate estate from partners and personal assets
Liability of partners in Partnership?
All jointly liable for partnership debts
Explain the continuity of a Partnership.
Any changes in membership, for eg death or withdrawal or the admission of a new partner automatically dissolves the partnership. New partners must form new partnership.
Acquiring credit by Partnership?
Easier than Sole Prop, more people for security.
Tax liabilities for a Partnership?
Each partner is taxed separately on their portion of income. Partnership is not a separate taxpayer.
Advantages of a Partnership?
- ease of formation
- legal and natural persons may be partners
- increased opp for acquiring capital
- minimal legal formalities and regulations
- more skills and abilities
What are the disadvantages of a Partnership?
- personal liability
- relatively diff in disposing interest
- larger potential for conflict
- lack of continuity
How many members in a CC?
1 to 10
May juristic persons be part of a CC?
no
What is the core characteristic of a CC?
It is closed in the sense that members both own and control
Through what is the interest of a member of a CC expressed?
As a %. Total CC totaling to 100%
Continuity of a CC?
Because CC has legal personality existence not influenced by withdrawal / entry of a member
Legal liability for CC members?
Members not liable in personal capacity, but in 1984 personal liability has been introduced through legislation for certain violations such a corporate recklessness, fraud or gross negligence or abusing the juristic personality of CC.
How is management and control in a CC divided and how is decision taken?
Control divided equally.
Decisions on majority vote.
What is the sole registration doc of a CC called?
Founding Statement
What is the registration doc called of a Company?
Memorandum of Incorporation
Is a CC founding statement open to public?
No
What are the advantages of a Sole Proprietorship?
- simple to create
- inexpensive
- total decision-making auth
- no legal restrictions
- easy to discontinue
Which Company requirements are now also applicable to CC?
1) reservation of name
2) must prepare fin statements
3) CC given option to comply with enhanced transparency and acc requirements
4) business rescue may be utilized
5) in terms of “control” - “related and interrelated” will now also apply
6) dissolution and winding up provisions same as Companies
7) complaints, investigation and adjudication procedures same as for Companies
Existing CC will have the future burden to comply with which legislation?
Both Companies Act and remaining provisions of the Close Corporation Act.
Tax liability for CC?
Separate taxpayer - tax now at 28%
Advantages of a Close Corporation?
1) separate legal personality
2) members limited liability
3) increased capital acquisition potential
4) enjoys continuity
Disadvantages of a CC?
- members limited to 10
- juristic persons may not be members
- no new CC are registered
- certain CC subjected to stricter accountability
Which 2 companies exist under the Companies Act no 71 of 2008?
- profit companies
- non-profit companies
What are section 21 companies?
NPC’s - Non profit companies
Profit companies are divided in 4 types?
- Public Companies
- Private Companies
- State-Owned Companies
- Personal Liability Companies
A Private and Personal Liability Company must have at least 1 director. How many should a Public Company or Non-Profit have?
Minimum of 3
Can a Private company list on stock exchange?
No as shares are not transferable
With what words should the name of a Personal Liability Company end?
Incorporated Liability
With what does the name of a Public Company end?
Ltd
With what does the name of a State Owned Company end?
SOC Ltd
SOC are obligated to appoint the following?
1) a Company Secretary
2) an Audit Committee
With what does the name of a Personal Liability company’s name end?
Inc or Incorporated
In a Company distinction is made between ownership and control. Explain.
A company has 2 organs:
- The General meeting of members: broad policy decisions
- The Board of directors: administration
How is a Company’s capital made up?
Shares
CIPRO was replaced by?
Companies and Intellectual Property Commission
What are the benefits of a Company?
1) legal and natural persons may be shareholders
2) no restriction of number of shareholders
3) limited liability
4) great ability to raise capital
5) seperati on of ownership and control
6) continuity
7) shares transferable
Disadvantages of a Company?
1) high level of legal regulation
2) high operation costs
Through what doc is a Buss Trust established?
Trust Deed
Limit of beneficiaries in Buss Trust?
No limit
Is a Buss Trust a separate entity?
Yes, beneficiaries may be natural or juristic.
The trust however is not a legal / juristic person.
Must a Buss Trust be registered through the Comm?
No, formed when trust deed is accepted by Master of the High Court
What duty does the trustees of a Buss Trust have?
to act in good faith to the beneficiaries in accordance with the Trust Deed
How is profits distributed in a Buss Trust?
Left to the discretion of the Trustees
What are the advantages of a Buss Trust?
1) ease of formation
2) natural and juristic persons may be included
3) limited liabilities
4) extreme flexibility
5) absent of legal regulation
6) continuity
What are the disadvantages of a Buss Trust?
1) limited access to capital
2) potential for conflict between parties
To which company type are Co-operatives similar?
Private companies :
- recognized as legal person
- once reg a Reg Cert is issued
- limited liability
How is a Co-op managed?
Democratically by members
What are the 3 major reasons for writing a Business Plan?
1) to identify and describe the nature of the business opportunity
2) written plan of action of how the opportunity will be exploit
3) to attract investors, bank loan to start new business
What are the benefits of a business plan?
1) realistic evaluation
2) identify key variables
3) game plan for managing
4) instrument for comparing
5) tool to attract money
What are the 8 reasons for a business plan?
1) sell the buss to him / herself
2) obtain bank finance
3) to obtain investment funds
4) arrange strategic alliances
5) to obtain large contracts
6) attract key employees
7) to complete mergers and acquisitions
8) to motivate and focus the mng team
Which 4 C’s do banks evaluate when considering a loan?
Capital
Collateral
Character
Conditions
What are the most important components of a business plan?
1) executive summary
2) general description of venture
3) products and services plan
4) marketing plan
5) management plan
6) operating plan
7) financial plan
8) support materials
What does the marketing plan in a buss plan entail?
- analysis of target market
- how customers will be identified
- selling approach, type of sales force and distribution channels
- types of promotions and ads
- credit and pricing policies
What does the management plan of a buss plan include?
- mng team and qualifications
- other investors and / or directors and their qualifications
- outside resource people and their qualifications
- plans for recruiting and training
What are the location factors of a business?
1) sources of raw material
2) availability of labour
3) proximity of and access to market
4) availability and cost of transport facilities
5) availability and cost of power and water
6) availability and cost of site and buildings
7) availability of capital
8) attitude, regulations and tariffs of local auth
9) existing buss environment
10) social environment
11) climate
12) central government policy
13) personal preferences
