Chapter 5: Forms of ownership Flashcards
What does “formation procedure” mean in the context of starting a business in South Africa?
It refers to the legal steps you need to take to start a business. Some businesses need to be officially registered, while others don’t. The more steps involved, the more expensive it usually is.
What is a “legal persona” in business?
If a business is registered as a “legal persona,” it means the business is seen as separate from its owner. It can make contracts, sue, or be sued, just like a person.
What does “continuity of existence” mean for a business?
It means the business can keep going even if the owner dies or the ownership changes. It’s like the business has its own life.
What is “owner’s liability” for debts?
It’s about who is responsible for the business’s debts. If the business is a separate legal entity, the business is responsible. If not, the owner is.
How are “tax implications” different for registered vs. unregistered businesses?
If the business is a separate legal entity, the business pays income tax. If not, the owner pays tax on their personal income.
What are “management and control aspects” of a business?
It’s about who runs the business. If it’s registered, the law might say who has to manage it. If not, it’s up to the owner.
How does the size of a business affect its “capital requirements”?
A small service business usually needs less money (capital) than a big manufacturing business.
What is a “sole trade”?
A business owned and run by one person, and it’s not registered as a separate legal entity.
What are the advantages and disadvantages of a “sole trade” regarding “formation procedures”?
- Advantage: Quick and cheap to start.
- Disadvantage: The owner is legally responsible and takes on all risks.
What are the disadvantages of a “sole trade” regarding “continuity of existence” and “owner’s liability”?
- Disadvantage: The business doesn’t automatically keep going if something happens to the owner.
- Disadvantage: The owner has unlimited liability, meaning their personal belongings can be used to pay business debts.
What are the tax implications of a “sole trade”?
The tax rate depends on the business’s profits. Lower profits mean a lower tax rate, but higher profits mean a higher tax rate.
What is a “partnership”?
A business owned by two or more people who share profits and losses, but it’s not registered as a separate legal entity.
What are the advantages and disadvantages of a “partnership” regarding “formation procedures”?
- Advantage: Quick and cheap to start.
- Disadvantage: If there’s no written agreement, disputes can be hard to resolve.
What are the disadvantages of a “partnership” regarding “legal persona,” “continuity of existence,” and “owner’s liability”?
- Disadvantage: The owners are legally responsible.
- Disadvantage: The business doesn’t automatically keep going if a partner leaves or joins.
- Disadvantage: Partners have unlimited liability.
What are the tax implications of a “partnership”?
Similar to a sole trade, the tax rate depends on the business’s profits.
What is a “company” as defined by South African law?
A legal entity registered under the Companies Act 71 of 2008.
What is a “partnership agreement”?
An agreement that outlines the terms and conditions of the partnership, which can be written or verbal.
What are the purposes of the Companies Act 71 of 2008?
To encourage entrepreneurship, promote economic growth, simplify company registration, protect shareholder rights, and ensure responsible management.
What are the different types of companies in South Africa?
Profit companies, non-profit companies, state-owned companies, private companies, personal liability companies, and public companies.
What are the advantages and disadvantages of a “company” regarding “formation procedures”?
- Disadvantage: More complicated and costly to register than a sole trade or partnership.
What are the advantages of a “company” regarding “legal persona,” “continuity of existence,” and “owner’s liability”?
- Advantage: The business is a separate legal entity.
- Advantage: The business continues even if owners change.
- Advantage: Owners have limited liability.
What are the tax implications of a “company”?
Companies pay a flat 28% income tax rate, which may be higher or lower than individual tax rates depending on profits.
