Forms Of Ownership [5] *G11 Flashcards by Luffie M

What are the Characteristics in F.O.O *7

*Formation Procedures
*Legal persona
*Continuity of existence
*Liability for debts
*Tax implications
*Management + control aspects
*Capital requirements

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Explain formation procedure *2

*According to law, some businesses have to be registered while others don’t
*more procedures = more costly

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Explain Legal Persona *2

*If law requires a business to be registered, it becomes a separate legal entity
*The legal person that owns the business can enter contacts, sue and be sued

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Explain Continuity of existence

*Legal persona = continuity of existence
Therefore if an owner dies, the business is not affected

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Explain liability for debts *2

*If a business is a legal entity, it’s responsible for its own debt (owner can’t be liable)
*If a business isn’t a legal entity, the owner enters contact on their own will (owner can be liable)

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Explain tax implications *2

*If a business is a legal entity, it is liable to pay
*If a business isn’t a legal entity, the owner is liable to pay

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Explain management and control aspects *2

*If a business is a legal entity, people involved must manage
*If a business is not a legal entity, the law doesn’t specify who manages

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Explain capital requirements

Capital requirements are based on size and nature

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What is a Sole Trader

*a business owned and started by one person
*doesn’t register business as a separate L.E.

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What is a partnership

*a business where 2+ people are joint owners
*business not registered as a L.E
*a predetermined ratio is used for profit, loss and capital

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What is needed to establish a partnership

A partnership agreement

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What is a partnership agreement

Terms and conditions agreed upon partners

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Partnership agreements can be entered… *3

Tacitly
Verbally
In writing

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What is a company

A legal entity incorporated

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What’s the purpose of the companies act *min 4 max 6
(entrepreneurship.promotes.wellbeing.really.effectivly.simply)

*to encourage entrepreneurship
*to promote participation in different economic sectors
*to promote wellbeing of SA economy
*to ensure rights and obligations of shareholders/ directors are aligned
*ensure NPCs are functioning effectively
*to simplify company registration processes

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Private companies may not… *2

*be state owned
*issue shares to the public

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Public companies can… *2

*list on JSE
*offer shares to the public

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Dividends definition

Profit divided among shareholders

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MOI stands for…

Memorandum of Incorporation

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AFS stands for…

Annual Financial Statements

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IFRS stands for…

International Financial Reporting Standards

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Equities definition

Owners of shares

Equities become (a
And expect b)
*2

a) business owners
b) ROI

ROI (registered on JSE) is in the form of a) and b) *2

a) dividends
b) increase in share price

What are blue chip shares

Shares (proven longterm) than are financially stable -share prices don’t fluctuate -good dividends are shared

Company names may not be… *2

*undesirable/hateful *misleading

Private companies must end with…

(Pty) Ltd

Public companies must end with…

Ltd

State owned companies must end with…

SOC Ltd

Non profit companies must end with…

NPC

What is the procedure to register a company *3 (pay.now.ma'am)

*pay a required fee *complete a notice of incorporation *register on MOI

What is an MOI

The founding document to start a company -describe duties + responsibility

What does an MOI stipulate *4 (some.rights.do.rock)

*different types of shares sold *associated rights of shareholders *duties of shareholders *responsibilities of shareholders

Minimum shareholder for a public and private company

Minimum directors for a public company

Minimum directors for a private company

What is prospectus

A written invitation to the public to buy company shares

If a prospectus is issued for the purpose Of raising capital for property Or a business venture, what details must be included *4 (pink.apples.change.green)

*purchase price *address *how must payed in cash + how the rest will be defrayed *if business is taken over, how much is paid for customer goodwill

What are requirements in a prospectus *4 (i.sign.green.kites)

*note on front page indicating registration *directors must sign with the date *contain general information *indicate the extent of complying to KR+C, and if not why

Shareholders can attend meetings… *3

*in person *online *on behalf of a proxy

How many days notice do public and private companies have for meetings *2

*public - 15 *private - 10

What are the duties of directors *3 (best.donuts.oreo)

*to act in the best interest of the company *may not act in a way benefiting themselves while disadvantaging the company *obliged to disclose personal/financial interests to prevent conflict of interest

What is some general information found in a prospectus *4 (typo.has.sage.files)

Business type History Shares already issued Finances for the last 3 years

What are financial obligations of a company

AFS must meet IFRS then be filed with CIPC

Public companies need their AFS…

Audited

Public companies have to appoint *3

*a public secretary *an internal audit committee *an external auditor

What is the job of a public secretary *4 (Lime.green.really.cute)

*make directors aware of legislation *guide directors *ensure minutes are recorded *ensure required documents are filed with CIPC

What requirements must a company meet before dividends can be declared *2

*solvency tests *liquidity tests

What does solvency test do

Sees if assets > liabilities

What do liquidity tests do

Determine the financial position To settle debt Due in the next 12 months

Ltd in a name implies

Liability of shareholders is limited

What does it mean to float a company

To issue shares to the public

What does it mean to be jointly and severally liable *2

*jointly - partners responsible for liability as a whole *severally - partners are responsible for own liability

What’s the Difference between limited and unlimited liability *2

*limited - debt liability restricted to amount put in business *unlimited - debt liability is not restricted to amount put in business