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Business 2 Grade 11 Term 1+2 > T1: t6: Benefits Of A Company Over Other Forms Of Ownership > Flashcards

T1: t6: Benefits Of A Company Over Other Forms Of Ownership Flashcards

1
Q

Definition of a sole trader

A

Business that is owned and managed by 1 person

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2
Q

Characteristics of sole trader

A
  • 1 owner
  • easy and inexpensive to start
  • no legal and admin formalities in formation
  • not a legal entity and agreements are entered into by owner in personal capacity
  • profit belongs to owner
  • unlimited liability
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3
Q

Advantages of sole trader

A
  • owner makes all decisions
  • requires little capital to start
  • all profits belong to owner
  • simple management structure
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4
Q

Disadvantages of sole trader

A
  • unlimited liability
  • cash flow is often a problem
  • growth can be restricted due to lack of capital
  • not a legal entity and no continuity
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5
Q

Definition of partnership

A
  • 2 or more partners who own the business
  • share responsibility of business and they share financial and management decisions
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6
Q

Characteristics of partnership

A
  • unlimited liability
  • no legal requirements regarding business name
  • no legal formalities to start, only written partnership agreement is required
  • no legal personality and no continuity
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7
Q

Advantages of a partnership

A
  • workload and responsibilities are shared
  • share resources
  • have personal interest in business
  • relatively easy to establish
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8
Q

Disadvantages of a partnership

A
  • unlimited liability
  • might not all contribute equally
  • lacks continuity
  • lack of capital and cash flow
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9
Q

Definition of a private company

A

Small or large company with 1 or more directors

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10
Q

Characteristics of private company

A
  • name ends with (PTY) Ltd
  • 1 or more director
  • not allowed to sell shares to public
  • audits are optional
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11
Q

Advantages of private company

A
  • continuity of existence
  • good long term growth opportunities
  • own legal entity and shareholders have limited liability
  • easily raise capital by issuing shares to members
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12
Q

Disadvantages of private company

A
  • requires lots of capital
  • more shareholders, less profits
  • more taxation requirements
  • directors don’t have personal interest
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13
Q

Definition of personal liability company

A
  • very similar to private company
  • directors have unlimited liability
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14
Q

Characteristics of personal liability company

A
  • name must end with INC
  • unlimited liability
  • not allowed to sell shares to the public
  • legal personality and unlimited continuity
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15
Q

Advantages of personal liability company

A
  • continuity of existence
  • legal entity
  • statements are private and not available to public
  • not required to file annual financial statements with commission
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16
Q

Advantages of personal liability company

A
  • continuity of existence
  • legal entity
  • statements are private and not available to public
  • not required to file annual financial statements with commission
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17
Q

Disadvantages of personal liability company

A
  • more shareholders, less profits
  • directors don’t have personal interest
  • audits are required
  • pays tax on business profits and declared dividends -> subject to double taxation
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18
Q

Definition of public company

A
  • registered to offer stock and shares to general public
  • mostly done through Johannesburg Stock Exchange
  • designed for large-scale operation that require large capital investments
19
Q

Characteristics of public company

A
  • name ends with Ltd
  • legal personality and unlimited continuity
  • shareholders have limited liability
  • required to hold Annual General Meeting (AGM)
20
Q

Advantages of public company

A
  • legal identity and can own assets
  • easy to raise large amounts of capital for growth
  • no limit on number of shareholders
  • continuity of existence
21
Q

Disadvantages of public company

A
  • must disclose all financial information
  • audits are expensive
  • stocks must be traded publicly
  • more shareholders, less profit
22
Q

Definition of state-owned company

A

Government is major shareholder and falls under department of Public Enterprise

23
Q

Characteristics of state-owned company

A
  • name ends with SOC
  • owned by government and operated for profit
  • listed as public company
  • register with Registrar of Companies by drawing up MOI
24
Q

Advantages of state-owned company

A
  • jobs are created for all skill levels
  • wasteful duplication of services is eliminated
  • generates income to finance social programs
  • planning can be co-ordinated through central control
25
Q

Disadvantages of state-owned company

A
  • inefficiency due to business size
  • rely on government subsidies
  • government can lose money through business
  • statements must be audited
26
Q

Definition of non-profit company

A
  • not formed with intent to make profit
  • established for public benefit
27
Q

Characteristics of non-profit company

A
  • name ends in NPC
  • must prepare MOI
  • main aim is to provide service, not make profit
  • funded by donations and foreign funding
28
Q

Advantages of non-profit company

A
  • continuity of existence
  • can receive grants to finance business
  • limited liability of members
  • exempted from paying tax
29
Q

Disadvantages of non-profit company

A
  • needs professional assistance to set up
  • doesn’t generate enough capital to cover expenses
  • donations may not be enough to cover expenses
  • creating company takes time, effort, money
30
Q

Definition of co-operatives

A

Traditional way of group of interested parties getting together and sharing resources, infrastructures, costs to achieve better outcome

31
Q

Characteristics of co-operatives

A
  • name ends in (Co-op) Ltd
  • legal entity
  • decisions are made democratically
  • motivated by service rather than profit
32
Q

Advantages of co-operatives

A
  • legal entity
  • easy and less complicated to form business as there’s very little legal requirements
  • limited liability
  • formed by persons having a common interest to allow more members to work as a team
33
Q

Disadvantages of co-operatives

A
  • difficult to grow
  • very few promotion positions
  • success depends on support of members
  • decisions are difficult to reach and time consuming
34
Q

Four benefits of establishing an a company versus other forms of ownership

A
  • company has its own legal status and is protected
  • continuity of existence
  • better cash flow
  • have legal constraints and more accountability
35
Q

Four challenges of establishing a company vs other forms of ownership

A
  • more taxation requirements
  • may be conflict between owners and management
  • more shares = less profit per share
  • required to submit full report to all stakeholders each financial year
36
Q

Procedure for formation of company

A
  • determine minimum number of people establishing a company
  • file Notice of Incorporation to commence business
  • needs to open bank account and register with SARS
  • determine minimum number of people establishing a company
37
Q

Legal requirements of company name

A
  • must appear on all documents
  • must be original and not misleading
  • must not be shortened or translated
  • must indicate form of ownership
38
Q

Meaning of Memorandum of Incorporation

A
  • constitution of company
  • governed according to rules stated in MOI
  • describes relationship between business and stakeholders
  • includes information about name, registration office and records
39
Q

Aspects that must be included in Memorandum of Incorporation

A
  • securities of company, type and number of shares issued
  • rights, rules, resolutions, representation of shareholders and meetings
  • composition, authority, financial matters of board of directors
  • incorporators’ control and rules of company
40
Q

What does the Notice of Incorporation contain?

A
  • company name
  • type of company
  • number of directors
  • incorporation date
41
Q

Meaning of Prospectus

A
  • written invitation to public to buy securities offered by public company
  • formal legal document giving details about investment offerings to public
  • can only be issued by company and must be within 3 months after date of registration
42
Q

Meaning of Initial Order Offer (IPO)

A
  • when company issues shares to public for 1st time
  • must produce prospectus before undertaking initial offering
  • most companies undertake IPO with assistance of investment banking firm acting in capacity of underwriter
43
Q

Meaning of secondary offering

A
  • offering of securities by shareholder as opposed to company itself (primary offering)
  • sale of new/closely held shares by company that has already made IPO
44
Q

List four aspects that must be included in prospectus

A
  • company overview
  • product/service portfolio
  • market analysis and strategy
  • management team

Business 2 Grade 11 Term 1+2 (5 decks)

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