UNIT 5: starting a business

Question 1

PARTNERSHIP(agreement b.ween 2 / more people, all members benefit)

Answer 1

CHARACTERISTICS OF PARTNERSHIP BUSINESS:
• jointly liable for debt
• profit divided
• easy obtain capital (more partners who can contribute)
• jointly control +have say in running of business
• each partner is taxed on his salary plus profit (taxable income) earnerd

Advantages of a partnership business
• easy
• capital increases possibilities for expansion
• increased effectiveness of business
• obtaining credit is easier
• unlimited liability of partners motivates each partner to do his best

Disadvantages of a partnership business:
• lack of continuity (if partner dies, new partnership must be formed )
• dishonest partner can cause damage to other partners
• personal belongings can be involved in debts
• decisions cant be made quickly ( consult all partners first)
• financial statements need not be audited (financial dishonesty can easily be covered up)

Question 2

COMPANY (made up of individual persons +is legal entity)

Answer 2

Two kinds of companies: company with share capital ( public +private company) +company without share capital

Question 3

CLOSE CORPORATION (1-10 members

Answer 3

Characteristics of close corporation
• name ends with ‘cc’
• unlimited existence
• doesnt issue shares
• each member must contribute money, property / service
• doesn’t need profitability as its objective
• no compulsory meetings / auditing of books needed
• accounting official must be appointed to draw up financial statements

Advantages:
• few legal provisions
• continuity is possible
• ability to take part in management leads to personal interest +business success

Disadvantages:
• limited expansion (limited to 10 people)
• problems can arise with trust between members
• financial problems
• members can he held liable for losses

Question 4

FRANCHISING

Answer 4

( agreement / right to sell / market products according to certain guidelines +regulations to 1 person)

Question 5

It’s important to compile a business plan. Discuss this in detail
(NB)

Answer 5

• Business plan is a detailed programme of action, outlining every conceivable aspect of proposed business opportunity :
• what intend doing
• how intend doing it
• when intend doing it
• why believe the idea is viable
• gives idea of whether or not he/she should get involved in the particular business
• Serves as a useful guide to the entrepreneur to check the business goals
• Valuable documentation to outsiders like the bank to determine whether they should get involved with the business

Question 6

GENERAL LEGISLATIONS:when starting business + hints on establishing business

Answer 6

• licensing
• name
• contractual capacity
• registration of trade marks, patens, designs
• testing
• registration of new business
• taxation

HINTS on establishing new business :
• appearance always neat +clean & customers feel welcome
• attractive reception area +noticeboard
• advertise
• offer special discounts
• treat customers well, build good relationship
• offer competitive prices
• insurance of business (against theft, fire, vehicles, disasters etc.)
• reliable accounting system
• personal file for each employee
• open current account
• acquiring assets
• marketing plan, personel, finance +record keeping, equipment +stationery, statements