Grade 11 | Business studies | Forms of Business Ownership | Term 2 | Teaching

This section introduces the benefits of a company compared to other forms of ownership, such as sole traders and partnerships. It defines forms of ownership as the legal requirement of a business and how it is owned, highlighting the eight types of ownership.

This part defines a sole trader as the simplest form of business ownership, managed by one individual responsible for all investment, risk, and returns. It details characteristics like ownership and management by one person, assets belonging to the owner, no legal separation between business and owner, and unlimited liability. Advantages include ease of setup and full control, while disadvantages include limited capital, lack of continuity, and unlimited liability.

This section explains partnerships as businesses owned and managed by two or more individuals. Key characteristics include agreements on profit/loss sharing, shared contributions of skills and resources, and unlimited liability for partners. Advantages include shared workload and expertise, easier capital raising, and lower taxation. Disadvantages include potential disagreements, lack of continuity if a partner leaves, and unequal contributions.

This part discusses Close Corporations, which were suitable for small to medium businesses with 1 to 10 members. While new CCs can no longer be registered, existing ones continue to trade. Characteristics include being legal entities, continuity, and optional auditing. Members have unlimited liability with some exceptions. Advantages are fewer legal requirements and continuity, while disadvantages include limited growth and potential personal liability for incompetent actions.

This section defines a private company as one that restricts share transfers and does not invite public subscription. Its name ends with "PTY Ltd." It requires one or more directors and shareholders, has limited liability for shareholders, and possesses its own legal personality and continuity. Advantages include easier capital raising than sole traders/partnerships and limited shareholder liability. Disadvantages include higher setup costs, more taxation requirements, and directors potentially lacking personal interest.

This part focuses on personal liability companies, primarily used by professionals like lawyers and accountants. Their name ends with "Inc." Directors have unlimited liability for company debts. Advantages include fewer disclosure requirements and continuous lifespan. Disadvantages are the difficulty and cost of establishment, management structures leading to slower decisions, and personal liability for directors.

This section explains public companies, which offer shares to the general public (e.g., via a stock exchange). Their name ends with "Ltd." They require three or more directors and shareholders, have limited liability, and issue a prospectus to raise capital. Advantages include easy capital raising, unlimited shareholders, and limited liability for owners. Disadvantages include complex setup processes, high audit costs, and public disclosure of financial information.

This part covers state-owned companies, where the government is the major shareholder. Their name ends with "SOC Ltd." They typically provide essential services and support private businesses. Advantages include profits potentially financing other state departments and job creation. Disadvantages include potential poor management, reliance on government subsidies, and difficulties in raising capital due to strict regulations.

This section details non-profit companies, which make money but do not aim for profit distribution among members; all funds are used to cover expenses and advance organizational goals. Their name ends with "NPC". Advantages include independent legal personality, continuity, and assets held separately from members. Disadvantages are not explicitly listed in this segment but are implied in the definition.

This part summarizes the advantages of a company over other forms of ownership: separate legal status, limited liability for shareholders, easier profit sharing (dividends), managed by competent directors, more capital and better cash flow, continuous lifespan, and potential tax benefits. It contrasts these with the limitations of sole traders and partnerships.

This section highlights the challenges of companies compared to other forms: expensive and complicated setup, potential risks if directors are incompetent, potential lack of personal interest from directors, conflicts between owners and management, high taxation requirements, and the need for public disclosure of financial information, which competitors can exploit.

This part outlines the steps for company formation, including determining founders, preparing the Memorandum of Incorporation (MOI), opening a bank account, registering for taxation, filing a notice of incorporation, and obtaining a unique registration number. It also covers legal requirements for company names, which must be original, not misleading, and indicate the company type.

This section defines key documents: the MOI (company constitution detailing governance, rights, and duties), the notice of incorporation (lodged with the MOI containing company details), and the prospectus (an invitation for the public to buy shares, providing investment information). It also explains Initial Public Offerings (IPO) and secondary offerings.