FORM OF OWNERSHIP ADVANTAGES DISADVANTAGES

Sole 1 Owner

1. Simple to form i.e. No registration.2. Can have an idea and start trading

immediately.3. Ideas and changes can be implemented

immediately – no red tape4. Don’t have to register for or charge VAT

(Unless turnover exceeds R 1000 000)5. Could be a cash only business – Cash is

King6. The Sole trader is able to offer his/her

clients a specialised service7. Custom products can be designed for a

smaller customer base8. Can run the business from anywhere with

limited resources and space within thebylaws of the town or city.

9. All profit belongs to the owner

1. The Business is not a legal entity (A legalperson), thereforethe owner is responsible for all the debtsincurred for the business i.e. UnlimitedLiability

2. Financing is difficult to obtain3. High Risk4. Very demanding for one person to run the

business5. Monthly income can vary considerably i.e.

Feast or Famine6. The Sole Trader must manage his money

very well to provide for the leaner months7. The Sole Trader may not be able to

compete with larger businesses thatbenefit from wholesale prices, largeadvertising budgets etc.

8. The Sole trader may not have all the skillsand knowledge needed for every aspect ofthe business

9. Some companies will not trade with abusiness that is not registered

10. The sole trader is taxed personally11. There is no continuity i.e. when the owner

dies, the business ceases to exist12. The owner may also not declare all income

generated to SARS which is Fraud13. All losses suffered by the owner14. The owner is taxed personally

Partnership Minimum of 2 Partners, Maximum of 20

1. Simple to form and there are no legalities2. More than one person bringing resources

and expertise to the table3. Shared responsibilities in running the

business4. Share profit and losses5. No need to draw up a Partnership

Agreement but it is better to have one

1. The Business is not a legal entity thereforethe partners share unlimited liability

2. If there are more than 2 people then thepartnership may still exist between theremaining partners

3. Can be open to fraud i.e. Partners notdeclaring personal income from thepartnership to SARS (Cash Transactionscannot be proven)

4. The owners are taxed personally.5. One partner may work harder i.e. unfair

distribution of labour6. If a Partnership dissolves, and there isn’t an

agreement, solving disputes are moredifficult. Legal council may be sought

7. If the partnership is also a friendship, thistoo may also dissolve

ADVANTAGES AND DISADVANTAGES OF THE FORMS OF OWNERSHIP

1

Close Corporation CC 1 – 10 Members CC Formed by drawing up a Founding Statement. Members hold interest. Members interest is shown as a % totalling 100%

1. Limited Liability2. Legal Entity ( Business is held Liable for Debts) 3. CC’s Registered prior to the New

Companies Act may still trade4. CC’s may still be bought5. Annual General Meeting (AGM) not

required6. No Audit required7. Continuity – New Founding Statement

must be drawn up8. Can buy a Shelf CC ( Pre – registered CC’s

that never conducted business) to savetime and money

9. Raising Capital is easier than a SoleProprietor or Partnership

1. New CC’s are no longer registered2. Annual renewal of Registration with CIPC

required3. Members are restricted to 104. Shelf CC’s are scarce5. The CC is taxed the same as companies (On

Profit)

FORM OF OWNERSHIP ADVANTAGES DISADVANTAGES

ACTIVITY 1Paste business cards/ advertisments of the following forms of ownership: 1) Sole Trader2) Partnership3) Close Corporation

Resources: Yellow pages, swop business cards with your calssmates.

2

ACTIVITY 2

Tabulate 5 advantages and disadvantages of a Sole Proprietor.

ACTIVITY 2

Tabulate 5 advantages and disadvantages of a Partnership.

ACTIVITY 3

Tabulate 5 advantages and disadvantages of a Close Corporation.

3

Private Company PTY (Ltd) Formed by drawing up a MOI and Completing the Notice of Incorporation and Registering with the CIPC Unlimited number of Shareholders. 1 or more Directors. 1 – 50 Shareholders hold shares.

1. Limited Liability for Shareholders2. Directors can be liable if they are

knowingly part of running the businessrecklessly or fraudulently.

3. Continuity4. Transferring of shares from one

shareholder to another is easy5. Raising Capital is easier6. Management can be more efficient7. Can be adapted to small and large

businesses8. Annual Financial Statement do not have

to be filed with the CIPC i.e. the financialposition of the Company is not publicknowledge

9. Certain expenses can be deducted asbusiness expenses e.g. Travel

10. Increased Credibility with customers,suppliers and Financial Institutions

1. Many legal requirements (MOI and Notice ofIncorporation)

2. An AGM must be held3. Company must be audited4. Costs involved in registration5. At least 1 Director required6. Minimum of 2 shareholders required for a

meeting7. Shares may not be offered to the public to

raise funds8. Cannot be registered on the stock exchange

- JCE9. Number of Shareholders limited10. Taxed on Profit

Public Company (Ltd) Listed on the Johannesburg Stock Exchange - JSE Minimum of 3 directors Unlimited Shareholders

1. Limited Liability of shareholders2. Access to Public funding by selling shares3. Shares can be used as Currency for Acquisition (Buying Assets) 4. Giving shares to key employees can help

retain talent.5. Listed Companies increase their corporate

reputation and public profile whichenhances the brand name.

6. Company growth attracts Institutionaland Foreign Investors

7. Being Listed can Facilitate Broad BasedBlack Economic Empowerment deals(BBBEE)

1. Loss of Control due to Stock Market Rules2. There are Market expectations so you

cannot disappoint shareholders. (IncreasedAccountability)

3. Founder Shares are diluted as new sharesare issued to raise capital.

4. Market Volatility – Share prices rise and falldue to reasons unconnected to the company

e.g. Global issues whether real or perceived, change in government, strikes, disasters etc.

5. Ongoing costs in maintaining the Listing6. Have to appoint an Investment Banker to

help with all the legal requirements and tocreate hype so as to attract investors.

7. Listing a Company can take 3 months – 2years

8. Loss of Privacy due to media interest9. Annual Financial Statements are Public

Knowledge (This could be an Advantage ifthe Company is performing well)

10. Taxed on Profit

FORM OF OWNERSHIP ADVANTAGES DISADVANTAGES

ACTIVITY 4

Paste adverts/business cards of Private and Public Companies

4

ACTIVITY 6

Tabulate 5 Disadvantages of a Public and Private company.

LIBERTY LIFE

ACTIVITY 5

Tabulate 5 Advantages of a Public and Private company.

5

Registration

Cost of startingthe business

Ease of startingthe business

Number of owners

Financialstrength - Ability to raise funding

ProfitDistribution

Financialresponsibilityof owner forbusiness debts

Decision making inthe business

Continuity of thebusiness

Taxation

Sole Proprietor Partnership Close Corporation

FORMS OF OWNERSHIP

21 3ACTIVITY 7 Complete the Table

6

Registration

Cost of startingthe business

Ease of startingthe business

Number of owners

Financialstrength - Ability to raise funding

ProfitDistribution

Financialresponsibilityof owner forbusiness debts

Decision making inthe business

Continuity of thebusiness

Taxation

Private Company Pty (Ltd) Public Company (Ltd)

FORMS OF OWNERSHIP

54ACTIVITY 8 Complete the Table

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