FACULTY OF INDUSTRIAL TECHNOLOGY
DEPARTMENT OF ELECTRONIC ENGINEERING
Assignment 1
Name Frederick N Nkiwane
Student No N006 738A
Course Professional Engineering 2
Lecturer Mr V S Moyo
In setting up a business venture the type of venture depends on the operating environment i.e.
Existing and prospective future laws, risks involved, customized (service and/or products) or
mass production amount of profits expected. To maximize profits and chances of success,
minimize losses, chances of failure and unnecessary effort it is necessary to consider the
following:
1. Type of liability i.e. limited or unlimited liability
In like manner, anyone who wishes to start a business would do well to understand all current
laws that apply to the creation and operation of unlimited and limited liability companies. Doing
so will make it easier to determine if the dream of the new business is worth the possibility of
losing everything, should the business fail to achieve profitability within a reasonable period of
time. Business counselors can help potential business owners understand the legal ramifications
of an unlimited liability company as compared to the limited liability model, and help the client
determine which approach is in the best interests of the owner.
Limited liability
Here the personal liability of the company's members for the business's debts is limited hence the
name. The owner bears much less responsibility for prosecution and debt issues that the business
may undergo. In the event of bankruptcy as a limited liability company, the owner need not
worry about his or her personal finances becoming caught up in the business' problems. It is
more suitable for a high risk investment with capital readily available not when it is secured in
the form of a loan as money lenders require more security. Also suitable when the owners are not
actively involved in the main line of business and depend the too much on brilliance of other
individuals for the success of the business.
Unlimited liability
Unlimited liability is a reference to the level of responsibility held by the owner or an investor in
relation to the function of a business operation. When the liability is unlimited, there is a chance
that the personal assets of the principal parties can be drawn upon to settle debts or claims
against the business. This means that owners and investors involved with a limited liability
company can easily stand to lose everything in the event of a corporate failure.
There is some distinction in the amount of liability held by the owner and the investors in this
type of business structure. With the owner, the liability is complete. That is, all the assets of the
owner can be drawn upon to settle legal disputes or outstanding debts of the company while it is
in operation. By contrast, most countries have laws that protect investors from these claims,
unless the company goes bankrupt and is forced into liquidation. At that point, the current
investors and any investors who sold their shares during the preceding twelve months are also
considered liable for the debts of the corporation. the potential for financial rewards with the
ULC is often higher and can lead to significant profits for all concerned. And is more suited for
business ventures where the owner(s) are actively involved in the main line of business.
2. Sole proprietorship or franchising
A sole proprietor owns an unincorporated business. Sole proprietorship firms are owned by one
person, usually the individual who has day-to-day responsibility for running the business. Sole
proprietors own all the assets of the business and the profits generated by it. They also assume
complete responsibility for any of its liabilities or debts. Major advantages that differentiate the
sole proprietorship from the other legal forms are:
ease with which it can be started
owner's freedom to make decisions
distribution of profits (owner takes all)
Usually suited for businesses involving technocrats providing custom built solutions and services
like consultancy companies.
Franchising is a business model in which many different owners share a single brand name. A
parent company allows entrepreneurs to use the company's strategies and trademarks; in
exchange, the franchisee pays an initial fee and royalties based on revenues. The parent company
also provides the franchisee with support, including advertising and training, as part of the
franchising agreement. Franchising is a faster, cheaper form of expansion than adding company-
owned stores, because it costs the parent company much less when new stores are owned and
operated by a third party. However potential for revenue growth is more limited because the
parent company will only earn a percentage of the earnings from each new store. This model
works better for all out investors with no interest in the marketing or research and design (R and
D) new systems as the parent company will take care of that. This model is suitable for those
investors interested only in the business end of the product or service.
3. Group taxation vs. individual taxation
Group taxation is when parent company is taxed together as a group with one or more of its
subsidiaries. Whereas individual taxation is when the subsidiaries are taxed as individual entities.
The main advantages of group taxation are that the losses of one company can be set off against
profits from another group company, and that fixed assets may in principle be transferred tax-
free from one company to another.
Group taxation is mostly allowed if the parent company holds at least 95% of the shares in the
subsidiary. Other conditions are that the financial year of the parent company and the
subsidiaries must be the same, and they must be subject to the same tax regulations.
Individual taxation has the advantage that in cases of loses individual entities are subject to
exemption from taxes according to the tax regulations.
Individual taxation is tax based on the single entities performance. It has an advantage of that
if a company runs a loss it is exempted from tax . If a company is individually taxed its
performance is easily monitored by way of checking its profit after tax.
Operation of cooperatives compared to companies.
A cooperative is a legal entity owned and democratically controlled by its members. Members
often have a close association with the enterprise as producers or consumers of its products or
services, or as its employees. In many ways a company is similar to a sole trader or partnership,
except that it exists as a separate legal entity from the owners (who are called shareholders). This
means that in most circumstances, personal assets of the owners cannot be touched to pay for the
debts of the company. The major distinguishing feature of a company from a cooperation is its
legal independence from the people who create it, If a company fails, shareholders will lose their
money and employees will lose their jobs, but neither will be liable for debts that remain owing
to the corporation's creditors hence can be safely classified as a limited liability .A cooperative
can be a nonprofit making organization where as a company is specifically established to
generate profits. A company according to laws of a country is liable to pay taxes whereas
cooperatives sometimes are not liable to pay tax. Cooperative are government initiatives to curb
unemployment. Companies are solely profit driven entities.
References
1. Consumer Co-operatives in a Changing World by Johann Brazda and Robert
Schediwy (ICA), 1989
2. Consumers' Co-operative Societies, by Charles Gide, 1922
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