Business Units |. The sole trader Features Ownedand controlled by one person with or without the assist: Owner receives all profits, bears all risks and losses. stance of employees, Obtains capital from personal savings, loans fr : r i, ro} ‘i finance houses, leasing and trade credit. 1m relatives, friends, banks, Has unlimited liability, in the event of a business fail $ Z s failure, the business assets are used to pay the creditors. Liars Lae Little capital required and scale of operation is small. Registered under the Registration of Business Act Advantages manage and dissolve. Easy to form, organise, gh consultation with others No need for delays throu; Owner alone makes decisions. Personal supervision. Owner has personal i maximise profits. Gives personal attention t Caters for customers’ tastes. Offers personal service and advice. Owner has complete privacy of business affairs. ncentive to seek economies of scale, minimise waste and fo customers. Disadvantages 2 Partnership Has limited capital - this limits expansion. Working hours are often very long. May lack expertise in business skills. Lacks continuity on the death of the owner. fer services. people who offe 1 onder 10 offer It is formed mainly by business ee Doctors, lawyers and accountants often form partnerships " special services under one organisation. Scanned with CamScanneroN Features , Has a written partnership agreement. _ Has unlimited liability for general partners and limited liabiti Dee ji il ¥ for dorm, Partners usually provide the capital. - Partners make the decisions. - Partnership is owned by partners. - 2totwentymembers may forma partnership except for professional assoc - The formation of a partnership may be by agreement between Partner verbally or in writing in the form of a Partnership Act or Deed. The Pano ip Deed lays the following: (i) name of the business (ii) location and type of business (iii) duration of the agreement i.e. termination due to death, resignation retirement or bankruptcy : partners names and their contributions ratios for sharing profits and losses rates of interests on capital and drawings provision for partners salaries (viii) powers and limitations of partners in managing the business Advantages of a partnership - Easy to form. - Requires little formality i.e. a written partnership agreement. - Partners can keep information on trading results, and liabilities to themselves. ~ Specialisation and division of work load are possible among the partners. ~ Partners contribute capital, different skills and expertise to the business. : In the €vent of insolvency the burden rests on all partners. ~ Joint consultation reduces the chances of arriving at unwise decisions. Disadvantages ofa Partnership ~ Absen inui oe cre continuity on the retirement, bankruptcy or death of a member. ais 'P is not easily transferable, Consultati : ! Partners en among partners limits swift decision making. Disagreement into contracts and bind other partners. All partners ies uarrels may occur due to conflicting interests. Limited capital pec ited partners have unlimited liability. tom the partners limits expansion of the business. 46 Scanned with CamScannerpartners” own savings Loans from financial institutions overdrafts from commercial banks ploughing back profits companies ndum of: ‘Association, Articles of Associati —— drawn and required to form a limited Sane Prospectus are the main ) Memorandum of Association __ Issent to the Registrar of Companies. . Contains: + the company’s name + registered office + objects + amount of capital the directors can raise by issuing shares confirmation that the liability of the members is limited company to outsiders. he company and th Limited + information about the c Governs the relationship between #l groups. (il) Articles of Association - Sets out the internal rules of the company: - Contains: + procedures at company meeting + rights of shareholders + procedures of electing directors * powers and responsibilities of directors _._ * the borrowing powers of the company (ii) Prospectus Is an invitation to the pu Provides information about the comp: * background current position future prospects e external interest blic to subscribe for shares. any’s: Ann _ alg "tg ge eral Meeting (AGM) Ditegy Ped annually. "Sate elected, Scanned with CamScannerb) «a1 position © : ancial POS! reint ghareholders a privat Fe entres imum of one erson can form a p rivate limited Compan, _ Amini umber of shareholders is set but it should bg : e company is assessed, ttend and vote. elimied compa”? \ i : : must be registered with the Registrar o; Compan ee, own the company: ; have limited liability. arate legal entity. Shareholders Shareholders The company js a seps os The company can sue and be sued in its own name. The company exists and operates despite the death of a shareholder All the shareholders must approve the transfer of shares. Advantages of @ private limited company Raises large capital by increasing the number of shareholders. Attracts experienced and skilled human resources. Limited liability attracts shareholders to the company. - Enjoys economies of scale. Sources of capital - Issue shares - Issue debentures Can apply for grants and overdrafts from commercial banks. - Lease equipment e.g. vehicles Through factoring Public limited company Features Private an i i d public companies have similar features. Features di ia : distinet to Public Companies only are: minimum of 7 shareholders, ‘ares are easily cE. transferrable through brokers at the Stock Exchange. ttise shares to the public. be for the shares, le Companies* r 'Panies’ Act with Ltd inscribed after its name Scanned with CamScannergavatages shareholders enjoy limited liability. Shareholders elect a board of directors. Shareholders vote and replace the directors at annual general meetings, The board of directors controls the business. Salaried managers are employed to run the business. “ Acompany tax of 20% to 40% is raised on profits earned. Differences between private limited and public limited companies [private limited companies Public limited companies —gwnership 1s open to private individuals Thembers of public are invited to buy shares [shares not easily transferable freely transferable at Stock Exchange T easier, less costly to form! difficult, costly to form few formalities on formation, operations and investors Thany formalities to protect public = has limited capital resources can raise large capital at Stock Exchange -_ limited economies of scale ‘enjoy economies of scale ~ can secure family control Jarge shareholders control ,with largest shares control the company +_adirector must be a shareholder director not a shareholder keeps its balance sheet private = Tequired by law to publicise balance sheet, sent a copy to the Registrar of Companies 4. Public corporations ~ Statutory bodies or parastatals include Zimbabwe Blectricity Supply Authority (ZESA) , National Railways of Zimbabwe (NR) and Air Zimbabwe. Features Public, w hy they are established "Ts i és e ee essential goods or servi : ae essential industries functiona lice massive unemployment by sust Are owned by the state on behalf of the public . Are controlled by the government through @ £0V' Are run by a board appointed by the Their accounts are published annually. Their business affairs are debated annual ise capital by reinvesting their profi ly eg: el ses ee ar ot prota ernment department. government. ly in parliament. ‘ts and selling stocks or bonds to the Receive grants from the government annually: lectricity. Pe atlays e.g. railways. ; nomic out aining une Scanned with CamScannerV rices for in lower P' onomies of scale are a ailable and these result in nomies Huge ect consumer. Cte eke. tend to be inefficient. fee a ee are not competitive and therefore fail to attract The salaries of U : - a a iiaioe TT aasacall in its affairs. Privatisation - Sell or transfer of assets to the private sector. - Free market to provide goods and services. ~ Transfer corporations to private ownership. Allow State business to compete with private firms. Contract out provision of goods and services to private firms. Provide goods and services for a fee. Why privatise Reduce burden on public funds. Avoid recurrent deficit, Free ftom detailed political control. Pursue Pricing and lon Reap reward for succe pe Consequences of failures, OMmpete and improve efficiency, Reduce Tesistan , Ce to trade Union power, S. g term investment, SS, ent ym @ for ed 2°4 controlled by its members. ‘hit livelihood, Scanned with CamScannerFeatures i Only members work in the Cooperative, A member has one vote. Members contribute equal capital, Individuals vote for a management committee, The committee administer the Cooperative, Committee plans what to do, how to do it and allo : . cates ta . The co-operative members own the tools and the land. ie - Allco-operatives are governed by the Co-operatives Societies Act The Act requires all cooperative to register with a government departm ent. Challenges of co-operatives - Lack expertise - Lack finance - Poor administration - Members often lack the necessary dedication Multinational Corporations (MNC) ~ Giant business unit with branches in other countries. ~ Are private enterprises with a profit motive. - Have limited liability. - Have headquarters in one country, a well-developed one. ~ Have huge capital and human resources; business knowledge; experience; and &Xpertise base. Local boards of directors control the local affairs of the company. fe Barclays Bank, Old Mutual, Econet Wireless and Shell are some 0 Nultinational corporations. Ww hy Welcome MNCs “tease investment eta vars Ineree ety Of goods B ee net export earnings Bab Venue for the government ts at low prices gfe 8S Production of standard and quality produ! er te Break ian chnology atriers Taw a : ities. Haye Thar, t*tials for their manufacturing entities , “'S oF outlets for their finished goods. Scanned with CamScannerThe Stock Exchange Nearness to outlets reduces transport costs and enables them to sell their Bo0dy at low prices. Set up branches in areas Transfer surplus funds or othi _ Create employment in host areas. Bring modern forms of technology to host areas. - Bring large capital outlay to host areas. Send locals for training and education abroad. Generate foreign currency. whose labour costs are low. er resources to needy areas. Disadvantages - May dwarf the growth of local companies. - May interfere in the local political set up. - May produce mainly for export market at t - Own the means of production at the expense of nationals. - Create wide salary gaps within a country, as they pay internationally pegged salaries. he expense of the local market. The Stock Exchange is a market for the purchase and sale of second-hand stocks, shares and securities. Functions of a Stock Exchange ~ Establishes prices for shares through the supply and demand mechanism. - Provides a market for purchase and sale of stocks, shares and other securities. - Sets a code of conduct for the members and therefore protects investors from unfair dealing. 7 Provides investors with names of reputable companies. = Beery investments marketable and therefore liquid. rovides the government with a ready market for its gilt-edged securities. Stock brokers Act as plana for people who wish to sell or buy shares. © pane ane transfer of shares, registration of the change of ownership of shares and acai a certificates for the client. ients o} : Seek highest ee poe by sending circulars, price lists and prospectuses. A Ss for the client: Advise compani i a aeare pelea ng a which prices to set their new shares. 'y which investors may sell securities whenever necessary. Scanned with CamScanner