Business M Chapter 3.pptx

Willy Engelbrecht and Conrad van Greunen
Business Management
Back to Basics
First edition

© 2018 Juta and Company (Pty) Ltd
Business Management Back to Basics 2
 Objectives
 Discuss the characteristics of the various business formats available in
South Africa.
 Compare and contrast the advantages and disadvantages of the various
business formats.
 Analyse the business environments within the context of southern Africa.
 Discuss the purpose of a SWOT analysis in the business context.
 Evaluate a vision and mission statement for a business within southern
Africa.
 Explain the influence of the fourth industrial revolution (4th IR) on the
business formats and business environment within a southern African
context.
Chapter 3: Establishing a business & the business
environments

 Introduction
• Establishing a business is supportive of the entrepreneurial process in which
ideas are formulated and plans are put in place to develop and design new
products or to deliver a service based on consumer demand and
preferences.
• Focuses on identifying the various types of business formats that exist in
South Africa which entrepreneurs wanting to start-up their own businesses
can use.
• Issues such as the legal obligations, naming requirements, taxation,
dividends, responsibility and accountability will be discussed.
environments

 Factors influencing business formats
a) The purpose of the business
 Look at the product or service that you will provide to the consumer and determine the level of
complexity that this product or service has.
b) Legal obligations
 Consider the legal requirements associated with each business forma, as well as the costs
involved in setting up the business.
c) Liability and accountability
 The people who take accountability for the business and who will be responsible when
something goes wrong with the business.
d) Continuity
 The lifespan of the business.
environments

 Factors influencing business formats
e) Management participation
 Business owners decide on the management of the business in which there is a close
relationship between the owner and the manager.
f) Capital
 The business owner or the business will be responsible for capital.
g) Dividends/Profit sharing
 Sole owners = all profits to the owner
 Partnership = profit share between the partners
 Company = dividends/profits will be paid proportionally t its shareholders
h) Taxation
 The sole proprietor and the partners are all taxed on their individual incomes.
 The owner of a company is only taxed on the individual income obtained.
environments

 Types of business formats
a) Sole proprietors
 The most simplistic and easiest business format
 Very popular among small business owners
 Owned and managed by one person who assumes all
responsibilities and accountabilities
 Not regarded as a legal person
environments

a) Partnerships
environments
Advantages Disadvantages
Easy to establish and set up Owner is liable for everything
and there is no limitation
Affordable Limited skills and capabilities
are required
Owner has authority and
makes all decisions
Access to capital is limited
Legal obligations are few No business continuity
Discontinuation is easy

b) Partnerships
 Contractual or verbal agreement between 2 or more
parties
 Required by law to register with the Companies and
Intellectual Property Commission
 Maximum number of partners is limited to 20 partners
 Each partner contributes something toward the
partnership (Capital, knowledge, equipment, assists human
resources or ideas)
environments

b) Partnerships
environments
Easy to establish and set up Each partner is individually
liable for the partnership
Access to more resources and
competencies through all
partners
Easily disposable
Legal and natural persons can
be partners
Conflict among partners in
terms of management is high
Capital is easily accessible
through
No guarantee of continuity of
the partnership
Legal requirements and
regulations are limited

c) Close corporations
 Can no longer be established in SA
 This change came into effect in May 2011
 Changes in the regulation of CCs:
1) The criteria for names have to be applied and followed.
2) Audited annual financial statements are required every six months.
3) Accounting officers must be appointed, which, in the past, was not a requirement/
4) The business rescue procedure can be used, should it be required.
5) A member of a closed corporation can be declared unfit to hold office as per the
Companies Act (No. 71 of 2008)
6) The dissolution or closing of a closed corporation follows the same process as that
of a company.
environments

c) Close corporations
environments
Separation in the legal
jurisdiction between the
company and members
Membership is limited to 10
members
Limited liability for members Members cannot be the
juristic person
Sourcing of additional capital
is possible
Stricker accountability and
regularity rules
Managing is easy CCs can no longer be
established
Continuity of the CC

d) Companies
1) State-owned companies
2) Personal liability companies
3) Private companies
4) Public companies
environments

d) Companies
environments
Both natural and legal persons
can be shareholders
Significant degree of legal
compliance and requirements
No restriction on maximum
number of shareholders
Operational costs can become
expensive
Shareholders have limited
liabilities
Capacity to secure large
Separation between
ownership and control
Continuity of the company
Shares can be transferred
among shareholders

e) Trusts
 Registered when a trust deed is signed
 A trust can only be established once it has been approved by the Master
of the High Court, who has the jurisdiction to establish trusts.
 The trustee should manage the assets of the trust in accordance with the
trust deed outlines and under the supervision of the Master of the High
Court.
 Trusts are not as closely monitored and controlled as public or private
companies are, yet, if money is sourced from the public through unit
trusts, certain regulations must be complied with and adhered to by the
trust.
 A trust has continuity and, therefore, if beneficiaries change or trustees
change, the trust remains in place.
environments

e) Trusts
environments
Easy to establish Limited access to capital
Both natural and legal persons
can be a founder, trustee or
beneficiary of the trust
Conflict between parties is
possible
Limited liability
Flexibility
Continuity

 Social co-operatives
 Business format established under the Co-operatives Act of 2005
 Registration of co-operative takes places through the Department for Co-
operative Societies
 Mostly found within local communities for the purpose of creating and
benefiting from economic, cultural and social aspects for the members
 The co-operative is managed like any other company by a board of directors in
which decisions are made and accepted at annual meetings.
environments

 Business location factors
 The facility or place in which the business plans to produce and provide
services
 Business factors:
1) Access to customers
2) Raw materials
3) Infrastructure
4) Technical and operational support
5) Labour
6) Weather conditions
7) Political stability
8) Community
9) Capital
10) Local government by-laws
11) Business environment
environments

 Business environments
 Internal business environment
a) Vision statement
 Short and specific
 Reveal the goal of the organisation
 Promote change inside the organisation
 Create a competitive advantage
 Cement the basis for planning and decision-making
 Allow a secured space in which control is applied
 Motivate employees
 Allow for positive changes
b) Mission statement
 What is our business?
 Who are the customers?
 How will the product or service be supplied?
 Why are we in business?
environments

 Internal business environment
c) Objectives
d) Business functions
e) Resources
1) Human resources
2) Financial resources
3) Physical resources
4) Natural resources
5) Information resources
6) Entrepreneurship
f) SWOT analysis
environments

 External business environment
a) Market environmental factors
 Consumers
1) Durable products
2) Semi-durable products
3) Services
 Competitors
1) New entrants to the markets
2) The bargaining power of customers
3) The bargaining power of suppliers
4) The availability of substitute products
5) Existing competitors
 Labour
 Intermediaries
 Suppliers
 Strategic alliances
environments

 Macro-environmental factors
a) Technological factors
b) Economic factors
c) Political/legal factors
d) Social/cultural factors
e) Ecological or physical factors
f) International factors
environments

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