Establishing a Business - Chapter 3

greetings business management students Dec 1 1 1 this is now chapter 3 where we are focusing on establishing a business so we are saying once you have decided to become an entrepreneur the next step would then be to establish your own business or to establish the business so in this chapter these are the learning outcomes that we watch to be able to do in the includes that by the end of the chapter you ought to be in a position to understand and discuss key considerations that are applicable when a form of business is to be chosen before he choose to operate or to start is the sole proprietorship or is a partnership or as a business trust is a close cooperation or as a company what are key considerations what are the key factors that you consider that will lead you to choose one form of business enterprise over the other you also ought to be in a position to distinguish between the different forms of business enterprises that we find in South Africa this obviously includes your sole proprietorship partnership cross cooperation business trusts companies be it public or private you should also be in a position to explain the objectives importance and the need for a business plan you should be in a position to evaluate a business plan to actually determine whether it works or it doesn't where the what is in the business plan can work oh it's something that has just been put on the paper to convince people that it will wake you should also be in a position to give an overview of a business plan to know the main elements main components of a business plan you should also be in a position to identify the factors that are considered by enterpreneurs when they are choosing the local of their businesses so this is basically it for chapter chapter three and we will follow this particular outline we will look at the introduction fists then the legal forms of ownership developing a business plan for the new business then we also discuss the location of a business so starting with the legal form of ownership it's important to realize that we have various forms of enterprises that in intrapreneur can choose from when they want to conduct their business the first fundamental issue an intrapreneur is faced with is to choose the type of enterprise so whilst we have a number of enterprise forms of enterprises that one can choose from it is important to realize that their various advantages of those and also disadvantages of those so important decisions have to be made by the enterpreneur to decide which form of business enterprise they will opt for so understanding the features of each enterprise and how it will influence the interplay of circumstances is the key to choosing the right form of ownership so at this stage we cannot say this particular form of ownership is better than the other it's a matter of circumstances of the enterprise which works best considering the circumstances that the enterpreneur may find himself or herself in so keep on see directions that enterprise should consider when they are choosing the form of business enterprise they include this ones which we are discussing on this particular slide one being legal or jurist heuristic personality so there are certain forms of business enterprise that if legal base knowledge in short we are saying these are regarded as heuristic peasants or is legal peasants they are actually regarded is separate legal peasants by law so an example that I may give maybe is that if we were to look at the forms of business enterprises that do not hear separate legal test knowledge those who be your sole proprietorship your partnerships they don't have separate they don't have they are not regarded by law is separately call peasants but companies they are actually regarded as separate legal peasants so one can actually choose whether they want to operate a business that is considered by law as a separate legal person there are advantages for that they are also disadvantages maybe but it's a decision that interpreting one's needs to make then another key consideration wanna the factor that also ought to be considered is the issue of continuing or perpetual existence there are some forms of business enterprises that once they enterpreneur for sick or the incapacitated or they die the business dies with them a perfect example of a business without are continuing to a perpetual existence is a sole proprietorship or so traders once the owner dies no money they die with their businesses but that is not the case with other forms of business of other with other forms of businesses such as companies it's also important to realize that in cases of partnerships they also don't have continued it or perpetual existence those that understand who actually realized that for once if partner one partner decides to move out of the contract or out of the partnership you need to draw a new partnership tip so that means that will be a new business altogether that will be a new partnership altogether we also look at limited liability as a factor when choosing the form of business enterprise in terms of limited liability are you need to understand that there are businesses all forms of businesses that have limited liability in this case we are saying the liabilities of the business they do not extend to a point where they even where the creditors can even attach the assets of the owners or of the shareholders but once the business is falling or it is its creditors the creditors have no right whatsoever to attach assets of the owners they eat during liquidation or when the Cargill when the business becomes insolvent when it cannot pay its creditors the creditors do not have a right to attach or to liquidate the assets of individual owners that is to say if the business is what limited liability but there are other forms of business enterprises that you have unlimited liability so what it means if your business is unlimited liability is that if your business is all in someone then the business is failing to pay they can actually take or attach your assets your own personal assets wherever they may be they can attack them in the car for whatever your business is owing them so we need to understand the difference between limited liability and unlimited liability so that when we are making the choice of business form we actually make that choice with information also there's the issue of degree of control or degree of management authority some people in the established businesses they want total control where no one else gives tells them what to do they do everything according to their will whatever they want becomes the law so that is the case with so appropriate a ship's because there is only one owner he makes all the decisions he doesn't fight with anyone whatever he wants to drink the business is what course but in terms of the degree of control and management authority when it becomes a partnership you realize that they are more than two four there are two or more people so the the level of control that one person may have may actually decrease in terms of companies also it's not like one person is total control unless they're the majority share with us so the issue of control will also need to be considered then the potential for capital acquisition potential for capital acquisition so let me speak of potential for capital acquisition which speaking of how is is it for that form of business to raise capital just think of a so proprietary poi buy this only one person if that person has connections is that person is everything that is needed by the banks to grant them credit maybe they may access funds but if that person legs what it takes for them to access funds from banks they may not access it but once you bring in other people maybe in the form of a partnership it may become a bit easier to access funds if it's a company maybe they may be enough of shareholders with also with assets then it may become much easier to access finances then there is also the issue of compliance with legal formalities and regulations how easy is it to comply so the regulations that have put in for companies are obviously different from those that are put in force appropriator ships or for partnerships so it's another factor that is also considered then also the issue of Tex how do you want your business to be text do you want it to be text separately from the owners or you want you to be text as part of the income of the owners so obviously for companies via text separately so appropriate a shift since they are not related a separate legal peasants the profits for the business is obviously text as the income for the owner then also in it you should also look at the transferability of interests how easy is it to transfer interest from one person to another in a partnership fight quite difficult was you once you bring in a new member you need to draw up a new partnership team in a sole proprietorship once you bring another person it ceases to be a sole proprietorship it becomes another form of business in terms of a company with public companies and private limited companies if it's a private limited company you can't just sell share your shares at the stop exchange so transferability of interest may be limited but if it's a public limited company transferring interests will be actually much easy so these are some of the factors that as potential entrepreneurs or as business management students we need to know before we can decide on which form of business enterprise is better in these particular circumstances so looking at a sole proprietorship this is basically a business that is owned controlled and managed by one individual advantages of such is that it is easy to to create once you decide you go for it you are running a distance now is the least way of to start a business the owner is taught so decision-making authority there are no special legal restrictions and it is easy to discontinue so once you die the business dies with you once you decide to stop operating that's it you just stop operating the disadvantages associated with this form of business is that the owner is personally liable so whatever the business may be owing other people the owner is personally liable there is also limited deficit in terms of skills and capabilities this is mainly because there is only one person who's owning the business who's also managing the business the owner has limited access to capital so if you do not give anything that it takes for you to access capital the business may not access capital there is lack of continue it as I said it's easy to discontinue so the fact that it's easy to discontinue there is also lake of continuing if the owner dies the business dies with them so while it is very easy to study the so appropriate if you thinking of perpetual existence of the business if you want to build a legacy it's always good to consider other forms of business and apprentices then moving on to partnership a partnership is basically contractual relationship between two or more peasants who operate a lawful business with the objective of making a profit there are advantages and disadvantages of this form of business enterprise it's important to realize that in terms of disadvantages they are more or less the same with those of so proprietary the owners or the partners are personally liable it's actually really a relative difficulty in disposing of an interest in the partnership because once you want to transfer your interests it means you are closing that particular partnership and then you add remains if to deform there is also potential for conflicts between partners because now there is not it's not like a case where there is only one person in whatever they say it was in this case they are two people and two people in must get two or more people it must get is wherever you have two or more people you are bound to have people not agreeing on everything because people see things differently given in terms of populating risks they calculate risks differently this form of business also legs continuing if one partner dies then it means a new partnership is to deform you close that particular one in the operator at another one in terms of advantages it's also easy to form since there are many people there are more people unlike in the case of a sole proprietorship this deficit of skills in abilities of the partners now legal and natural patience may be fattening so you can have a case way by a natural person is actually in a partnership with a company there is also increased opportunity for accumulation of capital this form of business enterprise requires minimum legal formalities and regulations it's not difficult to form the NBA is also across corporations these ones you can no longer register new clothes corporations in South Africa but may have one or more members but it's closed at 10:00 so you cannot have more than ten members that can own and control the close cooperation it exists as a separate legal person so advantages obviously people registering closed corporations because of that separate legal personality there is also big limited liability of the members members are not personally liable there is increased capital opposition potential management Israeli it is simple because the the requirements that are the regulations that have been and not a strict is those of companies there is also perpetual existence about however in terms of disadvantages membership is limited at ten you cannot have a close cooperation with more than 10 members heuristic presence may not be members companies do not be members of a closed operation in South Africa you can no longer give the new closed operations so you can register your business now as a partnership if you are considering registered as a closed corporation or you can register it as a company it could be strict it could be subjected to strict accountability under the new company's regulations of 2011 then in terms of the company the company is developed to obtain more capital than they could through so proprietary partnership in ownership and ownership and control is separated so it's a form of business enterprise where ownership is separated from control people actually own the business may are separated from those that run it or those that control it so it's controlled and run by directors but it is owned by the shareholders there are a number of profit companies we have public companies private companies state-owned companies testing elaborate companies then we also have non profit companies I was shocked to learn that some cases actually registered nonprofit companies some charity organizations also register is non profit companies I don't for companies for purposes of this course it is also necessary and important to realize that there are differences between public companies in private company so as you read your textbook it is important to note the differences in terms of the number of members data that is required and allowed for each of those and also the differences in terms of the knob of director requirements are the number of directors that is required for private companies is different from that which is required for public companies there is also the issue of Lance variability of shares because it is easier to transfer shares in a public company than in a private limited company this also in terms of shares the general public do not find it easy or cannot find it easy to buy shares of a private company I in case of a private limited company it's usually identified by Pty Ltd but if it's a limit public happen it's only limited there is no private private company is not strictly controlled as public company in terms of legal regulations public companies are actually required to publish their financial statements that is not the case with private companies these are the advantages are the main disadvantages they really relate to operational costs which are said to be high and also the degree of legal regulation which is also seen is high but there are advantages because there is no restriction on the number of shareholders so you can have as many owners as possible unfortunately that also if it is an effect in terms of control because once they are maybe she orders if you honor the main shareholder it it means you also don't have much control in that company this limited liability the owners and they will not be held personally liable for the day of the company a company can raise large amounts of capital they separate ownership in control and continued attention to the digital shares is possible there are legal persons natural persons they can actually become what members are then they we also have what are known is business trusts Adisa established out of an ordinary trust and the objective of our they've also have any objective of conducting business for for profit it is not a juristic person but it can be regarded as a separate person in terms of forethought for text purposes income tax on income according to the hundred principle so you need to read a bit of commercial law to understand the kanji principle transfer of interests of a beneficiary is done by a variation of the trust deed because once the trust is registered they are trustees then we are also beneficiaries so if you want to transfer interests you have to revise the trust deed so that you vary the interests of each beneficiary are forming a trust is easy natural intrigue of essence can actually become parties to a trust there is limited liability extreme flexibility and there is also absence of legal regulations it is possible to have the petrel existence however there's limited access to control and potential for conflict between parties then we also have cooperative societies cooperative society basically this is in autonomous Association of peasants who unite voluntarily it's voluntad to meet the needs by means of a jointly owned in democratically controlled enterprise it's important to know that whilst there are many advantages and many disadvantages in corporations decisions are actually made democratic ID people forms and they say people have equal votes so it's unlike a case of companies where the majority shareholder may have more influence than others in the case of cooperatives it's one man one fault so I think in terms of various forms of business enterprises you can actually now decide if you are open if you were considering or if you were thinking which one may be the best you can actually assess and evaluate meeting at the advantages and disadvantages of each of these so move on to business plans developing a business plan for a new business a business plan is a written document that can be used by an interpreter most people think that a business plan is only used for funding simply because thus when most people think of a business plan but there are various objectives of a business plan the most important objective is actually to identify and describe the nature of the new business opportunity or venture the second objective is to present a written plan on how the interpreter plans to exploit that opportunity and the third object people the business plan is to attract investors to persuade a bank or other institutional person who provide financial resources can lend the inter promote the money that they need to establish the business so some people actually think that no you can operate without a business plan in studies if actually showed that they had a lot of people a lot of business people a lot of enterprise if you would say so or a lot of small business owners will operate without business plans if you asked them for a business plan they don't have it they never used it so these are some of the benefits of actually writing out a business plan these are some of the benefits you actually know where you are going people actually know even if they are coming in as your managers there is no way you want to take the business to they know the actual objectives of the business then you also understand the vision that we have with the business a business plan can also be seen as it to for attracting money before anyone actually offers who invests in your business then we want to see your business plan we will not just put in their money without understanding to what extent is your business likely to succeed so the importance and necessity of a business plan reasons why people ought to draft or to write business plans one of the reasons is that if you want to sell the business before you even send me to other people you can utterly draft a business plan to sell the business to yourself to convince yourself that it works put it in writing put the vision in writing so that you'll be able even yourself to remembe it if you also put a write up a business plan whoever you want to sell the business to they will be able to read and understand it a business plan is also prepared for people or for interpreting ones are to obtain Bank finances so whenever you apply for a bank loan the bank will obviously request you to also submit a business plan a business plan is also written or prepared to obtain investment funds from other investors not necessarily from things if you want to arrange for strategic alliances to long-term supply us long term customers those may actually also test to see your business plan so it is necessary when you want to arrange strategic alliances when you also want to obtain large contracts sometimes you will be requested to submit a business plan a business plan is also requested or required when you want to attract key employees before they join you they want to see where you are going when are you planning to go how are you planning to get there before they risk losing the income that they may be receiving before they make up their mind training they need to know if whatever you are proposing to them will actually work so it's important in attracting key employees employed using key competences employees with key skills not those that are desperate a business plan is also needed when you want complete majors in a position you also need a business plan it can also be used to motivate and focus management team if you use an interpreter or put everything in writing and you give those that are working under us your managers they will be able to actually go with the business where you want them to build it but if you leave it for them to guess they may take your business wherever they are able to and you cannot so they are tech orders in a business plan these are parties that are interested in knowing the contents of a business plan so they are doors within the organization for example your management team into your employees then they are also external stakeholders like your customers or investors into your bank's those are external stakeholders although they are outside the organization they're interested in knowing the contents of a business plan for example your customers they may want to know if there we have constant supply because if your business fails they will also be affected investors before they put in their money they need to know if your business will succeed so they are also interested in knowing the contents of your business plan the banks they need to use it to evaluate the risk also to use the tree evaluate on whether you will be able to pay back whatever they we have lent to you this is basically depicting the stakeholders in a business plan but more important is on how they actually evaluate business plans because most people prepare business plans but not all business plans are funded banks reject some installs so how do banks evaluate business plans they look at the issue of capital collateral security character of the piece and wants to borrow in the conditions so in terms of capital before they just put in their capital you must also put in something before they lend you ordered the loan amount you must also put in a deposit so that you sacrifice something if the business fails you lose something unlike a situation where you are not putting in anything and if the business fails you have nothing to lose so in most cases when banks want to lend you money they may request for a deposit them collateral security this is the assurance that the banks can use to say once you fail to pay back they can attach that particular asset that you have provided is collateral security so this can be in the form of a property in an immovable assets or land those can be used as collateral security then character your character as a person wants to borrow the character of the company or business that wants to borrow do you every stroke borrowing it wherever you borrowed did you pay back oh yeah that kind of a person okay that kind of a business that only remembers when you want to borrow but when you need to pay back you forget so there are certain people we have a bad credit record a negative or a bad credit risk so whenever you want to borrow the it for business purposes or for personal use banks who always find a reason not to lend you money because of your character however this also affects those that never borrowed those without a credit risk sometimes it becomes difficult for you to access money or to access finances from things because they also do not know how you will behave when they give you money you may be so bothered not yet man but once they lend you a lot of money they do not know how you deal so adjust a risk again the conditions like the interest rates at which you will pay back the period at which you are supposed to pay back those are seen as the conditions this is to the matrix for a valuation of business plans are important for you to go through it also to read in your textbook it's figure 3.2 so in terms of developing a business plan there are other factors that you need to consider anyone to write a business plan should look at the style in the ability of the intrapreneur you should also look at the preferred preferences of management team complexity of the product or service being offered competitive environment and also the level of uncertainty in the business environment this is when you are described you are considering the scope of the business plan the scope of the distance plan then the components of a business plan length normally it's anything between 5 and 20 pages appearance of the document is very important there are no rigid rules regarding the format of the business plan you watch to identify the key skills or the necessary skills to write it so that those who read it who actually read it in understand what is in bay they are not just open it should throw it away are you should also determine who should write a business plan there is a debate whether there should be written by the intrapreneur himself or herself or by consultants but the problem of using consultants is that they may have templates that they will just give you but now when you approach or when you get interviewed by the bank's what you say to the bank and what is in the business plan may actually be different so it is necessary that a business plan is prepared by the interpreter however assistance from consultants may be used but the interpreter ought to be there these are the contents of the business plan what is supposed to be in a business plan basically the executive summary which appears first in the document but normally it is written last then we also have the general description of the venture when you describe the business ownership control and so forth then also if the products and services plan where you discuss about the product that you are offering or the service that you're offering to the market are then how this also need to focus on the marketing plan the management plan operating plan financial plan and obviously to support whatever you have saved you will need to provide some supporting documents for example if you say it's a part of your managers you have certain qualifications we must see the qualifications we must see their CV so supporting materials are actually documents to bake what you may have saved in the business plan this is digitally explaining the components of the business plan in what should be included in those plans so also these notes are basically explaining what should be covered in each of those sections for example when you are discussing the general description of the new venture what are some of the important questions that you also address these are what we are providing in this slide they will move on to the location of a business they affect us before you choose the location of a business they affect us that you ought to consider you can't locate your business way it will be complicated to operate it so you need to consider a number of factors so some of the vector that you ought to consider include the source of raw materials if raw materials are difficult to transport you need to locate closer to the source of raw materials but if they are easy to transport then you may not consider that factor availability of labour if you locate your business where you thinking you how easy is it for people to actually come in wait they should you shouldn't relocate closer to where people are then proximity and access to the market depending also on the products it's good usually good to locate closer to the market where you will be able to reach your market the people that are willing and able to use your products engine services then the costs in a way also the availability of transport facilities are the cost and availability of power cost and availability of water availability and costs of site and buildings these are some of the factors that you ought to consider availability of capital their attitude and regulations tariffs of local authorities they will existing business environment the social environment climate central government police and sometimes also your personal preferences so in this chapter we looked at legal forms of business characteristics advantages disadvantages of each of those forms of businesses we also looked at the business plan the why it is important to draft a business plan in the main elements of a business plan then we also covered the location factors it may happen that we have questions we can always engage on blackboard discuss these questions raised your questions then we discussed them and we answer each other this will also allow some of the of your classmates to also answer some of the questions to create that interaction which is also important thank you

greetings business management students Dec 1 1 1 this is now chapter 3 where we are focusing on establishing a business so we are saying once you have decided to become an entrepreneur the next step would then be to establish your own business or to establish the business so in this chapter these are the learning outcomes that we watch to be able to do in the includes that by the end of the chapter you ought to be in a position to understand and discuss key considerations that are applicable when a form of business is to be chosen before he choose to operate or to start is the sole proprietorship or is a partnership or as a business trust is a close cooperation or as a company what are key considerations what are the key factors that you consider that will lead you to choose one form of business enterprise over the other you also ought to be in a position to distinguish between the different forms of business enterprises that we find in South Africa this obviously includes your sole proprietorship partnership cross cooperation business trusts companies be it public or private you should also be in a position to explain the objectives importance and the need for a business plan you should be in a position to evaluate a business plan to actually determine whether it works or it doesn&#39;t where the what is in the business plan can work oh it&#39;s something that has just been put on the paper to convince people that it will wake you should also be in a position to give an overview of a business plan to know the main elements main components of a business plan you should also be in a position to identify the factors that are considered by enterpreneurs when they are choosing the local of their businesses so this is basically it for chapter chapter three and we will follow this particular outline we will look at the introduction fists then the legal forms of ownership developing a business plan for the new business then we also discuss the location of a business so starting with the legal form of ownership it&#39;s important to realize that we have various forms of enterprises that in intrapreneur can choose from when they want to conduct their business the first fundamental issue an intrapreneur is faced with is to choose the type of enterprise so whilst we have a number of enterprise forms of enterprises that one can choose from it is important to realize that their various advantages of those and also disadvantages of those so important decisions have to be made by the enterpreneur to decide which form of business enterprise they will opt for so understanding the features of each enterprise and how it will influence the interplay of circumstances is the key to choosing the right form of ownership so at this stage we cannot say this particular form of ownership is better than the other it&#39;s a matter of circumstances of the enterprise which works best considering the circumstances that the enterpreneur may find himself or herself in so keep on see directions that enterprise should consider when they are choosing the form of business enterprise they include this ones which we are discussing on this particular slide one being legal or jurist heuristic personality so there are certain forms of business enterprise that if legal base knowledge in short we are saying these are regarded as heuristic peasants or is legal peasants they are actually regarded is separate legal peasants by law so an example that I may give maybe is that if we were to look at the forms of business enterprises that do not hear separate legal test knowledge those who be your sole proprietorship your partnerships they don&#39;t have separate they don&#39;t have they are not regarded by law is separately call peasants but companies they are actually regarded as separate legal peasants so one can actually choose whether they want to operate a business that is considered by law as a separate legal person there are advantages for that they are also disadvantages maybe but it&#39;s a decision that interpreting one&#39;s needs to make then another key consideration wanna the factor that also ought to be considered is the issue of continuing or perpetual existence there are some forms of business enterprises that once they enterpreneur for sick or the incapacitated or they die the business dies with them a perfect example of a business without are continuing to a perpetual existence is a sole proprietorship or so traders once the owner dies no money they die with their businesses but that is not the case with other forms of business of other with other forms of businesses such as companies it&#39;s also important to realize that in cases of partnerships they also don&#39;t have continued it or perpetual existence those that understand who actually realized that for once if partner one partner decides to move out of the contract or out of the partnership you need to draw a new partnership tip so that means that will be a new business altogether that will be a new partnership altogether we also look at limited liability as a factor when choosing the form of business enterprise in terms of limited liability are you need to understand that there are businesses all forms of businesses that have limited liability in this case we are saying the liabilities of the business they do not extend to a point where they even where the creditors can even attach the assets of the owners or of the shareholders but once the business is falling or it is its creditors the creditors have no right whatsoever to attach assets of the owners they eat during liquidation or when the Cargill when the business becomes insolvent when it cannot pay its creditors the creditors do not have a right to attach or to liquidate the assets of individual owners that is to say if the business is what limited liability but there are other forms of business enterprises that you have unlimited liability so what it means if your business is unlimited liability is that if your business is all in someone then the business is failing to pay they can actually take or attach your assets your own personal assets wherever they may be they can attack them in the car for whatever your business is owing them so we need to understand the difference between limited liability and unlimited liability so that when we are making the choice of business form we actually make that choice with information also there&#39;s the issue of degree of control or degree of management authority some people in the established businesses they want total control where no one else gives tells them what to do they do everything according to their will whatever they want becomes the law so that is the case with so appropriate a ship&#39;s because there is only one owner he makes all the decisions he doesn&#39;t fight with anyone whatever he wants to drink the business is what course but in terms of the degree of control and management authority when it becomes a partnership you realize that they are more than two four there are two or more people so the the level of control that one person may have may actually decrease in terms of companies also it&#39;s not like one person is total control unless they&#39;re the majority share with us so the issue of control will also need to be considered then the potential for capital acquisition potential for capital acquisition so let me speak of potential for capital acquisition which speaking of how is is it for that form of business to raise capital just think of a so proprietary poi buy this only one person if that person has connections is that person is everything that is needed by the banks to grant them credit maybe they may access funds but if that person legs what it takes for them to access funds from banks they may not access it but once you bring in other people maybe in the form of a partnership it may become a bit easier to access funds if it&#39;s a company maybe they may be enough of shareholders with also with assets then it may become much easier to access finances then there is also the issue of compliance with legal formalities and regulations how easy is it to comply so the regulations that have put in for companies are obviously different from those that are put in force appropriator ships or for partnerships so it&#39;s another factor that is also considered then also the issue of Tex how do you want your business to be text do you want it to be text separately from the owners or you want you to be text as part of the income of the owners so obviously for companies via text separately so appropriate a shift since they are not related a separate legal peasants the profits for the business is obviously text as the income for the owner then also in it you should also look at the transferability of interests how easy is it to transfer interest from one person to another in a partnership fight quite difficult was you once you bring in a new member you need to draw up a new partnership team in a sole proprietorship once you bring another person it ceases to be a sole proprietorship it becomes another form of business in terms of a company with public companies and private limited companies if it&#39;s a private limited company you can&#39;t just sell share your shares at the stop exchange so transferability of interest may be limited but if it&#39;s a public limited company transferring interests will be actually much easy so these are some of the factors that as potential entrepreneurs or as business management students we need to know before we can decide on which form of business enterprise is better in these particular circumstances so looking at a sole proprietorship this is basically a business that is owned controlled and managed by one individual advantages of such is that it is easy to to create once you decide you go for it you are running a distance now is the least way of to start a business the owner is taught so decision-making authority there are no special legal restrictions and it is easy to discontinue so once you die the business dies with you once you decide to stop operating that&#39;s it you just stop operating the disadvantages associated with this form of business is that the owner is personally liable so whatever the business may be owing other people the owner is personally liable there is also limited deficit in terms of skills and capabilities this is mainly because there is only one person who&#39;s owning the business who&#39;s also managing the business the owner has limited access to capital so if you do not give anything that it takes for you to access capital the business may not access capital there is lack of continue it as I said it&#39;s easy to discontinue so the fact that it&#39;s easy to discontinue there is also lake of continuing if the owner dies the business dies with them so while it is very easy to study the so appropriate if you thinking of perpetual existence of the business if you want to build a legacy it&#39;s always good to consider other forms of business and apprentices then moving on to partnership a partnership is basically contractual relationship between two or more peasants who operate a lawful business with the objective of making a profit there are advantages and disadvantages of this form of business enterprise it&#39;s important to realize that in terms of disadvantages they are more or less the same with those of so proprietary the owners or the partners are personally liable it&#39;s actually really a relative difficulty in disposing of an interest in the partnership because once you want to transfer your interests it means you are closing that particular partnership and then you add remains if to deform there is also potential for conflicts between partners because now there is not it&#39;s not like a case where there is only one person in whatever they say it was in this case they are two people and two people in must get two or more people it must get is wherever you have two or more people you are bound to have people not agreeing on everything because people see things differently given in terms of populating risks they calculate risks differently this form of business also legs continuing if one partner dies then it means a new partnership is to deform you close that particular one in the operator at another one in terms of advantages it&#39;s also easy to form since there are many people there are more people unlike in the case of a sole proprietorship this deficit of skills in abilities of the partners now legal and natural patience may be fattening so you can have a case way by a natural person is actually in a partnership with a company there is also increased opportunity for accumulation of capital this form of business enterprise requires minimum legal formalities and regulations it&#39;s not difficult to form the NBA is also across corporations these ones you can no longer register new clothes corporations in South Africa but may have one or more members but it&#39;s closed at 10:00 so you cannot have more than ten members that can own and control the close cooperation it exists as a separate legal person so advantages obviously people registering closed corporations because of that separate legal personality there is also big limited liability of the members members are not personally liable there is increased capital opposition potential management Israeli it is simple because the the requirements that are the regulations that have been and not a strict is those of companies there is also perpetual existence about however in terms of disadvantages membership is limited at ten you cannot have a close cooperation with more than 10 members heuristic presence may not be members companies do not be members of a closed operation in South Africa you can no longer give the new closed operations so you can register your business now as a partnership if you are considering registered as a closed corporation or you can register it as a company it could be strict it could be subjected to strict accountability under the new company&#39;s regulations of 2011 then in terms of the company the company is developed to obtain more capital than they could through so proprietary partnership in ownership and ownership and control is separated so it&#39;s a form of business enterprise where ownership is separated from control people actually own the business may are separated from those that run it or those that control it so it&#39;s controlled and run by directors but it is owned by the shareholders there are a number of profit companies we have public companies private companies state-owned companies testing elaborate companies then we also have non profit companies I was shocked to learn that some cases actually registered nonprofit companies some charity organizations also register is non profit companies I don&#39;t for companies for purposes of this course it is also necessary and important to realize that there are differences between public companies in private company so as you read your textbook it is important to note the differences in terms of the number of members data that is required and allowed for each of those and also the differences in terms of the knob of director requirements are the number of directors that is required for private companies is different from that which is required for public companies there is also the issue of Lance variability of shares because it is easier to transfer shares in a public company than in a private limited company this also in terms of shares the general public do not find it easy or cannot find it easy to buy shares of a private company I in case of a private limited company it&#39;s usually identified by Pty Ltd but if it&#39;s a limit public happen it&#39;s only limited there is no private private company is not strictly controlled as public company in terms of legal regulations public companies are actually required to publish their financial statements that is not the case with private companies these are the advantages are the main disadvantages they really relate to operational costs which are said to be high and also the degree of legal regulation which is also seen is high but there are advantages because there is no restriction on the number of shareholders so you can have as many owners as possible unfortunately that also if it is an effect in terms of control because once they are maybe she orders if you honor the main shareholder it it means you also don&#39;t have much control in that company this limited liability the owners and they will not be held personally liable for the day of the company a company can raise large amounts of capital they separate ownership in control and continued attention to the digital shares is possible there are legal persons natural persons they can actually become what members are then they we also have what are known is business trusts Adisa established out of an ordinary trust and the objective of our they&#39;ve also have any objective of conducting business for for profit it is not a juristic person but it can be regarded as a separate person in terms of forethought for text purposes income tax on income according to the hundred principle so you need to read a bit of commercial law to understand the kanji principle transfer of interests of a beneficiary is done by a variation of the trust deed because once the trust is registered they are trustees then we are also beneficiaries so if you want to transfer interests you have to revise the trust deed so that you vary the interests of each beneficiary are forming a trust is easy natural intrigue of essence can actually become parties to a trust there is limited liability extreme flexibility and there is also absence of legal regulations it is possible to have the petrel existence however there&#39;s limited access to control and potential for conflict between parties then we also have cooperative societies cooperative society basically this is in autonomous Association of peasants who unite voluntarily it&#39;s voluntad to meet the needs by means of a jointly owned in democratically controlled enterprise it&#39;s important to know that whilst there are many advantages and many disadvantages in corporations decisions are actually made democratic ID people forms and they say people have equal votes so it&#39;s unlike a case of companies where the majority shareholder may have more influence than others in the case of cooperatives it&#39;s one man one fault so I think in terms of various forms of business enterprises you can actually now decide if you are open if you were considering or if you were thinking which one may be the best you can actually assess and evaluate meeting at the advantages and disadvantages of each of these so move on to business plans developing a business plan for a new business a business plan is a written document that can be used by an interpreter most people think that a business plan is only used for funding simply because thus when most people think of a business plan but there are various objectives of a business plan the most important objective is actually to identify and describe the nature of the new business opportunity or venture the second objective is to present a written plan on how the interpreter plans to exploit that opportunity and the third object people the business plan is to attract investors to persuade a bank or other institutional person who provide financial resources can lend the inter promote the money that they need to establish the business so some people actually think that no you can operate without a business plan in studies if actually showed that they had a lot of people a lot of business people a lot of enterprise if you would say so or a lot of small business owners will operate without business plans if you asked them for a business plan they don&#39;t have it they never used it so these are some of the benefits of actually writing out a business plan these are some of the benefits you actually know where you are going people actually know even if they are coming in as your managers there is no way you want to take the business to they know the actual objectives of the business then you also understand the vision that we have with the business a business plan can also be seen as it to for attracting money before anyone actually offers who invests in your business then we want to see your business plan we will not just put in their money without understanding to what extent is your business likely to succeed so the importance and necessity of a business plan reasons why people ought to draft or to write business plans one of the reasons is that if you want to sell the business before you even send me to other people you can utterly draft a business plan to sell the business to yourself to convince yourself that it works put it in writing put the vision in writing so that you&#39;ll be able even yourself to remembe it if you also put a write up a business plan whoever you want to sell the business to they will be able to read and understand it a business plan is also prepared for people or for interpreting ones are to obtain Bank finances so whenever you apply for a bank loan the bank will obviously request you to also submit a business plan a business plan is also written or prepared to obtain investment funds from other investors not necessarily from things if you want to arrange for strategic alliances to long-term supply us long term customers those may actually also test to see your business plan so it is necessary when you want to arrange strategic alliances when you also want to obtain large contracts sometimes you will be requested to submit a business plan a business plan is also requested or required when you want to attract key employees before they join you they want to see where you are going when are you planning to go how are you planning to get there before they risk losing the income that they may be receiving before they make up their mind training they need to know if whatever you are proposing to them will actually work so it&#39;s important in attracting key employees employed using key competences employees with key skills not those that are desperate a business plan is also needed when you want complete majors in a position you also need a business plan it can also be used to motivate and focus management team if you use an interpreter or put everything in writing and you give those that are working under us your managers they will be able to actually go with the business where you want them to build it but if you leave it for them to guess they may take your business wherever they are able to and you cannot so they are tech orders in a business plan these are parties that are interested in knowing the contents of a business plan so they are doors within the organization for example your management team into your employees then they are also external stakeholders like your customers or investors into your bank&#39;s those are external stakeholders although they are outside the organization they&#39;re interested in knowing the contents of a business plan for example your customers they may want to know if there we have constant supply because if your business fails they will also be affected investors before they put in their money they need to know if your business will succeed so they are also interested in knowing the contents of your business plan the banks they need to use it to evaluate the risk also to use the tree evaluate on whether you will be able to pay back whatever they we have lent to you this is basically depicting the stakeholders in a business plan but more important is on how they actually evaluate business plans because most people prepare business plans but not all business plans are funded banks reject some installs so how do banks evaluate business plans they look at the issue of capital collateral security character of the piece and wants to borrow in the conditions so in terms of capital before they just put in their capital you must also put in something before they lend you ordered the loan amount you must also put in a deposit so that you sacrifice something if the business fails you lose something unlike a situation where you are not putting in anything and if the business fails you have nothing to lose so in most cases when banks want to lend you money they may request for a deposit them collateral security this is the assurance that the banks can use to say once you fail to pay back they can attach that particular asset that you have provided is collateral security so this can be in the form of a property in an immovable assets or land those can be used as collateral security then character your character as a person wants to borrow the character of the company or business that wants to borrow do you every stroke borrowing it wherever you borrowed did you pay back oh yeah that kind of a person okay that kind of a business that only remembers when you want to borrow but when you need to pay back you forget so there are certain people we have a bad credit record a negative or a bad credit risk so whenever you want to borrow the it for business purposes or for personal use banks who always find a reason not to lend you money because of your character however this also affects those that never borrowed those without a credit risk sometimes it becomes difficult for you to access money or to access finances from things because they also do not know how you will behave when they give you money you may be so bothered not yet man but once they lend you a lot of money they do not know how you deal so adjust a risk again the conditions like the interest rates at which you will pay back the period at which you are supposed to pay back those are seen as the conditions this is to the matrix for a valuation of business plans are important for you to go through it also to read in your textbook it&#39;s figure 3.2 so in terms of developing a business plan there are other factors that you need to consider anyone to write a business plan should look at the style in the ability of the intrapreneur you should also look at the preferred preferences of management team complexity of the product or service being offered competitive environment and also the level of uncertainty in the business environment this is when you are described you are considering the scope of the business plan the scope of the distance plan then the components of a business plan length normally it&#39;s anything between 5 and 20 pages appearance of the document is very important there are no rigid rules regarding the format of the business plan you watch to identify the key skills or the necessary skills to write it so that those who read it who actually read it in understand what is in bay they are not just open it should throw it away are you should also determine who should write a business plan there is a debate whether there should be written by the intrapreneur himself or herself or by consultants but the problem of using consultants is that they may have templates that they will just give you but now when you approach or when you get interviewed by the bank&#39;s what you say to the bank and what is in the business plan may actually be different so it is necessary that a business plan is prepared by the interpreter however assistance from consultants may be used but the interpreter ought to be there these are the contents of the business plan what is supposed to be in a business plan basically the executive summary which appears first in the document but normally it is written last then we also have the general description of the venture when you describe the business ownership control and so forth then also if the products and services plan where you discuss about the product that you are offering or the service that you&#39;re offering to the market are then how this also need to focus on the marketing plan the management plan operating plan financial plan and obviously to support whatever you have saved you will need to provide some supporting documents for example if you say it&#39;s a part of your managers you have certain qualifications we must see the qualifications we must see their CV so supporting materials are actually documents to bake what you may have saved in the business plan this is digitally explaining the components of the business plan in what should be included in those plans so also these notes are basically explaining what should be covered in each of those sections for example when you are discussing the general description of the new venture what are some of the important questions that you also address these are what we are providing in this slide they will move on to the location of a business they affect us before you choose the location of a business they affect us that you ought to consider you can&#39;t locate your business way it will be complicated to operate it so you need to consider a number of factors so some of the vector that you ought to consider include the source of raw materials if raw materials are difficult to transport you need to locate closer to the source of raw materials but if they are easy to transport then you may not consider that factor availability of labour if you locate your business where you thinking you how easy is it for people to actually come in wait they should you shouldn&#39;t relocate closer to where people are then proximity and access to the market depending also on the products it&#39;s good usually good to locate closer to the market where you will be able to reach your market the people that are willing and able to use your products engine services then the costs in a way also the availability of transport facilities are the cost and availability of power cost and availability of water availability and costs of site and buildings these are some of the factors that you ought to consider availability of capital their attitude and regulations tariffs of local authorities they will existing business environment the social environment climate central government police and sometimes also your personal preferences so in this chapter we looked at legal forms of business characteristics advantages disadvantages of each of those forms of businesses we also looked at the business plan the why it is important to draft a business plan in the main elements of a business plan then we also covered the location factors it may happen that we have questions we can always engage on blackboard discuss these questions raised your questions then we discussed them and we answer each other this will also allow some of the of your classmates to also answer some of the questions to create that interaction which is also important thank you

Transcript for:Establishing a Business - Chapter 3

Transcript for:
Establishing a Business - Chapter 3