Forms of Ownership
|
TOPIC
1: FORMS OF BUSINESS OWNERSHIP Factors
to Consider If
you’re starting a new business, you have to decide which legal form of
ownership is best for you and your business. Let’s address some of the
questions that one would ask themselves in choosing
the appropriate legal form for your business. Do
you want to minimize the costs of getting started? Do
you hope to avoid complex government regulations and reporting requirements? How
much control would you like? How
much responsibility for running the business are you willing to share? What
about sharing the profits? Do
you want to avoid special taxes? Do
you have all the skills needed to run the business? Are
you likely to get along with your co-owners over an extended period of time? Is
it important to you that the business survive you? What
are your financing needs and how do you plan to finance your company? How
much personal exposure to liability are you willing to accept? Do you feel
uneasy about accepting personal liability for the actions of fellow owners? TOPIC
2: SOLE PROPRIETORSHIP - one
man business Advantages · you have complete control over your
business · You make all important decisions · responsible for all day-to-day activities · you get all the profits made by the
business Disadvantages · Business suffers when you are not there · Has unlimited liabilities · No division of labour/specialisation · Hard to take leave · Business dies when owner dies TOPIC
3: PARTNERSHIP A
partnership is a business owned jointly by two or more people, usually
maximum numb 20 partners make a partnership. If it is made of a professional
entity e.g. lawyers, accountants etc., the number is 10. The
Partnership Agreement •
Amount of cash and other contributions to be made by each partner •
How partnership’s profits (or loss) are to be shared •
Partner responsibilities - who does what •
Conditions under which a partner can sell an interest in the company •
Conditions for dissolving the partnership •
Conditions for settling disputes TOPIC
4: TYPES OF PARTNERSHIP Ordinary
Partnership –
in this type of partnership each partner is personally liable not only for
his or her own actions but also for the actions of all the partners. If your
partner in an architectural firm and makes a mistake that causes a
structure to collapse, the loss your business incurs impacts you just as much
as it would him or her. Limited
Partnership – These are partnerships who have limited
liabilities, however, there has to be one or two ordinary partners. Advantages · brings together a diverse group of talented
individuals who share responsibility for running the business · makes financing easier · Continuity needn’t be an issue because
partners can agree legally to allow the partnership to survive if one or more
partners die. Disadvantages · subject to unlimited liability · being a partner means that you have to
share decision making, and many people aren’t comfortable · partners often have differences of opinion on how
to run a business, and disagreements can escalate to the point of
jeopardizing the continuance of the business. · partners also share profits. TOPIC
5: LIMITED LIABILITY COMPANIES This
is a type of business which differs from a sole proprietorship and
a partnership because: · it is a legal entity that is entirely
separate from the parties who own it · It can enter into binding contracts, buy
and sell property · sue and be sued, be held responsible for
its actions · be taxed · owners have limit liabilities TYPE
OF LIMITED LIABILITY COMPANY Private
limited company –
this is privately owned whose shareholders may be up to fifty. Shares cannot
be sold publicly on the floor at Lusaka Stock Exchange. If a shareholder
wants to get ready of their shares, they can only sell their shares to the
members of the company, e.g. Choma Garage in Choma Public
limited company –
this is publicly owned whose shareholders are unlimited in number e.g.
ZANACO, Atlas Mara, First National Bank, ABSA. These can sell shares publicly
on the floor at Lusaka Stock Exchange TOPIC
6: FORMATION OF LIMITED COMPANY In
Zambia, according to the Companies Act, two (2) documents, Memorandum
of Association and Articles of Association have to be
prepared before a limited company can be created. These documents are drawn
up and presented to the Registrar of Companies by the promoters i.e. people
wishing to form a company. The Registrar will examine them and if satisfied
that they are in accordance with the provisions of the Companies Act, allows
the company to come into being by issuing a certificate of
incorporation which is an equivalence of a ‘birth certificate’
of the limited company Memorandum
of Association-
this document lays down the external clauses of the limited company:- 1.
The name of the company, which must end
with the word “limited”. This warns anyone dealing with the company that they
cannot claim against any individual shareholder’s private properties. Also an
indicator that this company is private. If it is a public limited company,
its name will be followed by Plc. 2.
The location of the company’s head
office 3.
A statement clarifying whether it is a
private (Ltd) or public limited company (Plc). 4.
The objectives of the company (i.e.
whether the company is going to be producing something, buying and selling
something or providing a certain service) 5.
The statement of limited liability for
its shareholders 6.
The authorized capital i.e. the amount
of capital to be raised by selling shares 7.
The number of shares to be taken by each
of the directors 8.
A list of founders or promoters with the
type and number of shares they have agreed to hold in the company indicated
against their names. Articles
of Association -
this document lays down the rules and regulations for the internal
affairs of the company. It contains the following:- 1.
The right, obligations and powers of the directors 2.
The procedures for calling annual
general meeting 3.
The rights and powers of each type of
shareholders 4.
The procedure of electing directors 5.
The borrowing power of the company 6.
The issue, transfer and forfeiture of shares 7.
The procedure for dealing with any
alterations in the amount of capital 8.
The procedure of distributing profits
and carrying out auditing Certificate of
Incorporation - This is issued by the Registrar of Companies after
ensuring that both the Memorandum and Articles of Association are in
accordance with the provision of the Companies Act. It certifies that the
company has been registered and is incorporated as a separate legal body.
Indicating that the company: 1. Can sue or be sued
in court of law 2. Can enter into
contracts with people and other organisations 3. Can own property 4. Employs people 5. Buys and sells
goods and services Prospectus – This
is an advertisement that invites members of the public to buy shares in a
company so that the required capital is raised. It contains the following
information:- 1.
Type, number and price of shares the
company is selling 2.
The past performance of the company and
its future prospects 3.
Any other information of interest to
potential investors TOPIC 7: CAPITAL OF A COMPANY This may be made up of share capital and loan capital. Share Capital · Preference Share Ordinary Shares Loan Capital · Debentures · Naked debentures – these are ordinary loans which do not require any asset to be
guaranteed to lenders as security · Mortgage debentures -
these are loans to a company that require valuable assets to be surrendered
to lenders of money as security. · Bank Loans · Mortgage TOPIC
8: MERGERS AND ACQUISITIONS Motives behind Mergers and Acquisitions ·
Gain
Complementary Products ·
Attain New Markets or
Distribution Channels ·
Realize Synergies ·
Hostile Takeover Types of Mergers: i.
Horizontal Merger - companies at the same stage in the same industry
merge to reduce costs, expand
product offerings, or reduce competition. ii. Vertical Merger - a company buys a firm in its same
industry, often involved in an earlier or later stage of the production or
sales process. Buying a supplier of raw materials, a distribution company, or
a customer gives the acquiring firm more control. iii. Conglomerate Merger - brings together companies in unrelated
businesses to reduce risk. Combining companies whose products have different
seasonal patterns or respond differently to business cycles can result in
more stable sales. |