INSTRUCTOR'S Chapter MANUAL 3 INSTRUCTOR'S MANUAL ESTABLISHING A BUSINESS CHAPTER 3 ESTABLISHING A BUSINESS
Chapter cntent Intrductin The legal frm f wnership Develping a business plan fr the new business The lcatin f the business Summary
Intrductin Different frms f enterprise available t the entrepreneur utlined Factrs in selecting apprpriate frm f enterprise Characteristics f enterprises discussed, as well as advantages and disadvantages Entrepreneurs wh are aware f ptins can make infrmed decisins Basic cntent f business plans Lcatin factrs f a business
The legal frm f wnership Cnsideratins in chsing a frm f enterprise: Legal (r juristic) persnality Limited Liability Degree f cntrl r management authrity Ptential fr capital acquisitin Cmpliance with legal frmalities and regulatins Taxatin Transferability f interests.
The sle prprietrship Advantages Simple t create Least expensive way t start a business Owner has ttal decisin-making authrity N special legal restrictins Easy t discntinue Disadvantages Owner is persnally liable Limited diversity in skills and capabilities is available Owner has limited access t capital Lack f cntinuity
The partnership Advantages Ease f frmatin Diversificatin f skills and abilities f partners Legal and natural persns may be partners Increased pprtunity fr accumulatin f capital Minimal legal frmalities and regulatin Disadvantages Persnal liability f partners Relative difficulty in dispsing an interest in the partnership Ptential fr cnflict between partners Lack f cntinuity
The partnership Hw partnerships are affected in terms f the Cmpanies Act (N. 71 f 2008) Previusly nly 20 members allwed Cmpanies Act changed this number t unlimited number f members Greater number f partners culd hld greater risk f persnal liability
The clse crpratin Advantages Separate legal persnality Limited liability f the members Increased capitalacquisitin ptential Management is relatively simple Cntinuity Disadvantages Membership is limited t ten Juristic persns may nt be members N new clse crpratins may be registered Culd be subject t stricter accuntability under Cmpanies Regulatins, 2011
The clse crpratin Hw CCs are affected in terms f the Cmpanies Act (N. 71 f 2008) N lnger pssible t register new clse crpratins Cmpanies may n lnger cnvert t clse crpratins Certain clse crpratins must cmply with stricter legal requirements Identical regulatin requirements apply t clse crpratins and private cmpanies Clse crpratins must nw adhere t Clse Crpratins Act and Cmpanies Act
The cmpany Advantages Legal/natural persns sharehlders/members N restrictins n number f sharehlders Limited liability Ability t raise large amunts f capital Separate wnership and cntrl Cntinuity and transferability f shares Disadvantages High degree f legal regulatin High peratinal csts
Differences between public cmpany and private cmpany Differences in the number f members required and allwed Differences in directr number requirements Differences in transferability f shares General public can nt subscribe t the shares f a private cmpany (Pty) Ltd versus Ltd Private cmpany nt as strictly cntrlled as public cmpany in terms f legal regulatins
The cmpany Hw cmpanies are affected in terms f the Cmpanies Act (N. 71 f 2008) Simplified registratin prcedure Classificatin f cmpanies will change t 2 types: prfit and nn-prfit cmpanies Stricter requirements fr public cmpanies Crprate gvernance Bard f Directrs t have mre decisin making pwer
The business trust Becming increasingly ppular Established ut f an rdinary trust Has bjective f cnducting business fr prfit Is nt a juristic persn Regarded as a separate tax payer Incme tax n incme accrding t the cnduit principle Transfer f the interest f a beneficiary dne by a variatin f the trust deed
The business trust Advantages Ease f frmatin Natural and legal persns are parties t a trust Limited liability Extreme flexibility Absence f legal regulatin Cntinuity Disadvantages Limited access t capital Ptential fr cnflict between parties
The business trust Hw trusts are affected in terms f the Cmpanies Act (N. 71 f 2008) Define business trust under juristic persns Unclear why this decisin was made
The bjectives f a business plan Mst imprtant bjective is t identify and describe the nature f the new business pprtunity r venture Secnd bjective is t present a written plan f hw the entrepreneur plans t explit the pprtunity A third bjective f the business plan is t attract investrs, r t persuade a bank r ther institutin r persn wh prvides financial resurces, t lend the entrepreneur the mney he/she needs t establish the new business
Imprtance and necessity f the business plan T sell the business t yurself yu need t cnvince yurself that starting the business is right T btain bank financing T btain investment funds T arrange strategic alliances T btain large cntracts T attract key emplyees T cmplete mergers and acquisitins T mtivate and fcus the management team
Stakehlders in a business plan Internal stakehlders Management team Emplyees External stakehlders Custmers Investrs Banks (fur Cs f lan applicatin evaluatin)
Stakehlders in a business plan
Matrix fr evaluatin f business plans
The scpe f the business plan Hw much planning is needed? Cnsider the fllwing: Style and ability f the entrepreneur Preferences f management team Cmplexity f the prduct r service being ffered The cmpetitive envirnment The level f uncertainty in business envirnment
The frmat f the business plan Determine wh shuld write the plan Identify the necessary skills t write the plan There are n rigid rules regarding the frmat f the business plan Appearance is imprtant Length depends n the type f business and can vary frm 5 t 20 pages
The cntent f the business plan The executive summary The general descriptin f the venture The prducts-and-services plan The marketing plan The management plan The perating plan The financial plan The supprting materials
Overview f a business plan
Outline f a simple business plan
A general descriptin f the new venture Sme imprtant questins t address: What is the missin statement? What type f business is it? What is the primary prduct r service? What custmers are served? In what industry d they perate? What is the current and predicted state f the particular industry? What are its bjectives? What are the distinctive cmpetencies?
Determining the financial needs f the new venture Essential that the entrepreneur understands financial statements and hw t interpret them Entrepreneur must understand hw prfitability is assessed Entrepreneur must have the ability t determine the venture s financial requirements
Lcatin factrs Surces f raw materials Availability f labur Prximity f, and access t, the market Availability and cst f transprt facilities Availability and csts f pwer and water Availability and csts f a site and buildings Availability f capital Attitude, regulatins and tariffs f lcal authrities The existing business envirnment
Lcatin factrs (cntinued) The scial envirnment Climate Central gvernment plicy Persnal preference
Summary Legal frms f business Characteristics, advantages and disadvantages f different types f entities Develpment f a business plan fr new venture Lcatin factrs