Business Ownership and Planning

Considerations in Choosing a Form of Ownership

  • Legal (Juristic) Personality: Business exists independently with its own rights and obligations.
  • Limited Liability: Owner's personal assets are protected from business debts.
  • Direct Control: Extent of the owner's control over the business.
  • Ability to Acquire Capital: Ease of raising funds for the business.
  • Compliance: Meeting legal requirements for establishment and management.
  • Tax Liability: Impact of taxes on the business and owner.
  • Change in Ownership: Possibilities for transferring ownership.

Forms of Business Ownership in the Private Sector

  • Sole Trader: Owned, controlled, and financed by one person.
  • Partnerships: Owned, controlled, and financed by two or more people.
  • Private Limited Companies: Owned, financed, and controlled by 2-50 shareholders.
  • Public Limited Companies (PLCs): Minimum of 2 shareholders, no maximum; shares are publicly traded.
  • Co-operatives: Groups of people sharing benefits; includes consumer, producer, and worker co-operatives.
  • Franchises: Business that bought the right to trade under an established name.

Location Factors for a Business

  • Availability of Raw Materials: Locate near raw materials source if dependent of raw materials.
  • Proximity to Target Market: Being close to customers.
  • Availability of Basic Infrastructure: Access to water, electricity, sanitation, etc.
  • Economic Policy: Local government incentives.
  • Method of Distribution: How products reach customers; consider technology like online shopping.

Types of Ownership

  • Sole Proprietorship:
    • Owned and managed by one person.
    • Not a separate legal entity; lifespan linked to owner.
    • Owner has unlimited liability.
    • Advantages: Simple to create, total control, few legal restrictions.
    • Disadvantages: Personal liability, limited skills and capital.
  • Partnership:
    • Contractual relationship between two or more persons.
    • Doesn't have a legal personality.
    • Partners share profits and losses with good faith.
    • Advantages: Easy formation, diversification of skills, increased capital.
    • Disadvantages: Personal liability, termination upon partner change, potential conflict.
  • Close Corporation (CC):
    • Legal personality with 1-10 members.
    • Members have limited liability up to investment.
    • Advantages: Separate legal personality, limited liability, simple management.
    • Disadvantages: Limited membership, no new CCs may be registered.
  • Company (Profit vs Non-Profit):
    • Separate legal entity with limited liability.
    • Separation of ownership and control.
    • Profit companies: Public, Private, State-owned, Personal liability.
    • Non-Profit Companies (NPC): For public purposes, no profits to members.
    • Advantages: Legal personality, unlimited shareholders, limited liability.
    • Disadvantages: High regulation and operational costs.

The Business Trust

  • Assets under trustee control for beneficiaries.
  • No limit on beneficiaries; aims to generate profit.
  • Separate from founder/beneficiaries but no juristic personality.
  • Limited liability, easy to establish, separate taxpayer.
  • Advantages: Ease of formation, flexibility, continuity.
  • Disadvantages: Limited capital access, potential conflict.

Developing a Business Plan

  • Written document describing the new business opportunity.
  • Objectives: Describe the opportunity, plan to exploit it, attract investors.
  • Advantages: Evaluate success chances, identify key variables, manage venture, attract finances.

Reasons to Compile a Business Plan

  • Sell the business to self.
  • Obtain bank financing & investment funds.
  • Arrange strategic alliances.
  • Obtain large contracts & attract key employees.
  • Complete mergers and acquisitions.
  • Motivate and focus management.

Stakeholders in a Business Plan

  • Internal: Management, employees.
  • External: Customers, investors, banks.

Components of the Business Plan

  • Executive summary.
  • General description of the venture.
  • Products and services plan.
  • Marketing plan.
  • Management plan.
  • Operating plan.
  • Financial plan.
  • Supporting materials.

Scope of the Business Plan

  • Influenced by entrepreneur's style, management team preferences, complexity of business, competitive environment, and uncertainty.

New Venture Description

  • Is this a start-up, buy-out, or expansion?
  • What is the firm's mission statement?
  • What is the basic nature and activity of the business?
  • What is its primary product or service?