Business Science - Business Formats, Location, and Environments Notes on Environment Notes and Environments
Learning Context and Outcomes
The Eduvos Flipped Classroom Model:
Before the session: Students are expected to work through content on myLMS in their self-study time. This includes completing practice activities and preparing questions on the content.
During the session: The lecturer-led session is not a traditional lecture. It focuses on active learning through peer engagement and lecturer interaction. Activities include asking questions, debating topics, practicing technical aspects, and participating in higher-order thinking activities.
After the session: Based on the difficulty of the session, lecturers may recommend specific concepts for revision. Students then focus on further learning opportunities on myLMS to prepare for subsequent sessions.
Learning Outcomes (Week 2):
Explore the context of business.
Analyse the main functional areas of business.
Assessment Criteria:
1.2. Discuss the legal nature of business organisations.
1.3. Analyse business environments.
1.5. Explain the responsibilities of a business.
4.1. Differentiate between production, services, and knowledge-based businesses and/or organisations.
Session Scope:
Factors influencing business formats.
Types of business formats.
Business location factors.
Business environments.
Factors Influencing Business Formats
Entrepreneurs must carefully consider the type of business format they choose due to the inherent complexity of the business environment.
Choosing a business format is a strategic decision that impacts establishment, liability, and tax.
Detailed Analysis of Business Formats in South Africa
Sole Proprietorship:
Nature: The simplest and easiest business format to establish. It is highly affordable and popular among small business owners because no large capital investment is required.
Establishment: Easy; managed by one person with no formal documentation required.
Ownership: The owner is the manager and must be a natural person.
Capital: The owner provides their own capital.
Legal Representative: The owner is regarded as the legal representative and is personally responsible for the business.
Liability: The owner has full personal liability and responsibility.
Continuity: There is no continuity; if the owner dies, the business closes. The lifespan is tied to the owner.
Profit/Dividends: All profits belong directly to the owner.
Income Tax: The owner is taxed on personal income, as business profits are seen as personal income.
Name: No specific name requirements, though the owner must apply for a trading licence and register the trading name with local authorities.
Partnership:
Nature: A contractual or verbal agreement between two or more parties (individuals or organisations) to share resources for a for-profit business within the legal framework of the Companies Act 71 of 2008.
Establishment: Easy; involves a verbal or signed contract between partners.
Ownership: Minimum of 2 natural partners; no restricted maximum number of natural partners.
Capital: Obtained from partners, consisting of financial or intellectual contributions.
Legal Representation: Partners are the legal representatives.
Legal Standing: The partnership can institute legal action against external parties in the name of the partnership without listing all partners. The estate of the partnership is handled separately during sequestration, though personal assets are not necessarily untouchable.
Liability: All partners are liable and responsible.
Continuity: No continuity; if any partner leaves, the partnership must be dissolved and a new one formed.
Profit/Dividends: Paid directly to partners.
Income Tax: Partners are taxed individually on personal income.
Name: No specific name requirements.
Closed Corporations (CC):
Current Status: Since May 2011, under the Companies Act 71 of 2008, new Closed Corporations can no longer be established, nor can companies be converted into CCs. Existing CCs still operate.
Objective of Change: The government intended to simplify company registration to make companies a more attractive form of ownership.
Ownership: Minimum of 1 natural partner, maximum of 10 natural members.
Capital: Members supply capital, or the CC can apply for bank loans.
Legal Representative: The CC itself is the legal representative.
Liability: Members are only liable if fault can be proven.
Continuity: The CC has continuity and remains intact regardless of what happens to members.
Profit/Dividends: Shared based on the percentage of membership.
Income Tax: The CC is taxed as an entity, not the individual members.
Name: Must end with "CC".
Companies:
The Companies Act allows for For-Profit and Non-Profit Companies (NPCs).
Categories of For-Profit Companies:
State-Owned Companies (SOCs) / State-Owned Enterprises (SOEs): Overseen by the Department of Public Enterprises (DPE) or municipalities. They use structures like CEOs or appointed heads of departments.
Personal Liability Companies: Mostly established by professionals; the focus is profit-making, but owners have personal liability as per the Act.
Private Companies: Non-listed, typically small, micro, or medium-sized. They have fewer regulatory requirements than public companies but must remain transparent.
Public Companies: For-profit companies that can raise capital by making shares available to the public.
Comparison - Private vs. Public:
Establishment: Requires registration per the Companies Act and a certificate to commence business.
Ownership (Private): Minimum of 1 shareholder; no maximum restriction.
Ownership (Public): Minimum of 7 shareholders; no maximum restriction.
Capital: Shareholders provide capital or obtain loans.
Legal Representative: The company is the legal representative.
Liability: The company is liable. Shareholders are only responsible in cases of proven maladministration.
Continuity: High; the company remains intact regardless of shareholder changes.
Profit/Dividends: Paid based on share percentage. Distribution is determined by a dividends committee and the board.
Tax: The company is taxed, and tax is also paid on shareholder dividends.
Naming: Private ends in "Pty (Ltd)"; Public ends in "Ltd".
Trusts:
Nature: Registered via a signed trust deed where a founder's assets are placed under a trustee's administration for beneficiaries.
Approval: Must be approved by the Master of the High Court.
Establishment: Easy; managed by a trustee.
Ownership: Managed by a trustee on behalf of others.
Capital: Founder cannot source capital from external sources easily.
Legal representative: Viewed as a non-legal entity.
Liability: No liability or responsibility.
Continuity: Has continuity even if the founder or trustees fall away.
Profit/Dividends: Paid into the trust and divided among trustees.
Income Tax: Normal trusts are taxed at a fixed rate of . Special trusts are taxed on a sliding scale from to .
Name: Must end with "Trust".
Social Co-operatives:
Nature: Found in local communities; allows members to benefit from economic, cultural, and social aspects. Managed by a board of directors.
Establishment: Group of community members with same interests.
Structure: Annual meetings allow members to participate in strategic vision and vote for board members.
Three Categories of Co-operatives in South Africa:
Primary Co-operative: Minimum of 5 natural persons; provides basic services/products to members and employment to the community.
Secondary Co-operative: Established by two or more primary co-operatives.
Tertiary Co-operative: Formed by two or more secondary co-operatives. Acts as an advocate with national government and industry stakeholders.
Co-operative Logistics:
Capital: Provided by members.
Legal Representative: The co-operative itself.
Liability: The co-operative is liable; members are responsible only for maladministration.
Continuity: Has business continuity.
Profits: Surpluses shared based on capital investment percentage.
Tax: The co-operative is taxed; tax also applies to member surpluses.
Name: Must include the industry/sector and "Co-Operative Limited".
Business Location Factors
Definition: The facility or place where the business produces or provides services to the market.
Strategic Justification: Businesses must be situated in geographic locations where optimal conditions support operational functionality, increasing sales and profits.
Key Factors for Consideration:
Access to customers.
Proximity to raw materials.
Infrastructure availability.
Technical and operational support.
Labour availability.
Local government by-laws.
Weather conditions.
Political stability.
Support from the community.
Access to capital.
General business environment.
Business Environments
Internal Environment (Micro):
Factors within the business that managers can control.
Includes: Vision statement, Mission statement, Objectives, Business functions, Resources, and SWOT Analysis.
External Environment - Market/Industry Factors:
Includes: Consumers, Labour (Employees), Competitors, Suppliers, Intermediaries, and Strategic alliances.
Analyzed using Porter’s Five Forces Model.
External Environment - Macro Factors:
Factors the business cannot control but must respond to.
PESTLE Analysis Framework:
P: Political/Legal.
E: Economic.
S: Socio-Cultural.
T: Technological.
L: Legal (often grouped with Political).
E: Ecological/Physical/Environmental.
Includes International factors.
Questions & Discussion
Question 1: What are social co-operatives?
Answer: They are ownership forms in local communities that allow members to benefit economically, culturally, and socially. They are managed by a board and hold annual meetings for strategic voting.
Question 2: Name and describe the three categories of co-operatives in South Africa.
Answer:
Primary (formed by 5+ natural persons for basic services).
Secondary (formed by 2+ primary co-ops).
Tertiary (formed by 2+ secondary co-ops for advocacy).
Case Study Activity: "The BOS is going BOS" (Application of theory questions 1-4).
Revision: Students are directed to work through revision questions 1-8 and the glossary of terms in the prescribed text.