BSTE 212_SU_LE 2.1 - 2.4_2025

Form of Ownership

• Definition of ownership form: The manner in which a business is possessed and managed, including:

  • How capital is raised

  • Who is accountable for losses and risks

  • How profits are divided

Types of Forms of Ownership

• Different types of ownership include:

  • Sole Proprietor (Alleeneienaar)

  • Partnership (Vennootskap)

  • Close Corporation and Cooperative Society (Beslote korporasie en koöperatiewe vereniging)

  • Business Trust (Besigheidstrust)

  • Profit Companies (Maatskappye met winsoogmerk)

  • Non-profit Company (Maatskappy sonder winsoogmerk)

Criteria for Ownership Form Consideration

• Factors to consider when deciding on an ownership form include:

  1. Legal personality (Regspersoonlikheid)

  2. Continuity of ownership form (Kontinuteit)

  3. Liability of members for debt (Aanspreeklikheid vir skuld)

  4. Financing possibilities (Finansieringsopsies)

  5. Prescriptions on profit sharing (Voorskrifte oor winsverdeling)

  6. Income tax implications (Inkomstebelasting)

  7. Participation in management (Deelname in bestuur)

  8. Legal requirements for establishment and management (Regsvereistes)

Sole Proprietorship Characteristics

Learning Outcomes for Study Unit 2

• After completing Study Unit 2, one should be able to:

  • Describe the concept of "sole proprietor".

  • Explain the characteristics.

  • Analyze reasons for establishing a sole proprietorship.

  • Compare advantages and disadvantages.

  • Evaluate in terms of legal aspects, liability, control, capital acquisition, legal requirements, and taxation.

Definition

• A sole proprietorship is:

  • An enterprise owned by one individual.

  • The owner typically manages the enterprise.

  • Absolute control over the business activities.

  • No legal separation between owner and business – finances flow directly to the owner.

Characteristics of a Sole Proprietor

• Simplicity in ownership.

• Only one owner, often operating without large capital investments.

• Generally low regulatory requirements, allowing for flexibility.

• Direct control and higher adaptability to changes.

Legal Personality

• No legal identity distinct from the owner.

• All assets and liabilities are regarded as belonging to the owner.

Continuity of Ownership

• Limited continuity as the business lacks legal identity.

• Changes in ownership affect business status (e.g., death or insolvency).

  • The business may cease to exist upon the owner's demise.

Financing Possibilities

• Limited capital acquiring opportunities due to single ownership.

• Financing typically sourced from personal funds.

• Growth relies on reinvested profits from the business.

Profit Sharing

• The owner receives all profits after tax.

• Strong incentive to maximize profits due to direct ownership leads to improved management practices.

Income Tax

• The owner and the sole proprietorship share the same tax obligations.

• Taxes are calculated based on the owner's total personal income, including business profits.

Participation in Management

• Direct control by the owner over the business operations.

• Flexibility to adapt quickly to new circumstances without needing prior approval.

Legal Requirements for Establishment

• Simple legal formalities for starting a sole proprietorship.

• May require local registration, but transfer of ownership is straightforward due to lack of legal personality.

Advantages of a Sole Proprietorship

• Easy and inexpensive to create.

• Total decision-making authority lies with the owner.

• Minimal legal restrictions and straightforward discontinuation.

• Strong relationships with clients and the ability to quickly adapt to changes.

Disadvantages of a Sole Proprietorship

• Owner faces unlimited liability for business debts.

• Potential difficulties in securing capital and business growth.

• Lifetime of the business can be limited by the owner's life.

Suitability of Sole Ownership

• Evaluate against other ownership forms in terms of:

  • Legal personality and existence

  • Liability and degree of control

  • Capital acquisition potential

  • Legal formalities and taxation

Class Activity

• Group brainstorming on characteristics and suitability for sole proprietorship business ideas.

• Develop a basic business plan outline including business description, market target, and services offered.

Preparation for Next Session

• Complete worksheet for next contact session.

Assessment Schedule

• Upcoming online tests and assessments with specific dates provided.

Reminder

• A proactive attitude is essential for success. Focus on commitment and adaptability.