accounting

Learning Outcomes: At the end of this unit, the student will be able to:
- Identify the forms of business ownerships and describe their characteristics.
- Demonstrate an understanding of accounting principles.
- Apply accounting principles to record business transactions.

Definition of Company/Business:
- A company is defined as a legal (or “artificial person”) entity. It possesses a distinct legal standing separate from its shareholders.
- A company has no physical existence, as it is created under law, specifically the Companies Act of 2008.
- The Companies Act governs the incorporation (formation), registration, administration, and winding up of companies.
- The Companies and Intellectual Property Commission (CIPC) is responsible for regulating and registering companies.

Incorporation entails the following aspects:
- Limited Liability of Shareholders: Shareholders are not personally liable for the debts of the company.
- Ownership of Assets: The assets of the company are separate from the personal assets of its shareholders.
- Right to Seek Redress: If a wrong is alleged against the company, it is the company (not the shareholders) that must seek legal redress.
- Perpetual Succession: Shareholders may change, but the company continues to exist indefinitely (Davis et al, 2012).

A business is defined as an entity that regularly engages in transactions expected to yield a monetary reward.
- Difference Between Company and Business: A company is a legal person, while a business may or may not be considered a legal entity.

Profit Companies:
- Public Company (Ltd)
- Private Company (Pty) Ltd
- Personal Liability Company (Inc)
- State-Owned Company (SOC Ltd)
Non-Profit Companies:
- Example: Non-Governmental Organizations (NGOs).

Various Forms of Business Ownership:
- Sole Traders or Sole Proprietors
- Private Company (Pty) Ltd (Proprietary Limited)
- Public Company (Ltd)
- Personal Liability Company (Inc)
- State-Owned Company (SOC)
- Partnerships (Kew and Watson, 2019)

Definition: A sole proprietorship is owned and operated by one individual.
- It is not a separate legal entity, meaning it has no legal existence apart from the owner (proprietor).
- Ownership and Liability:
- The assets and liabilities of the business are personal assets and liabilities of the proprietor, resulting in unlimited liability.
- Outstanding debts of the business are settled from the proprietor's personal resources.
- Advantages: The owner retains decision-making power and benefits from all profits.
- Disadvantages: It can be challenging to raise capital.

Characteristics:
- Has restrictions on attracting new shareholders and on the sale of shares.
- Rights of Shareholders: Shareholders may have restricted rights to transfer shares, often subject to a pre-emption right to offer shares to existing shareholders first.
- Cannot publicly offer shares; capital must be raised via intermediaries like banks.
- Potential for growth is limited due to restricted access to capital.

Ownership: Generally owned by the public.
- Transparency: Financial statements are audited and made publicly accessible.
- Capital Raising: Able to raise capital from the general public; shares are freely transferable.
- Growth Potential: Can obtain unlimited capital investment, allowing for significant growth in profits.

Definition: An incorporated entity having legal person status.
- Liability: Directors and past directors are jointly and severally liable, along with the company, for all contractual debts and liabilities during their term (unlimited liability).
- Common Users: Often used by professional associations such as attorneys and stockbrokers.
- Perpetual Succession: The company continues despite changes in ownership or the death of directors.

Definition: A legal entity owned by the state (government), functioning as a national business enterprise.
- Governance: Operates under the Public Finance Management Act of 1999, providing goods and services as a business entity.
- Examples:
- Public Investment Corporation (PIC)
- Development Bank of Southern Africa
- Land and Agricultural Development Bank of South Africa
- ESKOM
- SABC
- TRANSNET

Legal Framework: Not covered by the Companies Act 71 of 2008, resulting in minimal legal requirements.
- Legal Status: Partnerships are not separate legal entities.
- Partnership Agreement: May or may not have a written contract specifying:
- Capital contributions
- Profit-sharing ratios
- Salary distributions
- Conflict resolution procedures.
- Liability: Partners are jointly and severally liable for the entity's debts; personal assets may be used to satisfy creditor obligations.
- Authority: Each partner can bind the partnership in contracts that align with its purpose.

Definition: Incorporated for public benefit or objectives related to cultural or social activities.
- Financial Structure: Income and property are not distributed to incorporators, members, directors, or related persons but must be used to further the company's purpose outlined in its memorandum of incorporation (CIPC, 2024).

FINANCING ACTIVITIES: Obtaining funding through:
- Debt: Raised from lenders.
- Capital: Sourced from owners.
- Equity: Derived from retained earnings (previous business profits).
DIVIDEND DECISION: Options for handling business value:
- Kept within the business for reinvestment
- Distributed to owners as dividends.
INVESTING ACTIVITIES: Acquiring assets necessary for business operations.
OPERATING ACTIVITIES: Utilizing acquired assets to generate revenue and profits, leading to cash inflows.
Business Managers' Role:
- Requires obtaining funding, acquiring assets, and using those assets effectively to create additional value.
- Decisions regarding the distribution of dividends or retention of earnings are essential for sustaining growth and value creation.