Business Formats in South Africa

Objectives

• These notes discuss the characteristics of various business formats available in South Africa
• The goal is to compare the advantages and disadvantages of these business formats.
• The document will analyze the business environments within Southern Africa
• These notes will cover the purpose of a SWOT analysis in business
• A vision and mission statement for business in Southern Africa will be evaluated
• We wil discuss the influence of the fourth industrial revolution (4th IR) on business formats and environment within a Southern African context

Introduction

• Establishing a business supports the entrepreneurial process, where ideas are formed and plans are put in place
• Supports development and design of new products, or delivery of service based on consumer demand and preferences.
• This focus identifies various types of business formats in South Africa for entrepreneurs
• Issues of legal obligations, naming requirements, taxation, dividends, responsibility and accountability will be discussed.

Factors Influencing Business Formats

• The product or service provided to consumers needs to determine its level of complexity.
• Legal requirements and costs must be associated with setting up the business format
• It is impart to identify who is accountable for for the business, and responsible if something goes wrong.
• Its important to understand the lifespan of the business.
• Management participation entails business owners deciding on the management style
• Business owners are also accountable for capital
• Under dividends/profit sharing a sole proprietor keeps all profits, partnerships share profits per agreement, and companies pay dividends/profits proportionally to shareholders
• For taxation sole proprietors and partners are taxed on their individual incomes, and company owners are taxed on individual income obtained.

Types of Business Formats

• There are sole proprieterships
• As partnerships
• Close corporations
• Companies
• Trusts
• Social co-operatives

Sole Proprietors

• It's the simplest and easiest format
• They are popular small business owners
• One owns and manages, assuming all responsibilities and accountabilities
• It is not regarded as a legal person.

Partnerships

• Partnerships operate on a contractual or verbal agreement between 2+ parties
• They are required to register with the Companies and Intellectual Property Commission
• The maximum number of partners is limited to 20
• Each partner contributes something, be it capital, knowledge, equipment, human resources, and ideas.
• Easy to establish and set up
• Access to more resources and competencies through all partners
• Legal and natural persons can be partners
• Capital is easily accessible
• Each partner is individually liable for the partnership.
• Conflict among partners in terms of management increases.
• There is no guarantee of continuity as a partnership.

Close Corporations

• They can no longer be established in South Africa
• That change went into effect in May 2011
• Changes in the regulation of CCs:
  • The criteria for names have to be applied and followed.
  • Audited annual financial statements are required every six months.
  • Accounting officers must be appointed.
  • The business rescue procedure can be used.
  • A member of a closed corporation can be declared unfit to hold office as per the Companies Act (No. 71 of 2008)
  • The dissolution or closing of a closed corporation follows the same process as of a company.

Companies

• There are state-owned companies
• personal liability companies
• Private companies
• Public companies
• Both natural and legal persons can be shareholders.
• There is no restriction on maximum number of shareholders
• Shareholders have limited liabilities
• There is a capacity to secure large ventures
• Separation occurs between ownership and control
• There is continuity of the company
• Shares can be offered
• Significant degree of legal compliance and requirements.
• Operational costs can become expensive

Trusts

• These are registered when a trust deed is signed.
• Trusts are established when approved by the Master of the High Court.
• The trustee should manage the assets of the trust deed and be supervised by the Master of the High Court.
• Trusts are not closely monitored and controlled like public or private companies
• if money sources from the public through unit trusts, certain regulations must be complied with and adhered to by the trust.
• A trust has continuity
• If beneficiaries/trustees change, the trust remains in place.
• They're easy to establish
• Both natural and legal persons can be a founder, trustee or beneficiary of the trust
• There's limited liability
• Continuity is maintained
• Access to capital is limited
• Conflict between parties is possible

Social Co-operatives

• This business format is established under the Co-operatives Act of 2005
• Registration takes place through the Department for Co-operative Societies
• Mainly found within local communities for the purpose of creating and benefiting from economic, cultural and social aspects for the members
• Co-operative is managed by a board of directors where decisions are made and accepted at annual meetings.

Business Location Factors

• The facility or place in which the business plans to produce and provide services
  • Access to customers
  • Raw materials
  • Infrastructure
  • Technical and operational support
  • Labour
  • Weather conditions
  • Political stability
  • Community
  • Capital
  • Local government by-laws
  • Business environment

Business Environments

• There are internal business environments with a vision statement that is short and specific
• It reveals the goal of the organisation
• It promotes change inside the organisation
• It allows competitive advantages
• It cements the basis for planning and decision-making
• Allows secured space in which control is applied
• Motivates employees
• Allows for positive changes
• The mission statement answers what is our business?, who are the customers?, how will the product or service be supplied?, and why are we in business?
• Resources include human, financial, physical, natural, and information resources
• There is also entrepreneurship
• And SWOT analysis

External Business Environments

• There are market environmental factors that apply to consumers with durable, semi-durable products, and services
• It applies to a competitive scope across new entrants to the markets, bargaining power of customers, bargaining power of suppliers, the availability of substitute products, and existing competitors
• Includes labour, intermediaries, suppliers, and strategic alliances.

Macro-environmental Factors

• Technological factors
• Economic factors
• Political/legal factors
• Social/cultural factors
• Ecological or physical factors
• International factors