3.2 Ownership of a business

Economic and management sciences

Grade 9

Entrepreneurship

Module 14

Ownership of a business

Activity:

To discuss the different kinds of ownership of a business

[lo 4.3]

When you plan to start a business you must decide to whom the business will belong.

There are mainly four options: you as individual could be the owner, you could establish a close corporation, you could create a company or you could take up a concession.

Option 1: you assume ownership as individual

You can own the business in your personal capacity. That means that you as person

• will be taxed on any profits of the business (maximum 40%), and
• will be held accountable for debts that are incurred by the business (which means that, should the business not be in a position to pay the debts, you could lose your possessions and means of livelihood).

You could also invite other people to become co-owners, but that is dangerous, because there is always the possibility of misunderstandings and tension in the management of the business.

Option 2: you establish a close corporation

In this case you become a member of the corporation and your personal assets are protected. Your accountability for any debts of the corporation does not exceed the amount of capital that you contributed. Furthermore the income tax is fixed at 30%, which is substantially less than in the case of an individual. You can also allow other people to become members, which means that you obtain additional financial support and do not stand altogether alone. As a close corporation functions in terms of a specific law, the interests of all the members are protected. The books of a CC must be done by a chartered accountant. There can be 1 – 10 members.

The name of a close corporation always ends in CC, for example Laser Services CC.

Option 3: you create a private company

A company is managed in terms of a specific act and a number of requirements must be met that are not applicable to a close corporation. There must be a board of directors and the names of the board members must be made available to the Public Registrar of Companies . Fully audited annual statements must be submitted annually. Annual general meetings must be

held according to prescribed guidelines. All these requirements make the process of establishing a private company quite expensive.

The name of a private company ends in (Pty) Ltd.

Option 4: you take up a franchise

A franchise has many advantages for an individual, becomes a business owner, but has the support of the group and shares in advantages such as purchasing stock at lower prices, having access to tried and tested recipes (e.g. in the case of a restaurant), etc. Well-known names such as SPAR and 7-Eleven are examples of franchises.

Assessment

In Conclusion:

How would you feel if your name were to appear like this in the newspapers some day?

SOURCE

BLOEMFONTEIN BOASTS TWO IT MILLIONAIRES

Gert Coetzee

Once again an inhabitant of Bloemfontein has made a great hit in the field of information technology. This time it is Mr Brian Lackey (54), a jovial businessman who sold a computer program for tens of millions of rands to a foreign company.

Lackey’s success follows hot on the heels of that of Mr Igmé Hatting (27), a computer programmer who also hails from Bloemfontein. He sold his program for access control and equipment operation in stadiums to a foreign company for “somewhere between R106 million and R700 million”.

Lackey has confirmed that his 4D group has sold the right of use for a combined program for the micro-loaning industry and credit life insurance to the Australian division of an international company which has its headquarters in the United States of America.

This company may use the program in every country in the world except in South Africa. Lackey has retained the South African rights because he has many local clients and the business prospects in this country are “unlimited”.

Owing to the sensitivity of the transaction he cannot reveal the name of the foreign buyer or the purchase price.

According to a reliable source the purchase price is “round about R400 million”. According to Lackey the transaction has been finalised pending a condition that the program be made “web friendly”.

A team of workers has already been working on this for 12 to 15 hours per day for the past months. Payment will be done in US dollars once the program has been adapted.

Lackey, who was born in Walvis Bay, was the provincial manager of a catering business in the Free State until the ‘80s, when he started his own business.

In 1993 he started a micro-lending business. He asked a friend to write a program for the administration of loans so that he could manage the data of his 900 clients.

This program was hired out to other micro-lenders, some of them even in Cape Town. “Before we knew where we were, we were being inundated with calls. It was an easy decision to bid farewell to the micro-lending business in favour of the new venture of developing software.”

The 4D group , with companies such as Proloan Marketing and 4D Insurance Solutions in its stable, and with 30 employees in offices in Bloemfontein, Centurion and Cape Town, was established then.

Lackey does not write the programs himself, but conceives them. His employees do the rest.

Initially Lackey kept the good news to himself and did not tell his employees. Once it leaked out, he informed them about the new developments “so that they would not read about everything in the newspapers”. Every employee will receive a bonus.

(Source: Die Burger , 31 July 2003)