INTRODUCTION TO BUSINESS MANAGEMENT
CHAPTER 3: ESTABLISHING A BUSINESS
The legal form of ownership: an enterprise is an organisational structure through which business is conducted.
Confederations when choosing a form of business:
• Legal (or juristic) personality:
o Exists independently of its members. It is recognised as a legal subject alongside natural persons or
individuals.
o It has its own rights, assets and obligations. Its existence is not affected by changes in membership.
o This provides the business with continuity (perpetual existence). Therefore, the business could
potentially exist forever.
• Limited liability: The protection afforded by the juristic person to its members or owners in the event of
being sued.
The Sole Proprietorship:
• Owned and managed by ONE individual.
• Not a separate legal (juristic) person.
• Any profit of the business belongs to the owner in his or her personal capacity.
• The owner does not have limited liability.
• Owner has direct control and authority over the activities of the business.
• The proprietor may delegate some or all management functions or decisions to employees or agents.
• Members of the public are required to register the name of the Sole Proprietorship with the Companies
and Intellectual Property Commission.
Advantages:
• Simple to create
• Least expensive way of beginning a business
• Owner has total decision-making authority
• No special legal restrictions
• Easy to discontinue
Disadvantages:
• Owner is personally liable without limitation
• Limited diversity in skills and capabilities
• Owner has limited access to capital
• There is a lack of continuity
, The Partnership:
• Similar to a Sole Proprietorship
• Contractual relationship between two or more persons, called partners, who operate a lawful business with
the object of making profit.
• Unlimited numbers of partners
• Members of the public are required to register the name of their partnership with the Companies and
Intellectual Property Commission.
• Does not have legal (juristic) personality.
• Although a partnership is not a juristic person, the law nevertheless regards a partnership as an entity for
certain limited purpose:
• The partners may institute legal proceedings in the name of the partnership instead of citing all the
partners jointly on the summons.
• The law treats the partnership estate as a separate estate for purpose is sequestration. Although
the estates of the partners will also be sequestrated simultaneously when the partnership estate is
sequestrated, the partnership creditors will have to prove their claims against the partnership estate
and not against the estates of the individual partners.
• Should a partner be declared insolvent or mentally incapacitated, the partnership would usually be
terminated.
Advantages:
• Ease of formation
• Divarication of skills and abilities of partners
• Legal (juristic) and natural persons may be partners.
• Increased opportunity for accumulation of Capital
• Minimal legal formalities and regulation.
Disadvantages:
• Personal liability of partners
• Relative difficulty in disposing of an interest in the partnership (the partnership will terminate in any
event if there is a change in membership)
• The potential for conflict between partners
• Lack of continuity
CHAPTER 3: ESTABLISHING A BUSINESS
The legal form of ownership: an enterprise is an organisational structure through which business is conducted.
Confederations when choosing a form of business:
• Legal (or juristic) personality:
o Exists independently of its members. It is recognised as a legal subject alongside natural persons or
individuals.
o It has its own rights, assets and obligations. Its existence is not affected by changes in membership.
o This provides the business with continuity (perpetual existence). Therefore, the business could
potentially exist forever.
• Limited liability: The protection afforded by the juristic person to its members or owners in the event of
being sued.
The Sole Proprietorship:
• Owned and managed by ONE individual.
• Not a separate legal (juristic) person.
• Any profit of the business belongs to the owner in his or her personal capacity.
• The owner does not have limited liability.
• Owner has direct control and authority over the activities of the business.
• The proprietor may delegate some or all management functions or decisions to employees or agents.
• Members of the public are required to register the name of the Sole Proprietorship with the Companies
and Intellectual Property Commission.
Advantages:
• Simple to create
• Least expensive way of beginning a business
• Owner has total decision-making authority
• No special legal restrictions
• Easy to discontinue
Disadvantages:
• Owner is personally liable without limitation
• Limited diversity in skills and capabilities
• Owner has limited access to capital
• There is a lack of continuity
, The Partnership:
• Similar to a Sole Proprietorship
• Contractual relationship between two or more persons, called partners, who operate a lawful business with
the object of making profit.
• Unlimited numbers of partners
• Members of the public are required to register the name of their partnership with the Companies and
Intellectual Property Commission.
• Does not have legal (juristic) personality.
• Although a partnership is not a juristic person, the law nevertheless regards a partnership as an entity for
certain limited purpose:
• The partners may institute legal proceedings in the name of the partnership instead of citing all the
partners jointly on the summons.
• The law treats the partnership estate as a separate estate for purpose is sequestration. Although
the estates of the partners will also be sequestrated simultaneously when the partnership estate is
sequestrated, the partnership creditors will have to prove their claims against the partnership estate
and not against the estates of the individual partners.
• Should a partner be declared insolvent or mentally incapacitated, the partnership would usually be
terminated.
Advantages:
• Ease of formation
• Divarication of skills and abilities of partners
• Legal (juristic) and natural persons may be partners.
• Increased opportunity for accumulation of Capital
• Minimal legal formalities and regulation.
Disadvantages:
• Personal liability of partners
• Relative difficulty in disposing of an interest in the partnership (the partnership will terminate in any
event if there is a change in membership)
• The potential for conflict between partners
• Lack of continuity
