MINISTRY OF GENERAL EDUCATION

KASAMA COLLEGE OF EDUCATION

Programme: TEACHERS DIPLOMA

Subject: ENTREPRENEURSHIP EDUCATION

Module Title: ENTREPRENEURSHIP EDUCATION

Module No. 1

A person with a clear purpose will make progress even on the roughest road. A person with no
purpose will make no progress on even the smoothest road
You can have intelligence, knowledge base, study skills, and time management skills, but if you do
not have motivation, you would not set your goals
Definitions
Entrepreneur (Oxford Dictionary) – Person who undertakes an enterprise with chances of profit
or loss. (As I have understood, Entrepreneur is a person who undertakes a business activity of
which he has no background and faces considerable risks in the process. If either of the two
elements, i.e., “no background” or “considerable risk” is missing in the venture, it is no
entrepreneurship).

Entrepreneurship is the ability to create and build something from practically nothing. It is
initiating, doing, achieving and building an enterprise or organisation, rather than just watching,
analysing or describing one. It is the instinct of sensing an opportunity where others see chaos,
contradiction and confusion. It is the ability to build a founding team to complement your own
skills and talents. It is the know-how to find, marshal and control resources and to make sure
you don’t run out of money when you need it most. Finally, it is the willingness to take calculated
risks, both personal and financial, and then to do everything possible to get the odds in your
favour.
The above entails that an entrepreneur is a risk taker who takes advantage of any given opportunity
and resource in order to make a profit

Entrepreneurship – It is a philosophy or process through which an entrepreneur seeks innovation

and employment.
Entrepreneur Entrepreneurship Enterprise
Person Process or Philosophy Object

Are entrepreneurship born or made

Entrepreneurs are made; they aren’t born. (This statement is more of public posturing than fact.
Essential characteristics of an entrepreneur, i.e., ambitiousness, capacity to take moderate risks,
organizing ability, persistence, vision, etc, cannot be taught in any school. These are inborn
characteristics of a person. Know this fact but don’t write it in the answer sheet).

Remember
Don’t confuse entrepreneurship with running a business. Every person launching a business is not
an entrepreneur. A businessman’s son taking over his established family business or starting
another factory in neighbouring town is no entrepreneur because he is well trained in matters of
that business by virtue of constant exposure since childhood. He has support of family and friends
in terms of finance and advice should going gets tough. With his training, professional and personal
contacts and financial backing, risk element and uncertainty are almost missing in such business.
Whereas, a farmer’s son, venturing to open a grocery or even ‘pan shop’ is an entrepreneur because
he is stepping into an uncharted territory of which he has little/no training and therefore bears
considerable risk.

How do you define an entrepreneur in the 21st Century?

An entrepreneur of 21st century is a customer focused innovator. He uses e– knowledge.
Advantage is speed. He is a global thinker even though he may not necessarily be a global player.

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Standard (New) Definition
Entrepreneurship is the process of creating something different with value by devoting the
necessary time and effort, assuming the accompanying financial, psychic, social risks and
receiving the resulting rewards of monetary and personal satisfaction and independence.

Word “Entrepreneur” stems from French Verb Entreprendre – means between; taker or go between

New Definition involves four aspects –

(a) The creation process
(b) Devotion of time and efforts
(c) Assumption of risks
(d) Rewards of independence, satisfaction, money.

Advantages of Entrepreneurship
To an Individual
a) Provides Self Employment for the entrepreneur
b) Entrepreneur can provide employment for near & dear one as well
c) Entrepreneurship often provides an employment and livelihood for next generations as
well.
d) Freedom to use own ideas – Innovation and creativity
e) Unlimited income / higher retained income – Bill Gates has risen to become
f) richest in the world in a single life time through entrepreneurship
g) Independence
h) Satisfaction

To the nation
a) Provides larger employment – Entrepreneurs provide employment for self as well as other
people and is source of employment creation.
b) Results in wider distribution of wealth – This is a logical sequel of above issue. Higher the
employment, greater the distribution of wealth.
c) Mobilizes local resources, skills and savings
d) (d) Accelerates the pace of economic development – Entrepreneurship is the govt’s one of
the most trusted vehicles for economic development
e) (e) Stimulates innovation & efficiency

What makes a Successful Entrepreneur?

1. The urge for achievement (most often monetary ambitions) – Most Important
2. Willingness to take moderate risks – (High risk takers are not entrepreneurs but gamblers).
3. Determination to win
4. Win– Win Personality
5. Ability to identify & explore opportunities
6. Analytical ability to take strategic decisions

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 7. Perseverance
8. Flexibility
9. Capacity to plan and organize
10. Preparedness to undergo physical and emotional stress
11. Positive self-concept/Self Belief
12. Future orientation – Vision
13. Ethics and Values – Mission

Who can be an Entrepreneur?

1. Who feels the need for achievement
2. Who can take moderate risks
3. Who possess skills in organizing
4. Who can capitalize on opportunities
5. Who has some financial strength – On his own or borrowed
6. Who has ability to work hard
7. Who has desire for responsibility
8. Who has a clear perception of probability of success
9. Who gets stimulation by feedback
10. Anyone – He can be male, female or even a Eunuch
11. Who does not have previous experience.

Types of entrepreneur
Based on the interaction with the business environment, various types of entrepreneurs can emerge.
To this effect, Rockstar (2008) identifies the four types of entrepreneurs as
Innovative, Imitating, Fabian and Drone.

Innovative
This type of entrepreneur is preoccupied with introducing something new into the market,
organization or nation. They are interested in innovations and invest substantially in research and
development.

Imitating
These are also referred to as ‘copy cats’. They observe an existing system and replicate it in a
better manner. They could improve on an existing product, production process, technology and
through their vision create something similar but better. This is the case of the student becoming
better than the master!

Fabian
These are entrepreneurs that are very careful and cautious in adopting any changes. Apart from
this, they are lazy and shy away from innovations.

Drone
These are entrepreneurs that are resistant to change. They are considered as ‘old school’.
They prefer to stick to their traditional or orthodox methods of production and systems.
Entrepreneurs occupy three roles, namely as agent of (1) economic change (2) social change and
(3) technological change. These are referred to as behavioural roles. The types and roles of

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entrepreneur notwithstanding, all entrepreneurs possess certain characteristics and are motivated
to become entrepreneur due to certain factors or circumstances which we shall discuss in this unit.

Characteristics of Entrepreneurship and Entrepreneurs

There are several characteristics of entrepreneurship as:
1. Creative Activity: Entrepreneurship entails innovations. It deals with product innovation,
production techniques innovation while bearing in mind the market;
2. Dynamic Process: Entrepreneurship is a dynamic process that has to bear in mind the
dynamic business environment.
3. Purposeful Activity: Entrepreneurship is an activity embarked upon for a specific
purpose.
This could be for profit making purposes, for humanitarian purposes or to bring a difference
to the market.
4. Involves Risk: Entrepreneurship is a very risky venture; entrepreneurial decisions can have
far-reaching impact on the organization, people in the organization and even the economy.
5. These decisions are critical, enormous and cannot be easily reverted.
6. Risk Bearing Ability: The entrepreneur must have the capacity to bear risk. This is
because the new venture is created in an uncertain and risky environment. Basically, what
he is saying here is that entrepreneurs bear calculated risks and are more than glad to let
others bear their risk when it is convenient for them.
7. Technical Knowledge: Depending on the kind of venture created, the entrepreneur must
have technical expertise about production techniques and marketing.

Qualities of a good entrepreneurs

1. Ability to Gather Financial and Motivational Resources: Financial and motivational
resources are needed for the creation of the new business. Sometimes the entrepreneur, as
an individual may not have these resources but he/she/they should have the ability to gather
it from those who have it.
2. Self Confidence and Multi-Skilled: The entrepreneur must have self-confidence and
believe in him/herself. Self-confidence is an important characteristic that enables
individuals to handle any situation without having inferiority or any other type of complex.
The entrepreneur also has to be a jack of all trade and master of all. He/she must possess
different skills unlike other individuals. For instance, assuming an entrepreneur is a
marketer, the entrepreneur should not only possess marketing skills and interpersonal skills
but also language skills i.e. ability to speak more than one language. This definitely will be
an added advantage!
3. Confidence in the Face of Difficulties and Discouraging Circumstances: The
entrepreneur must be steadfast and resolute and be ready to move on even in the face of
adversity. He/she should be a ‘never say never’ kind of person; everything is possible for
the entrepreneur.
4. Innovative skills: The entrepreneur may not necessarily be an 'inventor' but the one that
can make a difference; he/she should be able to see what others cannot see and be able to
carve out a new niche in the market place.
5. Results-Orientated: The entrepreneur is one who knows how to get results under any
circumstances either with others or through others. The entrepreneur does this by setting

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 goals and ensuring that such goals are doggedly pursued by all concerned willingly and
with joy.
6. Risk-Taker: The business environment is dynamic and filled with uncertainties and risk.
In order to succeed the entrepreneur has to take risk. Successful entrepreneurs take
calculated risks and in some cases shift the risks to others.
7. Total Commitment: Starting /creating a new business is a serious exercise that requires a
lot of commitment and hard work. It is like bringing a child into the world and nurturing
the child to adulthood. This requires commitment, dedication, hard work, energy and
singlemindedness otherwise the ‘child’
8. Calm: Entrepreneurs need to be cool, calm and collected. They have to remain calm even
when exposed to stress, emergency or crisis situations.
9. Focused: In getting things done and starting and maintaining a business attention has to be
paid to a lot of details. Small things when not handled properly or noticed on time may lead
to disastrous outcomes.
10. Tolerance: The entrepreneur has to relate with people. People vary in terms of their
perceptions, personality, motivations and attitudes amongst other things. The entrepreneur
needs to be tolerant while not being weak, in order to get things done.
11. Balance: Though, the entrepreneur is a human being, he/she has to be like a super human
being in order for him to succeed. To this effect, he/she has to be able to balance all
emotions and characteristics and remain focused and objective while having emotional or
mental strength and resilience. Balance is important because too much of everything is bad.
12. Versatility: The entrepreneur has to be versatile and be ready to learn and use information
technology and other technology to the best advantage.
13. Seriousness: The entrepreneur has to believe in him/herself and the business and get things
done with total seriousness. As mentioned earlier, starting a new business is like giving
birth to a child; it is indeed a very serious business.
14. Planning Ability: The entrepreneur must be a planner; he/she must formulate goals and
develop action plans to achieve them. Planning is important for he/she who fails to plan,
plans to fail!
15. Prudence: The entrepreneur must be versatile in financial management. This is because
finance is the life-wire of the business. Also, to achieve the profit objective, the
entrepreneur must engage in efficient and effective financial management, and have sound
financial policies and practices.
16. Customer-Centric: Businesses are created to satisfy unmet needs. A successful
entrepreneur must be able to anticipate customers’ needs and satisfy them through his/her
product offerings. To do this effectively, the entrepreneur has to adopt a customer-centric
or customer-focused approach.
17. Team Player: Creating a successful business is a one man business but maintaining and
sustaining the business cannot be done by one person. The entrepreneur needs others to
work with him hence he has to have a formidable or winning team. To this effect, the
entrepreneur has to be an effective team manager and recruit the right team members but
the entrepreneur’s most important team members are the customers for without customers
a business cannot survive.

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Roles of Entrepreneurs
In order to perform their functions effectively and operate a successful business, entrepreneurs
have to perform certain roles. They are as follows:
1. Figure Head Role: The entrepreneur has to act as figure head in the organization, as such;
he/she has to perform ceremonial duties. This is done by representing the organization in
formal and informal functions.
2. Leader Role: The entrepreneur has to act as a leader because the entrepreneur is the one
who brings other people together in order to create the business. Thus, he/she has to lead
the people in the organization by hiring, firing, training and motivating them.
3. Liaison Role: The entrepreneur has to act as the link between the business and the parties
outside the business.
4. Monitor Role: The entrepreneur acts as a monitor; he monitors both the internal and the
external environment of the business constantly.
5. Information Disseminator Role: The entrepreneur has to act as the organizational
representative and transmit information both within and outside the business.
6. Spokesman Role: The manager has to act as the spokesman of the business; he/she is the
person for the business both inside and outside.
7. Entrepreneurial Role: This is the basic role of the entrepreneur; he/she launches new
ideas for the business and bears the risk.
8. Disturbance Handler: The entrepreneur also acts as arbitrator in situations of conflict so
as to maintain organizational harmony.
9. Resource Allocator: The entrepreneur decides on how the scarce resources of the business
are allocated among its competing ends so as to achieve organizational goals and
objectives.
10. Negotiator Role: The entrepreneur has to negotiate on behalf of the business both with the
other categories of labour and other outside sources.

The specific entrepreneurial roles noted earlier on have a number of activities in each role.
They are specified below:
Social Roles of Entrepreneur
a. Transformation of traditional indigenous industry into a modern enterprise.
b. Stimulation of indigenous entrepreneurship.
c. Job or employment creation in the community.
d. Provision of social welfare service of redistributing wealth and income.
Economic Roles of Entrepreneur
a. Bearing the ultimate risk of uncertainty.
b. Mobilizing savings necessary for the enterprise.
c. Providing channel for the disposal of economic activities.
d. Utilizing local raw materials and human resources.
Technological Roles of Entrepreneur
a. Stimulation of indigenous technology in the production process.
b. Adapting traditional technology to modern system.
c. Adapting imported technology to local environment.

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 d. Developing technological competence in self and the workforce through
innovation.

Creativity
The terms creativity and innovation are often used to mean the same thing, but each has a unique
connotation. Creativity is ‘’ the ability to bring something new into existence.” This emphasizes
the “ability,” not the “activity,” of bringing something new into existence. A person may therefore
conceive of something new and envision how it will be useful, but not necessarily take the
necessary action to make it a reality. Innovation is the process of doing new things. It is the
conversion of creative ideas into market place reality, which people are prepared to buy. This
distinction is significant. Ideas have little value until they are converted into new products,
services, or processes. Innovation, therefore, is the transformation of creative ideas into useful
applications but creativity is prerequisite to innovation.

Stages of creativity

Idea Preparation: Incubation:

Germination: Conscious Subconscious
The seeding search for assimilation of
stage of a new Knowledge Information
idea recognition Rationalization fantasizing

Verification: Illumination:
Application or Recognition of
test to prove idea idea as being
has value feasible
validation realization

THE CREATIVE PROCESS

Creative process comprises the following five stages as shown in figure 1:
1. Idea germination
Exactly how an idea is germinated is a mystery; it is not something that can be examined
under the microscope. For most entrepreneurs, ideas begin with interest in a subject or
curiosity about finding a solution to a particular problem.
2. Preparation
Once a seed of curiosity has taken form as a focused idea, creative people embark on a
conscious search for answers. If it is a problem they are trying to solve, then they begin an
intellectual journey, seeking information about the problem and how others have tried to
resolve it. Inventors will set up laboratory experiments, designers will begin engineering
new product ideas, and marketers will study consumer buying behaviour.

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3. Incubation
The idea, once seeded and given substance through preparation, is put on a back burner,
the subconscious mind is allowed time to assimilate information. Incubation is a stage of
‘mulling it over’. When an individual has consciously worked to resolve a problem without
success, allowing it to incubate in the subconscious will often lead to a resolution.
4. Illumination
Illumination occurs when the idea surfaces as a realistic creation. This stage is critical for
entrepreneurs because ideas, by themselves, have little meaning. Reaching the illumination
stage separates daydreamers and tinkerers from creative people who find a way to
transmute values.
5. Verification
An idea once illuminated in the mind of an individual still has little meaning until verified
as realistic and useful. Thus, verification is the development stage of refining knowledge
into application.

CAUSES OF ENTREPRENEURIAL FAILURE

• Believing that situations are unchangeable
• Believing money is absolute and that you can’t take action until you have it.
• Focusing on the past, ignoring the present, and doubting the future.
• Accepting failure as permanent.
• Unwillingness to adapt.
• Unwillingness to ask for help.
• Exaggerating challenges so you can have an excuse for quitting.
• Focusing on challenges instead of solutions.
• Lacking 100% clarity on what you want.

REASONS FOR ENTREPRENEURSHIP

• Create jobs
• Maintain free enterprise
• Promote healthy competition
• Generate wealth/Profit
• Spread prosperity
• Encourage grass root development
• National development
• Self-reliance
• Employer (self)
• Enhance wealthy stability
• Ensure innovation and creativity

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DESIRABLE BUSINESS ETHICS
• Honesty
• Integrity
• Fairness
• Loyalty
• Dependability
• Flexibility
• Punctuality
• Responsibility

BUSINESS IDEA AND OPPORTUNITY RECOGNITION

Every person has ideas and aspiration to have all the material needs that his/her heart craves for.
Unfortunately, the majority of us don’t go beyond our dreams. Why?
 Most of us are comfortable with our day-dreaming and make no effort further than that
 Perhaps we are “sinners” who have buried God’s talents
 May be we are afraid of trying
 Some of us may be waiting for a miracle (heaps of money from heaven) to implement our
dreams
 What ever the reason may be, know that the prospect is always available for anyone who
wishes to get it.

KEY CONCEPTS
BUSINESS IDEA:
 A thought/concept about a business venture which could bring-in profits
 A mental picture or vision about a singled out kind of business venture with a view of
making profits
OPPORTUNITY:
 A time, chance, or condition of things favorable to an end or purpose, or admitting of
something being done or effected
BUSINESS OPPORTUNITY:
• a chance or condition favorable for one to make profits
OPPORTUNITY RECOGNITION:
Process of seeing possibilities for new profit potential through (a) the founding a new
business, or (b) improving an existing one

SOURCES OF BUSINESS IDEAS

• own skills and talents (e.g. drawing, sport, sight seeing, preaching etc)
• work experiences, especially in the same line of business (e.g Lawyer, Teachers,
Accountants, Engineers )
• Unsolved problems or challenges (e.g. HIV/AIDS)
• Unsatisfied demands (e.g. university degree)
• already developed ideas and products or services
• current events or changes (e.g drought may necessitated supply of irrigation equipment)

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 • new knowledge and new technology (e.g. computer age has stimulated invention of C.Ds,
iPods, cell-phones etc.)
• new laws and regulations (e.g. ban on unleaded fuel, imported fresh milk)
• development of new markets (e.g. used cars from Japan to Africa)
• Change in taste and habits (e.g. demand for organically grown foods)
• available natural resources (e.g. Fish, sand, clay, minerals, forests etc)

POSITIVE FACTORS FOR IDEA GENERATION

Creativity:
 Being creative
 The ability to use imagination to develop new and original ideas
Innovativeness:
 Being able to turn ideas into final or semi-final products or services.
Experience:
 Experience broadens one’s knowledge and skills
Research:
 Information searching and gathering is one sure way of gaining experiences in a shorter
time

CHOOSING THE MOST CREDIBLE BUSINESS IDEA

Several methods may be used to come up with the most credible (business idea) alternative.

 The first method is to ask what other people think would be the best business, stating their reasons.
The ideas are questioned from different angles. This enables to find out the worthiness of the ideas.
 Comparing the capital requirements and profitability of each idea and then choosing the most
economic idea.
 SWOT analysis can be employed

FEATURES OF A PRODUCT BUSINESS IDEA

 Adaptable- it should be able to survive different situations
 Focuses on the customer:
o Who the customer is
o What needs for the customer we aim to cover
o What products we wish to offer in order to cover the needs
 The business idea must be formulated in writing
 Ability to be explained clearly in fewer words
 Easy and comprehensible
 It should be a guiding star for the employees
 The idea must express the characteristics of the enterprise
It should provide for flexibility. The guiding star principle of the business idea does not mean that it is
unchangeable. It may be changed according to need

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Example
Mr Kwangala has lived in Mansa all his life. He works full time in a bakery and has always wanted a
business of his own.
Mrs Kwangu is a friend of Mr Kwangala. She also lives in Mansa, where she works in a Wholesale. She
has talked to Mr kwangala about starting a business of their own.
They have both saved some money and Mr Kwangala knows the bakery business well enough for them to
start their own bakery. Their idea is to start a bakery in Mansa. This is how they have thought out their
business idea:

BUSINESS IDEA
The business idea:
 Produce loaves of bread and bread rolls.
The customers will be:
 General dealers, caterers, as well as all people living in Mansa
Name of business:
 Fresh Bread Bakery
The business will sell in the following way:
 Bread will be delivered to general dealers and caterers.
 Other customers will buy from a shop at the bakery.
The business will satisfy the following needs of the customers:
 General dealers need to sell fresh bread to their customers.
 Caterers need bread to serve with their meals, private customers need a convenient place to buy
bread for their household.
Activity
Think through your own business idea and use the example to come up with business idea which
should be included in your business plan. This should be written down

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PROCESS OF OPPORTUNITY RECOGNITION
Business prospect proved.
Business venture starts

Idea examined and

weighed against
alternatives

Potential opportunity
seen

Idea clicks on
mind

INNOVATIONS AND INVENTIONS

The creation of Results in new

Inventions
something new knowledge

The transformation of an Results in new

Innovations idea or resource into products,
useful applications services, or
processes

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SITUATION ANALYSIS
An Overview of SWOT Analysis
SWOT entails the objective analysis of a business’s Strengths and Weaknesses and its
opportunities and Threats. In order to identify its strengths, weaknesses, opportunities and threats,
an organization has to carry out internal and external evaluation and also opportunities/threats
analysis and strengths/weaknesses analysis.

The situation analysis helps you to determine where your organization presently stands. It should
examine how the business is functioning internally and how the external environment is affecting
it. One of the methods used to come up with a situation analysis is the SWOT analysis. SWOT
stands for strengths, weaknesses, opportunities, and threats. When conducting the SWOT
analysis, you should:
• Examine your company’s strengths, weaknesses, opportunities, and threats from a
customers’ point of view. If you have trouble viewing issues that way, ask customers what
they think or conduct surveys.
• Separate internal issues from external issues. The company’s strengths and weakness are
internal; opportunities and threats are external. The key test to differentiate the two
environments is to ask, “Would this issue exist if the firm did not exist?” If the answer is
yes, the issue should be classified as external. (PEST)

STRENGTHS/WEAKNESSES ANALYSIS
This involves scanning the internal environment of the business in order to identify its strengths
and weaknesses. The entrepreneur needs to evaluate the strengths and weaknesses of the business
periodically. Also, the entrepreneur can assess the internal environment of the business by
critically looking at the internal factors in terms of the 5s, namely: Skills, Strategy, Staff, Structure,
Systems and Shared Values.
To do this effectively the entrepreneur needs to ask him/herself and answer questions pertaining
to the 5s (five ‘s’) in terms of their strengths and weaknesses by developing questionnaires to ask
questions pertaining to major internal environmental factors such as:

Skills: What skills do the organizational members possess?

What are the distinctive competencies of the organization?

Strategy: Does your business have a clear vision and mission?

Are your business objectives/goals derived from its mission?
Does your business have plans?
Do you follow the laid down plans of the business as scheduled?
Does your business have clear strategies to operationalise its policies?
What skills do the organizational members possess?
What are the distinctive competencies of the organization?

Staff: Does the business have qualified staff for the relevant positions?
Are the staff rightly placed?
Does the business have adequate number of personnel to man the various positions?

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Structure: Does the business have an organizational structure or organogram?
What type of organization structure does your business adopt?
Are there clear lines of reporting and communication?

Systems: Does your organization have a system?

What kind of systems (e.g. MIS, Accounting, Quality Control, and Inventory) does your business
have in place?

OPPORTUNITIES AND THREATS ANALYSIS

This involves scanning the external environment of the business in order to identify the
Opportunities and Threats. The entrepreneur can assess the external environment of the business
by critically looking at the opportunities and threats emanating from changes in the major external
environmental factors. For instance opportunities in the technological environment could be
availability of advanced technology, developments in Information Technology like the advent of
the GSM; opportunities in the Political/Legal environment could be favourable government
policies, tax holidays; opportunity in the Demographic environment could be great market
demand; opportunities in the Economic environment could be growing export market increased
consumer spending and growing industry.

COMPONENTS OF THE BUSINESS ENVIRONMENT – AN OVERVIEW

Scholars have classified the business environment using various basis or criteria. This
notwithstanding, it should be noted that the business environment is made up of the internal and
the external environment and the main macro-environmental forces/factors found in the external
environment and micro-environmental forces/factors/ in the internal environment of the business.
These are discussed briefly in succeeding sections.

INTERNAL ENVIRONMENTAL FACTORS:

The internal environmental factors refer to those factors over which the entrepreneur has control,
at least in the short run; this is why it is also called the controllable environment of the business.
The internal environment of the business is made up of all those physical and socials factors within
the boundaries of the business, which impart strengths or cause weaknesses of a strategic nature
and are taken directly into consideration in the decision-making behavior of the business. Strengths
are inherent capacities, which a business can use to gain strategic advantage over its competitors;
they are the internal strong points of the business such as: its core skills, competencies and
expertise. While weaknesses are inherent limitations or constraints, which create strategic
disadvantages, they are the internal factors that are lacking in the business. A successful
entrepreneur will find ways of overcoming the weaknesses and convert them into strengths

The internal environment of the business is made up of micro-environmental factors such as:
organizational goals and objectives, specific technologies utilized by component units of the
organization, the size, types and quality of personnel, its administrative units, and the nature of the
organization’s product/service. The nature of a business’ internal environment is also determined
by the organizational resources, organizational behaviour, strengths, weaknesses, synergistic
relationships and distinctive competence.

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EXTERNAL ENVIRONMENTAL FACTORS:
The external environmental factors refer to those factors over which the entrepreneur has no
control but have tremendous impact on the survival of the business; this is why it is also called the
uncontrollable environment of the business. Within the external environment of the business are
all the factors which provide opportunities or pose threats to it. Opportunities are favourable
conditions in the business’ environment, which enable it to consolidate and strengthen its position.

The major external environmental factors are:

a) Demographic factors: These include the market i.e. consumer populations. It deals with
their composition in terms of sex, age, income, marital status, educational levels etc.
b) Political/Legal Factors: this is made up of laws, government agencies and pressure groups
that affect the business.
c) Technological Factors: This deals with knowledge of how to accomplish tasks and goals,
and innovations.
d) Natural Environment: This deals with all the gifts of nature or natural resources of the
nation that serve as input for the business.
e) Socio-Cultural Factors: These deal with the people, their norms, values and beliefs as
they affect the business.
f) Economic Factors: These deal with the Macro level factors relating to means of
production and wealth distribution. It also includes the forces of supply and demand,
buying power, willingness to spend, consumer expenditure levels, and the intensity of
competitive behaviour.
g) Competitive Environment: These are those firms that market products that are similar to,
or can be substituted for, a business’ product(s) in the same geographical area. The four
general types of competitive structure are monopoly, oligopoly, monopolistic competition,
and perfect competition.
h) Other Factors: The other factors making up the external business environment are: (1)
Suppliers, which are other firms and individuals that provide the input resources needed by
the organization to produce goods and/or services. (2) Intermediaries, who are independent
businesses that perform all the activities necessary to direct the flow of goods and services
from manufacturers/marketers to ultimate consumers/customers. They include
wholesalers, retailers, agents and distributors, and (3) Customers who constitute a portion
of the target market of the business; they are the ones the business strives to satisfy.

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THE PRODUCT
PRODUCTION
By “production” we mean the turning or changing of raw materials into semi-finished or finished products
to meet market needs. Production is also defined as making products and services available to the consumer.

Successful production and marketing are evidence of entrepreneurial abilities of those who wish to enter or
carryon business. Before starting the production, one has to be sure that there is a market for it. This will
have to be based on a market research, which will give an estimate of the expected market share and in turn
the expected production levels. The market research also provides information on the upper and lower price
limits.

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LEVELS OF PRODUCTION
There are basically four types or levels of production. These are;
 Primary production level- this includes farming, forestry, fishing, and mining. This involves
extracting or tapping products form nature. Examples: catching fish from the lake, making planks
from tree logs, growing crops on the soil, and mining copper ores from the ground.
 Secondary production level- this involves manufacturing and processing. Resources tapped from
nature are worked on in order to make them into semi-finished or finished products. Examples:
making shoes from turned animal hides, grinding mealie meal from maize, making bread from
wheat flour and other ingredients, and assembling vehicles or radios.
 Tertiary production level- this involves making products from the primary and secondary
production available to the final consumer through retailing and wholesaling. It also involves
provision of services like banking, insurance, electricity, water and sanitation, and transportation.
 Quaternary production- in this type of production the entrepreneur’s concern is research.

ORGANIZING PRODUCTION
If it takes a long time to prepare the production process, it may be worthwhile to manufacture a bigger
quantity to get the total cost of each product as low as possible. But you also have to consider the danger
of manufacturing products for storing, versus choosing a small production to cut costs.

THE PRODUCT
Coming up with a business idea means having an idea of what the business wishes to provide to the would-
be customers. A product is anything that has physical and emotional utility which can satisfy the needs and
preferences of customers, i.e. how an item is packaged, what spare parts will be made available, and any
other after- sales services that will be offered. Products can either be goods or services. Customers buy
goods and services to satisfy different needs. For example

 Cold drink satisfy a need to feel cool in hot weather

 Bicycles satisfy a need for transport
 Bicycle repair also satisfy a need for transport
 Bicycle repairs also satisfy a need for transport
 Radios satisfy a need for news and entertainment

When you understand your customers’ needs, you can decide what goods or service to provide.
The initiator may have a vague or clear idea of a product which he or she will want to provide. It is normally
a long way to grow from the stage where the idea is born to a readily developed product. In shaping the
final product, we need to have a basis in our knowledge of the market, customers and competitors. The
product must be adjusted to the taste of the buyers. A customer will buy a product if he/she is convinced
that the product has;
 pricing
 A high quality
 Reliability
 Flexibility
 Product pre-package

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Product pricing
The price of the product or service is determined by its cost of production and how much profit the
entrepreneur wants to make for it. It is also derived from comparing the company’s planned pricing with
that of competitors. Student companies are advised not to peg a product or service at a very high price
because this may reduce the volume of sales. Entrepreneurs should also know that a product’s market price
usually determines its upper limit of pricing while the lower limit is decided by the manufacturing costs of
the products.
High quality
This consists of two components:
- High – performance design
- Fast delivery time
Customers will pay more for a product if they believe that it will last longer. Speeding up in service is a
superior feature in fast food outlets. This has to be done without compromising the high quality of the
product/service.
Quality reliability
Reliability is consistent quality and on time delivery
Flexibility
A product should be easy to customise and one should be able to accelerate or decelerate the rate of
production as the demand for a product changes.

CHARACTERISTICS OF A PRODUCT
The figure below will give you examples of characteristic features, which are essential to a product:

Be a door opener

Price Packing
Create a
Create an complete
Core-product customer
image

Status
Brand name

Establish loyalty

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Activity
Write down the information about your two products in the product section of the business plan.

MARKETING PLAN
Having thought about the product or service that the company wishes to deal in, the next step would be to
do a market research to find out if the product or service would have customers. The information from the
market research would then assist develop a marketing plan.
What is a market?
The term market refers to any place where buying and selling of products and services take place. It is also
people with money who are willing to buy products.
What is marketing?
Marketing is the process by which a product or service originates and is then priced, promoted, and
distributed to consumers. It is everything done to find out who the customers are and what they need and
want. Its how to satisfy customers while making a profit by:
 Providing the services or products they need
 Setting prices that they are willing to pay
 Getting the products or services to them
 Informing and attracting them to buy the products or services

MARKET RESEARCH
Market research is about acquiring and analysing information required for making marketing decisions and
eventually the marketing plan. The two basic areas in which the information is sought are (a) markets
(existing and potential), and (b) marketing tactics and methods. The former is oriented towards what is
happening outside the organisation, in the market place. The latter is oriented towards the way in which the
organisation is responding internally to its customers, present and future.
The aims of marketing research
The aims of market research or survey include:
 To gather sufficient knowledge about the target groups; those who want to buy your products or
use your services
 To find out what types of products the target groups are interested in so that the business
does not waste resources by producing goods or services that are not required
 To discover what will influence consumers’ willingness to buy the goods or services, i.e.
product name, style and colour of packaging, best target audience, price range, and
effective hidden persuaders.
 To assess the likely volume of demand to ensure that over production does not occur

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 Types of market research
1. Experiments
2. Observation
3. Surveys

Importance of marketing research

Market research provides a marketer with information which will help in making decisions about
 Where to sell a product or service
 How to sell it
 Which customers need the product and exactly what they want
 How to price the products
 How to promote the products
 Who are the competitors in the market place
 What the size of the market is

Marketing of student-companies and their products is the most important, and may be the hardest work in
the whole process. No product is self-selling, and a new company may find it hard to get into the market,
where experienced companies already exist. To survive as a student-company, the company has to let the
market know that it exists and has products and services to sell through different media e.g. word of mouth,
posters.
The following are examples of how to find out more about customers and competitors:
 Talk to potential customers. Ask them, for example:
o what products or services they want to buy
o what they think about your competitors
 Study the competitors’ businesses. Find out about:
o their products and what they do not stock
o what prices they charge
o how they attract customers to buy
o their sources of supplies
 Ask suppliers and business friends:
o Which products sell well in their business
o What they think about your business idea
o What they think about your competitors’ products
 Read newspapers, catalogues, and business magazines to get information and ideas on new
products or services.

EXAMPLE
Mr. Kwangala and Mrs. Kwangu having lived in Mansa all their lives know a lot of people, store owners
and caterers in town. They talk to them about what kind of bread they want and what service they would
like. They also talk to all their friends to find out what they need and how they want to buy bread.
When Mr. Kwangala and Mrs. Kwangu have done their market research, they write down what they found
out in their business plan:

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The table below would provide guidance to undertake a market research on products or services, customers,
and competitors.

MARKET RESEARCH
Product or service Customers Needs & preferences of Competitors
customers
Loaves of bread and General stores They do not need more Tasty bread
bread rolls types of bread than our - High price
two. - Does not deliver
It is important for them to to customers
have fresh bread - Sells loaves rolls,
delivered several times cakes, biscuits
every day. and buns.
- Located in the
middle of town.
They do not need more
types of bread than our
Caterers two.
It is important for them to
have fresh bread
delivered at specific
times, especially before
lunch and after work.

They often buy our plain

type of bread at general
store when they do their
other shopping. When
they only want to buy
bread they often prefer to
Individual customers go to the bakery to have
really fresh bread. They
buy sweet bread as well,
but not very often.

ACTIVITY
Do a market research for your proposed product or service and fill in your findings in the market research
forms part of your business plan.

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IMAGE CREATION AND PRIMARY TARGET GROUP
This is part of marketing strategy in which the entrepreneur creates a distinct profile and identity of his/her
company that makes it differ from competitors. Image creation is important because one might think that
everyone will want to buy the product or use the service she/he provides when only a few may really end
up as customers. When creating one’s own identity and profile it may be a good idea to observe a few
questions:

 When people are to describe your company, what words do you hope they will apply?
 What do you want to emphasize about the product or the service?
 Who are your customers, and what is important to them?
 What makes your company differ from your competitors and similar companies?

The company must design and develop the following promotion materials:
 Make a logo and an advertisement board, which tells who you are.
 Make a slogan that makes people remember the company.

THE MARKETING PLAN

A marketing plan is part of the business plan outlining the marketing strategy for a product or service. The
marketing plan includes information such as the products or services offered by a company, pricing, target
market, competitors, marketing budget and promotional mix. The diagram below shows components of a
marketing plan. Appendix A provides a blank marketing plan which could be filled in.

Situation Market Market Implementation/ Follow-up/

analysis goals / strategies course of action evaluation
objectives and control

MARKETING GOALS AND OBJECTIVES

After determining the company's strengths, weaknesses, opportunities, and threats, you'll have a better idea
of the marketing goals and objectives that should be set. Goals are the overall accomplishments that a
company would like to achieve. Objectives are benchmarks to meeting those goals. For example:

Marketing Goal: Increase awareness of Product X

Corresponding Objectives: Increase last year's direct mail distribution by 20% this year; or develop a web
site for Product X by June 1st; or participate in five trade shows by the end of the year.
Goals must be realistic and consistent with the firm's mission. Objectives must be measurable and time-
specific. The goals may be expressed in terms of:
 The size of the sale; quantity in terms of stock sold in a specific period (week)
 Market share; the size of a company’s sales of a given product in relation to the total sales of the
same product in a given market. It can be calculated in terms of value or units sold.
 Profitability; the business’ ability to make profits

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Marketing Strategies
Strategising is the determination of medium term or long-term goals and objectives of an enterprise. It also
involves adopting courses of action and allocating resources necessary for carrying out the goals and
objectives. A company’s strategy consists of a combination of competitive moves and business approaches
that managers employ to please customers, compete successfully, and achieve organisational objectives.
Strategy is concerned with positioning the business in the market, and establishing a reputation with
customers.
The situation analysis tells us where we are today while goals express what we want to achieve in future.
The two do not, however, indicate the road to reach the set goal, this is done through formulation of
strategies.
Formulation of marketing strategies is based on the marketing mix elements (product, price, place, and
promotion) as they relate to the product or service. Marketing mix is a collective term that is used to refer
to the whole range of marketing activities, techniques and strategies that a firm uses to reach its target. The
marketing mix elements are popularly known as the 4 Ps. Some questions you may want to answer,
according to the 4Ps, for each target market include:
PRODUCT
 What are the features and benefits of your product?
 What is your competitive advantage?
 How will you position and differentiate your product?
 What complementary products are available?
 What customer services are available?

These questions relate to decisions on the brand name, functionality, styling, quality, safety, packaging,
repairs and support, warranty, accessories and services.

PRICE
 What are the costs associated with the product or service?
 What will your pricing strategy be?
 Will you give discounts?
These questions relate to decisions on pricing strategies, suggested retail price, suggested wholesale price,
volume discount, cash discount, seasonal pricing, price flexibility, and price discrimination.

Place/Distribution
Place means the premises where your business will be located. The location is always very important for
retailers, wholesalers and service operator because their businesses need to be at a place that is convenient
for the customers. For a manufacturer, place also relates to decisions on the distribution channels, market
coverage, warehousing and storage, order processing and transportation.
The location of the business has to be convenient as it relates to:
 The accessibility of the customers
 The spatial needs of the business
 The equipment and buildings to be put in place
 Who are your suppliers of raw materials and intermediaries?
 How will you make the product or service conveniently available to consumers?
 What partnerships can be developed to distribute the product?

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PROMOTION
Sales Promotion refers to short-term activities designed to attract attention to a particular product and to
increase its sales, using advertising and publicity. During the period of a sales promotion, the product may
be offered at a reduced price and the campaign may be supported by additional telephone or door-to-door
selling or by competitions. The following questions are considered during a promotion:

 Where will you advertise?

 What public relations activities will be involved?
 If you will be involved in personal selling, what is your sales strategy?
 What types of promotions will you run?
 What sponsorship opportunities are available?

Advertising
Advertising is a means of communication which is used to make consumers aware of the goods and services
that producers and traders have to offer. Advertising is a message that uses words, picture, or sound. The
purpose of advertising is:
 To inform potential buyers of the availability of goods and services
 To persuade people to buy the products or services

The functions of advertising include

 To announce new products
 To highlights the unique features of a product
 To build a firm’s image around its product
 To highlight special events
 To increase market share by stimulating demand
 To educate consumers about the products
 Marketing refers to all the process involved in selling goods or services in the 0+-most profitable
and efficient manners

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SALES
Definition
Sales is the act of meeting prospective buyers and providing them with a product or service in turn for
money or other required compensation. At the same time, sales may refer to the volume of products or
services sold.

SALES PROCESS
Whether conscious or not, all those involved in selling follow some steps as they conduct
transactions. Below are some of the steps which we go through in the sales process:

1. Preparation
Before you start selling, you need to prepare. You should know what you are selling and how to
sell it. You should also know your potential customers. Your attitude is very important as you
prepare for selling. You need to be motivated, confident, and enthusiastic.

2. Meet and qualify your potential customers

Some companies use advertising to bring-in potential customers or to get leads. Others require the
sales staff to go out and find potential customers and arrange a demonstration. Once the company
has found the potential customers, the salesman must meet the person and qualify whether he or
she is a prospect.
There are a number of ways you can arrange to get together with a potential customer, depending
on the business:
 Potential customers may be invited to the company premises
 The Salesperson may make an appointment to meet the potential customers at their business or
work place
Qualifying is talking to the person to find out as much as you can about what he/she wants, as well
as interests and possible "hot buttons" that may influence a sale.
Some areas to ask about include:
 What model? Color? Style?
 Price range?
 Who is the decision-maker? (i.e. husband or wife?)

3. Demonstrate how to use (or the benefits of) the product or service
Seldom is a sale made without some sort of demonstration of the product or service. The benefits
of the product or service will convince the person that he or she wants it. Note that sometimes
people will ask for the "best price" before they even have a feel or test of the product or service.
Usually these people are simply looking for a price-range that they can afford or they aren't serious
buyers at this time.

4. Negotiate the sale

Negotiation entails convincing the potential customers to become your customers and to buy the
product or service. This is what is called "closing the sale" in many cases. Why we call it
negotiating is because, if the price is right, the person will usually buy.

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5. Make the exchange and deliver goods
Once the person agrees to terms, payment is made and delivery of the product or service is arranged. The
sale is usually complete. But sometimes the sale gets to this point and the person cannot get the financing.
Other problems may occur at this point, so the deal isn't done until the money is in your hands.

SALESMANSHIP
Salesmanship is the ability to persuade others to buy one's products, services or ideas. A satisfied customer
will often return to buy more on a later occasion. A satisfied customer will even recommend the company
and the sales representatives to friends and relatives.
Effective salesmanship is comprised of specific abilities and attitudes which can be named and learned. The
following are the Basic Skills that successful Sales Persons have:
1. Effective Communicator
A Salesperson must have the ability to speak clearly and in a manner that is easy to understand.
2. Ability to Listen
Along with speaking, good Salespersons know when to stop talking and listen. They never cut
someone off while they are talking, because in doing so they would fail to hear a key element in
identifying what that person's needs might be.
3. Asks objective Questions
Salespeople are naturally inquisitive and know that in order to isolate what the real need or desire
is in the buyer, they need to ask questions that will lead them to the answer. They naturally ask
questions because they have a desire to help solve their problem.
4. Problem Solver
Great sales people posses the ability to guess what the buyer's problem is and offer suggestions that
will effectively solve the problem with respect to what products or services they sell.
5. Well Organized
Good Salespersons have the ability to break things down into smaller steps and organize a plan of
action. They know how to analyze what their goal is and in what order the steps need to be to reach
that goal.
6. Self-Starter and Self-Finisher
Successful salespersons move forward on their own. They never need anyone to tell them when it
is time to go to work because they know that if they do not work they will not earn. They are also
very persistent to finish what they start. They achieve their goals, even if they are small ones.
7. Positive Self Image
Having the attitude that they can do just about anything that they put their mind to is usually very
common among sales people. They do not cower from meeting or talking to people or trying
something new. They rarely allow negatives that are either spoken to them or about them to affect
what they are trying to accomplish because they know who they are and what they are capable of
doing.

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 8. Well Mannered and Courteous
The best sales people are very well mannered. People are attracted to those that respect them.
Mutual respect is fundamental in building lasting relationships with people in business.
9. Naturally Persuasive
Another very common inherent skill with great sales people is that they are very persuasive or know
how to get what they want. They can convince a potential buyer to buy what he/she did not initially
intend to buy.
10. Person of Integrity
A salesperson without integrity will have many struggles which will often include hopping from
job to job. Honesty in sales is so important and it is almost impossible for this skill to be taught.

FORMS OF BUSINESS OWNERSHIP AND LEGAL IMPLICATIONS

CONSIDERATION FOR THE CHOICE OF THE FORM OF BUSINESS
ORGANIZATION
You have to appreciate the fact that there are various forms of business organizations that exist in
the environment. Again, business is a profit-seeking enterprise established for the purpose of
creating goods and services that meet the needs of mankind. Business plays a major role in the
lives of every individual as well as a nation. Business activities are undertaken to improve the
financial and the material welfare of the participants. A major group that plays an active role in
business within a capitalist economy is the entrepreneur, that is, a person who perceives investment
opportunities and takes advantages to exploit them by organizing for the business. There is no
single best form of business ownership. Each form has its own unique set of advantages and
disadvantages. The key to choosing the optimum form of ownership is the ability to understand
the characteristics of each business entity and how they affect an entrepreneur’s business and
personal circumstances.

The following, are relevant issues the entrepreneur should consider in the evaluation process:
a) Tax consideration: In a graduated tax rates, the government’s (that is Local, State and
Federal) constant modification of the tax code, and the year-to-year fluctuations in a
company’s income require an entrepreneur to calculate the firm’s tax liability under each
ownership option every year.

b) Liability exposure: Certain forms of ownership offer business owners greater protection
from personal liability due to financial problems, faulty products, and a loss of other
difficulties. An entrepreneur must evaluate the potential for legal and financial liabilities
and decide the extent to which they are willing to assume personal responsibility for their
companies’ obligations.
c) Start–up and future capital requirements: The form of ownership can affect an
entrepreneur’s ability to raise start-up capital. Also as a business grows, capital
requirements increase, and some forms of ownership make it easier to attract outside
financing.

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 d) Management ability: Entrepreneurs must assess their own ability to successfully manage
their own companies. Otherwise, they may need to select a form of ownership that allows
them to involve people who possess those needed skills or experience in the company.

e) Business goals: The projected size and profitability of a business influences the form of
ownership chosen. Business often evolves into a different form of ownership as they grow,
but moving from some formats can be complex and expensive. Legislation may change
and make current ownership options less attractive.

f) Management succession plans: Entrepreneurs, in selecting a form of business ownership,

must look ahead to the day when they will pass their companies on to the next generation
or to a buyer. Some forms of business ownership better facilitate this transition. In other
cases, when the owner dies –so does the business.
g) Cost of formation: The cost of formation to create business ownership varies from one
form to the other. Entrepreneurs must weigh the benefits and the costs of the form they
choose.

Forms of Business Ownership

Whether small or large, every business fits one of three categories of legal ownership, sole
proprietorships, partnership, and corporations.

Sole Proprietorship
The sole proprietorship is the simplest and most popular form of ownership. This form of business
ownership is designed for a business owned and managed by one individual. Sole proprietorship
is the easiest kind of business for you to explore in your quest for an interesting career. The sole
proprietor is the only owner and ultimate decision maker for the business. The sole proprietorship
has no legal distinction between the sole proprietor status as an individual and his or her status as
a business owner. The simplicity and ease of formation makes the sole proprietorship the most
popular form of ownership in Zambia.
One approach when naming a business is to visualize the company’s target customer. What are
they like? What are their ages, gender, lifestyles and location? What makes our company
competitive or unique to those customers? Although sole proprietorships are common in a variety
of industries, they are concentrated primarily among small businesses unit such as repair shops,
small retail outlets, and service providers, for example, such as painters, plumbers, and barbing
saloon.
Advantages of proprietorship: Following are the advantages of proprietorship
1) Least cost of business ownership to establish
2) Minimum or no special legal restriction
3) Ownership of all profit
4) No special taxes since business income and proprietors’ income are taxed as one.
5) Maximum incentive to succeed
6) Privacy
7) Flexibility of operation
8) Easy to discontinue

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Disadvantages of proprietorship: Following are the disadvantages of proprietorship
1) Unlimited personal liability
2) Limited access to capital for expansion
3) Limited skills and abilities
4) Feelings of isolation /overwhelming time commitment
5) Few fringe benefits
6) Limited growth
7) Lack of continuity for the business that has a limited life span.

PARTNERSHIP
Another option for organizing a business is to form a partnership. A partnership is a legal form of
business with two or more owners. Partners legally share a business assets, liabilities, and profits
according to the terms of a partnership agreement. The law does not require a written partnership
agreement, also known as the articles of partnership, but it is wise to work with an attorney to
develop an agreement that documents the status, rights and responsibilities of each partner. The
partnership agreement is a document that states all of the terms of operating the partnership for the
protection of each partner involved. Banks often want to review the partnership agreement before
lending the business money.

A partnership agreement (Deed) can include any legal terms the partner’s desire. The standard
partnership agreement will likely include the following information:
1. Name of the partnership
2. Purpose of the business
3. Location of the business
4. Duration of the partnership
5. Names of the partners and their legal addresses
6. Contributions of each partner to the business, at the creation of the partnership and later.
7. Agreement on how the profits or losses will be distributed.
8. Agreement on salaries or drawing rights against people for each partner.
9. Procedure for expansion through the addition of new partners.
10. Distribution of the partnership asset to the partners.
11. Sale of the partnership interest
12. Absence or disability of one of the partners
13. Voting rights
14. Decision making authority
15. Financial authority
16. tax matters
17. Alteration or modifications of the partnership agreement.
18. Termination of partnership
19. Distribution of assets upon dissolution of the partnership

A Partnership can be regarded as an improvement on sole proprietorship form of business

organization, the minimum number of people that can form a partnership is two, while the
maximum is twenty, with the exception of partnerships comprising professionals; for example,
lawyers, accountants, doctors, to mention just a few. Notably, most partnerships are usually formed
by professionals and those that engage in service oriented business concerns.

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Types of Partnership: There are two types of partnership, on the basis of liability of partners
(1) General partnership: This is a partnership in which all owners share in operating the
business and in assuming liability for the business’ debts.
(2) Limited partnership: This is a partnership with one or more general partners and one
or more limited partners. Limited partnership is one in which certain partners are liable
only for the amount of their investment.

Advantages of Partnership: The following are the advantages of Partnership

 Easy to establish
 More financial resources
 Shared management and pooled /complementary skills and knowledge
 Division of profits
 Minimum governmental regulation/limited legal restrictions
 Flexibility
 Freedom from double taxation
 Secrecy
 Longer survival
Disadvantages of Partnership: The following are the disadvantages of Partnership
 Unlimited liability
 Division of profits
 Disagreement among partners especially with regard to authority and control
 Difficult to terminate because partners are bound by the law of agency
 Restrictions on transfer of ownership
 Lack of continuity

CORPORATIONS
• The corporation is the most complex of the three major forms of business ownership. It is
a separate entity from its owners and may engage in business, make contracts, sue and be
sued, own property and pay taxes. Corporations are divided in to two types and these are
explained below;
1. Private Limited Company
A Private Limited Company is a closely held company whose shares are controlled by a
relatively small number of people, often family members, relatives, friends or employees.
A good example of a Private Limited Company is the Post Newspapers Limited.
2. Public Limited Company
A public Limited Company is a company that has a large number of shareholders and its
stock is available to the general public through the stock exchange. An example of a Public
Limited Company is Zambeef PLC.

ADVANTAGES OF THE CORPORATION

• Limited Liability of Stockholders – because a corporation is a separate legal entity, a
corporation allows investors to limit their liability to the total amount of their investment
in the business. In other words, creditors of the corporation cannot lay claim to
shareholders’ personal assets to satisfy the company’s unpaid debt. The legal protection of
personal assets from business creditors is of critical concern to many potential investors.
The corporate form of ownership does not however protect its owners from being
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 personally held liable in instances where owners commit criminal or negligent acts when
handling corporate business
• Ability to attract capital – Corporations attract large amounts of capital because of the
limited liability that they offer to the investors. The growth prospects can also allow a
private limited company to raise money through the stock exchange by inviting the public
to buy shares through an initial public offering (IPO).
• Ability to continue indefinitely – A corporation can continue existing indefinitely
provided that it pays its taxes and honours its legal obligations such as the filing of returns.
The corporation does not therefore depend on the fate of any single individual.
• Transferable Ownership – Unlike in a partnership, shares of ownership in a corporation
are easily transferable. If shareholders want to liquidate their shares of ownership in a
corporation, they can sell their shares to someone else.
• Cheaper source of capital for plc.

DISADVANTAGES OF THE CORPORATION

• Cost and Time involved in the incorporation process – Corporations can be costly and
time consuming to establish and maintain. The incorporation process will in certain
instances require that you hire lawyers for guidance on legal matters and that cost money.
It must be said though that the entrepreneurs can undertake the incorporation process
without the help of a lawyer but they must exercise great caution. Furthermore,
maintenance of corporations can be time consuming as the board must have an annual
meeting and maintain written records to that meeting even if it is a family entity
• Double Taxation – Because a corporation is a separate legal entity, it must pay taxes on
its net profits to the government treasury before making any payments to the stockholders.
Secondly, stockholders must pay taxes on the dividends they receive as well as income
from their capital gains in the event of liquidating their shares
• Legal requirements and regulatory red tape – Corporations are subject to more legal
reporting, and financial requirements than other forms of ownership. Corporate officers
must meet more stringent requirements for recording and reporting management decisions
and actions. They must also hold annual general meetings and consult the board of directors
about decisions that are beyond the day to day operations.
• Potential for diminished managerial incentives – As corporations grow, they often
require additional managerial expertise beyond that which the founder can provide.
However, the engaged professional managers do not have the same kind of loyalty and
interest in the company in comparison to the shareholders whose personal wealth is tied up
in the corporation. A good example in which shareholders try to win the loyalty and
increase the interest of top management in the business is by offering them stock options
as part of their bonuses.
• Potential loss of control by the founders – When entrepreneurs sell shares of ownership
in their companies, they give up some control. This is very common when they need large
capital injections for start-up or growth and they may end up becoming a minority
shareholder. Losing majority ownership leads to loss of control and the entrepreneur has
no power to determine the direction of the business. In some instances, founders’ shares
have been so diluted to an extent that the majority shareholders can actually vote them out
of their jobs.

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DOCUMENTS USED TO FORM A COMPANY
1. Business permits
2. Partnership deed
3. A partnership agreement is a written document that states in writing the terms under
which the partners agree to operate the partnership and protects each partner’s interest in
the business. The partnership agreement resolves potential sources of conflict such as profit
splits, contributions, workloads, decision making authority, dispute resolution, and
dissolution etc. These sources of conflicts if not addressed can lead to dissolution of an
otherwise successful business venture.
4. ARTICLES OF ASSOCIATION
This is a document that sets out the rules the running and regulation of the company’s
internal affairs. It contains detailed information about the internal management of the
company including the appointment of directors, their powers and fees and procedure for
meetings. It also deals with the relationship between the company and shareholders and
between individual shareholders

Kasama College of Education Kambone S.M Page 33 of 33