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Entrepreneurship Unit 1 Understanding Businesses: DR Ella Kangaude-Nkata

This document provides an overview of businesses, including: 1. It defines a business as a commercial activity where goods and services are exchanged for money or other goods and services. The key aspects are investment, production, and customers. 2. Businesses can be privately owned, publicly traded, or state-owned. Privately owned businesses include sole proprietorships and partnerships while publicly traded companies' shares are traded on a stock exchange. 3. The objectives of businesses include profit maximization but also other goals like market share, quality leadership, growth, and community service. The types of businesses range from sole proprietorships and partnerships that are non-corporate to limited companies that have legal status separate from

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95 views

Entrepreneurship Unit 1 Understanding Businesses: DR Ella Kangaude-Nkata

This document provides an overview of businesses, including: 1. It defines a business as a commercial activity where goods and services are exchanged for money or other goods and services. The key aspects are investment, production, and customers. 2. Businesses can be privately owned, publicly traded, or state-owned. Privately owned businesses include sole proprietorships and partnerships while publicly traded companies' shares are traded on a stock exchange. 3. The objectives of businesses include profit maximization but also other goals like market share, quality leadership, growth, and community service. The types of businesses range from sole proprietorships and partnerships that are non-corporate to limited companies that have legal status separate from

Uploaded by

Martin Chikumbeni
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Entrepreneurship

Unit 1
Understanding Businesses

Dr Ella Kangaude-Nkata
CONTENT
1. Nature of businesses
2. Ownership of businesses
3. Objectives of businesses
4. Types of businesses
NATURE OF BUSINESSES
• A business is defined by the Business Dictionary
(2016) as an organization or economic system
where goods and services are exchanged for one
another or for money.
• A business in simple terms is a commercial activity
(trade) where exchange processes are done.
• Every business requires some form of investment
and enough customers to whom its output can be
sold on a consistent basis in order to make a profit
and/or support its operations
A business vs an Organization
• What is the difference between a business
and an organization?
• An organization comprises two or more
people engaged in a systematic and
coordinated effort, persistently over a period
of time, in pursuit of goals by using various
resources to produce goods and/or services
needed by customers.
OWNERSHIP OF BUSINESSES
• Businesses can be private, public or state-
owned
• Privately owned companies include family-
owned businesses, sole proprietorships and
these are held in private hands.
• These companies tend to fulfill their financing
needs from personal savings, family and retail
banks
Give examples…
OWNERSHIP OF BUSINESSES

• A public company/publicly traded


company/publicly held company/publicly
listed company/public limited company is a
corporation whose ownership is dispersed
among the general public in many shares of
stock which are freely traded on a stock
exchange or in over the counter markets.

Give examples…
OWNERSHIP OF BUSINESSES

• A state-owned business is a legal entity that is


established by a government in order to
partake in commercial activities on the
government's behalf. It can be either wholly
or partially owned by a government and is
typically earmarked to participate in specific
commercial activities.

Give examples…
OBJECTIVES OF BUSINESSES
All businesses have some sort of aim or
objective.
• The fundamental characteristic of most
businesses is to make profit
• This is not to say that profit is the only
objective
• Money coud be collected to sustain the
business
OBJECTIVES OF BUSINESSES

1. Apart from profit maximization, other objectives


include:
2. Gaining market share
3. Be leaders in quality
4. Survival
5. Growth
6. Sales maximization
7. Provide a service to the community or to improve
circumstances for the "social good".
What is the difference in these objectives? Provide
examples
TYPES/FORMS OF BUSINESSES
• The basic legal distinction between types of
business enterprise is their status as corporate
or non-corporate.
• Non-corporate organisations are those which
do not have a separate legal identity from
their owners.
• The main forms of non-corporate
organisations are sole traders and
partnerships.
TYPES/FORMS OF BUSINESSES

• Corporate organisations are those where the


legal status of the organisation is separate
from that of the owner.
• The main categories of corporate
organisations are private limited companies
“Ltd” and public limited companies (plc).
TYPES/FORMS OF BUSINESSES

• Usually, most businesses start as sole traders


and/or partnerships
• The business may grow larger and the owners
will decide (or not) to change the type of legal
business status to a private limited company
(Ltd) or a public limited company (Plc)
• However, there are some types of
organisation (in the UK, Malawi) such as law
firms that are not allowed by law to form
either type of limited company.
TYPES/FORMS OF BUSINESSES

• As we look at the different types and legal


statuses of businesses, there is a further
important distinction to consider –the limited
and unlimited liability.
• Unlimited liability means that the individual
owner or owners have unlimited liability for all
debts or actions taken by the business.
• Limited liability means that the legal owners are
not liable for any debts of the organisation
beyond the amount they have paid or agreed to
pay for their shares.
Forms of Non-corporate
Businesses
1. Sole Trader
• This type of business is owned and managed by
one person who provides the financial
resources and makes all the business decisions.
• In Malawi we have the micro businesses which
are informal, and the small and medium
enterprises which are required to register their
business with the Registrar General
Activity:
1.What are the advantages and disadvantages
of sole trading?
2.In your project, would you opt for sole
trading? Why?
Forms of Non-corporate Businesses

2. Partnership
A partnership is a relation which subsists
between persons carrying on a business in
common to achieve objectives.
There are two main types of partnership –
ordinary and limited partnerships
• Ordinary partnerships
(a) Partnership without a legal contract
(b) Partnership with legal contract
Partnership with Legal Contract
• This is where there is a formal partnership agreement
or deed of partnership between the owners.
• This partnership is set up by writing out a deed of
partnership which is witnessed by a solicitor and sets
out the important details such as how the profits and
losses will be shared.
• The agreement will also record the date the
partnership commenced and, if it is to exist for a fixed
period, the date on which it is to end. If it is not for a
fixed period, there should be agreement on what will
happen on the retirement or death of a partner.
• Limited partnerships
Limited partnerships must be registered with the
appropriate authorities i.e the Registrar General’s
office which will issue a newly registered limited
partnership with a certificate.
Limited partnerships are advised to consist of no
more than 20 limited partners and to include one or
more persons who are termed general partners.
General partners have unlimited liability whereas
limited partners (sleeping partners) have limited
liability.
Activity:
1. Read more on general and sleeping
partners
2. What are the advantages and
disadvantages of a partnership?
3. In your project, would you opt for a
partnership? Why?
Forms of Corporate Organisations
Limited companies
• In legal terms, a limited company is an
organisation that has a separate legal status from
those who own it.
• This means all assets belong to the organisation
and not to the owners. The owners have limited
liability.
• The owners of a limited company are the ordinary
shareholders – those who have invested their
money in the firm by buying ordinary shares in the
company.
Forming a Limited Company
• Companies normally have two or more individuals wishing to start a
business together.
• They are required to file a number of documents to establish the
company, including:
 Articles of Association – sets out the rules by which shareholders
and the company will be administered, for example voting rights,
powers of directors.
 Memorandum of Association –sets out the company name, status,
address of the registered office, objectives of the company,
statement of limited liability and amount of guarantee.
 Statement of Capital – gives details of the types of share (ordinary,
preference, etc.), the amount paid up and unpaid on each share,
the number of shares issued, the nominal value of shares issued,
voters rights and the shareholder's details.
Forming a Limited Company

 Public limited companies must also issue a prospectus which describes


the history of the firm, its future prospects and the terms on which it
offers its shares.
If the Registrar of Companies approves the application, a Certificate of
Incorporation is issued.

Who are the Directors?


Directors in limited companies are chosen by the owners to manage the
affairs of the company (Board of Directors)
• The powers of directors are written down in the company's Articles of
Association which serve as the internal rules of the company. They are
also governed by statute, including the Companies Act which adds duties
in such areas as:
 A duty to promote the success of the company
 To take reasonable care, skill and diligence and to give consideration to
matters that go beyond the Balance Sheet and impact the business
operation on the environment and community.
Types of Limited Companies
There are three main types of a limited company – private, public
and limited by guarantee.
A Company Limited by Guarantee is an alternative type of
company usually used
primarily for non-profit organisations that require corporate
status
Activity:
1.Reading assignment: the difference between private and public
limited companies and
2.The nature of a company limited by guarantee giving examples
End of Unit 1

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