ENTREPRENEURSHIP

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ENTREPRENEURSHIP

• OWNERSHIP STRUCTURES
• By
• Elisante ole Gabriel
• egabriel_at_edenconsult.net, www.olegabriel.com
• 255-784-455-499

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The concept of Entrepreneurship

• What is it all about?
• It is a process of seeking out all opportunities
  that are unique in the Macro-environment,
  organising the resources needed to exploit them.
• Recall the SLEEP-TIN model for Macro-environment.
• Any business needs to be owned by some one
  (person or non-person)

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General issues

• Human element in business Vs other resources
• The art of copying with complexities
• Make a human resource competitive
• Manage for changes not changes
• Believe in what you live (success)
• How can ownership affect success or failure of
  the business?

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OWNERSHIP STRUCTURES

• LEARNING OBJECTIVES
• To describe the different forms of ownership
  structures open to an enterprise
• Outline the main features of each form of
  ownership including pros cons
• Delineate the ownership pattern(s) which is
  common in SMEs in Tanzania

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TYPES OF OWNERSHIP

• Proprietorship
• Partnership
• Company
• Co-operative

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PROPRIETORSHIP(Sole Trade Organisation)

• DEFINITION The Enterprise is owned and
  controlled by one person (an individual)
• He/she the masters of the show, sows, reaps and
  harvest the output of his efforts
• The one-man control is the best in the world if
  that man is big enough to manage everything
  (William R.)

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MAIN FEATURES

• One man ownership
• No separate business Entity
• No separation between ownership and management
• Unlimited Liability
• All profits or losses to the proprietor
• Less formalities

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1. PROPRIATORSHIPAdvantages

• Simple
• Owners freedom to make decisions
• High Secrecy
• Tax advantage (falls under income tax only, not
  corporate)
• Easy dissolution

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PROPRIETORSHIPDisadvantages

• Limited Resources
• Limited Ability (in terms of knowledge)
• Unlimited Liability
• Limited Life of the Enterprise (Once the
  proprietor dies, usually, not necessarily, the
  business go to the same grave)

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2. PARTNERSHIP(Definition)

• An association of two or more persons who have
  agreed to share the profits of a business which
  they run together. This business may be carried
  on by all or any one of them acting for all.
• The persons are called partners, and in most
  cases their initials form the name of the firm.

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Main Features

• More Persons
• Profit and Loss Sharing
• Contractual Relationship
• Existence of Lawful Business
• Utmost Good Faith and Honesty
• Unlimited Liability
• Restrictions on Transfer of share
• Principal-Agent Relationship

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PARTNERSHIP Advantages

• Easy Formation (less legal issues)
• More Capital Available (more persons)
• Combined Talent, Judgement and Skill (collective
  participation)
• Diffusion of Risk (losses are shared)
• Flexibility (quick reaction to changes)
• Tax Advantage (lower tax rate)

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PARTNERSHIP Disadvantages

• Unlimited Liability
• Divided Authority (too many cooks spoils the
  broth)
• Lack of Continuity
• Risk of Implied Authority (decisions made by one
  partner bind all the partners)

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PARTNERSHIP Deed

• Partnership Dee is the Signed, Stamped, and
  Registered written Agreement of the Partnership

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PARTNERSHIP Deed Content

• Name of the firm
• Nature of the business
• Name of partners
• Place of the business
• Amount of capital to be contributed by each
  partner
• Profit sharing ratio between the partners

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PARTNERSHIP Deed Content

• Loans and advantages from the partners and the
  interest rate thereon
• Drawings allowed and the interest rate thereon
• Amount of salary and commission, if any, payable
  to the partners
• Duties, powers and obligations of the partners

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PARTNERSHIP Deed Content

• Maintenance of accounts and arrangement for their
  audit
• Mode of valuation of goodwill in the event of
  admission, retirement and death of a partner
• Settlement of accounts in case of dissolution of
  the firm
• Arbitration in case of dispute
• Arrangements in case of insolvency

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Registration of the Firm Procedures

• Applying to the registrar of firms
• Signing of the form by all partners
• After registration, a Registration Certificate is
  issued
• The register of the firm remains open for
  inspection on payment of prescribed fee for the
  purpose

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Dissolution of the Firm

• Dissolution of partnership occurs when a partner
  ceases to be associated with the business.
• Dissolution of firm is the winding up of the
  business
• Dissolution of partnership, the business of the
  firm remains under new arrangement between the
  remaining partners.

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Dissolution of the Firm by Different ways

• Dissolution by Agreement
• Compulsory Dissolution (by adjudication,
  insolvency, or unlawful business)
• Dissolution due to Contingencies (e.g expiry of
  partnership period, completion of the firms
  venture, death of partner, insolvency)

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Dissolution of the Firm by Different ways

• Dissolution by Court (ie.unsound mind of a
  partner, non duty performance, misconduct, breach
  of the partnership agreement, transfer of
  interest, loss

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Settlement of Accounts

• Payment of debts due to the third parties
• Rateable payment of loans and advances
• Payment of partners capital
• Payment of surplus, if any, to the partners in
  their profit sharing ratio

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Settlement of Accounts

• Losses have to be made up
• - First out of accumulated past profit
• - Then out of capitals of partners
• - Thereafter out of contributions from the
  private estates of the partners in their profit
  sharing ratio

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COMPANY

• Def. A Company is an artificial being invisible,
  intangible and existing only in contemplation of
  law. Being the mere creature of law, it possesses
  only those properties which the charter of its
  creation confers upon it, either expressly or an
  incidental to its very existence (Chief Justice
  Marshal)

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Main Features

• Artificial Legal Person
• Separate Legal Entity
• Common Seal
• Perpetual Existence
• Limited Liability
• Transferability of Shares
• Separation of Ownership from Management
• Number of Members

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Private and Public Company

• Private Company, by its Articles of association,
• restricts the right to transfer shares,
• Limits the number of its members to fifty
• Prohibits any invitation to the public to
  subscribe for the shares or dibentures

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Public Company

• Places no restrictions by its Articles of
  Association on the transfer of shares or on the
  maximum number of members, can invite the public
  to subscribe for its shares and debentures and
  public deposits.

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Privileges of Private Company

• Only two members are required
• Only two directors
• No filing of prospectus
• Immediate commencement of business
• Neither Statutory meeting nor statutory report
• Directors not required to give consent to act

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Privileges of Private Company

• Profit and Loss A/C not inspected by a non-member
• No limit on maxi managerial remuneration
• No restriction on Managing Director appointment
• No maintenance of an index of its membership

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Advantages

• Limited Liability
• Perpetual Existence
• Professional Management
• Expansion Potential
• Transferability of shares
• Diffusion of Risk

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Disadvantages

• Lack of secrecy
• Legal Restrictions
• Management Mischief (misuses of companys
  resources)
• Lack of Personal Interest

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CO-OPERATIVE

• A Co-operative organization is an association of
  persons, usually of limited means, who have
  voluntarily joined together to achieve a common
  economic and through a formation of a
  democratically controlled business organization,
  making equitable contributions to capital
  required and accepting a fair share of risk and
  benefits of the undertaking

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Main Features

• Voluntary organization
• Democratic Management
• Service Motive (render service to the members)
• Capital and Return thereon
• Government Control
• Distribution of Surplus

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Advantages

• Easy formation
• Limited liability
• Perpetual existence
• Social Service
• Open membership
• Tax advantage
• State assistance
• Democratic Management

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Disadvantages

• Lack of secrecy
• Lack of Business Acumen
• Lack of interest
• Corruption
• Lack of mutual interest

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Selection of Ownership Structure

• Nature of Business
• Area of Operations
• Degree of control
• Capital Requirement
• Extent of risk and Liability
• Government Regulations

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CONCLUSION

• The appropriate form of ownership is one that
  helps achieve business objectives in an effective
  and efficient manner.
• To be effective is to do correct things while
  being efficient is to do things correctly You
  need both!