ENTREPRENEURSHIP

ENTREPRENEURSHIP OWNERSHIP STRUCTURES By Elisante ole Gabriel egabriel@edenconsult.net, www.olegabriel.com +255-784-455-499

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)

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?

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

TYPES OF OWNERSHIP • Proprietorship • Partnership • Company • Co-operative

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.)

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

1. PROPRIATORSHIP:Advantages • Simple • Owner’s freedom to make decisions • High Secrecy • Tax advantage (falls under income tax only, not corporate) • Easy dissolution

PROPRIETORSHIP:Disadvantages • 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)

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.

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

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)

PARTNERSHIP Disadvantages • Unlimited Liability • Divided Authority (“too many cooksspoils the broth”) • Lack of Continuity • Risk of Implied Authority (decisions made by one partner bind all the partners)

PARTNERSHIP Deed • “Partnership Dee” is the Signed, Stamped, and Registered written Agreement of the Partnership

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

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

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

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

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.

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 firm’s venture, death of partner, insolvency)

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

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

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

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)

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

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

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.

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

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

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

Disadvantages • Lack of secrecy • Legal Restrictions • Management Mischief (misuses of company’s resources) • Lack of Personal Interest

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”

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

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

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

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

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!

ENTREPRENEURSHIP