BUSINESS

STUDIES
GRADE10
TERM 2
LEARNERS NOTES 2023

COMPILED BY: W.S NKOSI

The content/notes are aligned to Examination Guidelines.
TOPIC 1: BUSINESS SECTORS
CONTENT DETAILS FOR TEACHING, LEARNING AND ASSESSMENT PURPOSES
 Define/Explain the meaning of the primary, secondary and tertiary sectors.
 Give examples of each sector.
 Explain/Describe/Discuss the relationship between these sectors.
 Make a collage showing the relationship between the primary, secondary and
tertiary sectors
 Define/Elaborate on the meaning of the formal and informal sectors. Give
practical examples of each.
 Conduct research on the importance of the formal and informal sector.
 Explain/Differentiate/Distinguish between the formal and informal sectors.
 Define/Elaborate on the meaning of the public and private sector.
 Explain the main purpose of the public and private sector.
 Explain/Differentiate/Distinguish between the public and private sectors

1. Meaning of the primary, secondary and tertiary sectors.

1.1 Meaning of the primary sector

 The primary sector is the first stage in the production process.
 This sector deals with the extraction of raw materials from nature.
 The primary sector is involved in collecting resources direct from nature.
 These raw materials are then supplied to other businesses for further
processing.

Examples of the primary sector:

o Farming, which produces agricultural products such as cattle and wheat.
o Forestry, which supplies wood for building/ furniture
o Fishing from the sea/lakes and rivers
o Mining, which extracts minerals such as coal and gold from the earth
o Packaging of the above raw materials.

1.2 Meaning of the secondary sector

 The secondary sector is responsible for converting/processing/ manufacturing
of raw materials into final products.
 It is the link between the primary sector where raw materials are extracted from
nature.
 Deals with distribution/transportation/ retailing/services√ to other businesses or
consumers.
 It includes the manufacturing factories, construction and energy generation

Examples of the secondary sector

o Motor industry
o Furniture industry
o Textile industry

2
1.3 The tertiary sector
 This sector distributes goods processed in the secondary sector to consumers.
 The tertiary sector aims to bring products and services within reach of the
consumer.
 Tertiary activities include all activities that distribute products from the
secondary sector.
 These industries that offer services to consumers and other businesses.

Examples of the tertiary sector

 Food industry
 Clothing industry
 Banking, insurance
 Tourism, transportation
 Entertainment, retail and legal services.
 Examples shops, transport companies, electricians, doctors, consultants,
hotels and schools.

1.4 The relationship between the primary, secondary and tertiary sectors
 The primary sector depends on the secondary sector for manufactured goods such as
machinery/equipment/fertilisers e.g. a farmer may require seeds from another farm
 The primary sector is dependent on the tertiary sector for its customer needs.
 The secondary sector processes the raw materials obtained from the primary sector into
more useful products.
 The secondary sector depends on the primary sector for raw materials and products.
 The secondary sector depends on other secondary industries e.g. BMW needs tyre from
DUNLOP another secondary sector player
 Secondary sector needs the tertiary sector to sell their processed or manufactured
goods and also for services such as banks, insurance, transport and communication
 The tertiary sector depends on the primary sector for raw materials that do not need
processing by the secondary sector.
 The tertiary sector depends on the secondary sector for manufactured goods such as
office machines/office furniture/stationery etc.

Example of the relationship/link between primary, secondary and tertiary sector

PAPER MILL LABEL PRINTERS

FOREST
Timber is turned into Labels that will be
Timber/trees/grown
paper pasted onto beef
corned cans

3
NOTE: You must make a collage showing the relationship between the primary,
secondary and tertiary sectors

2 Formal and informal sectors

2.1 Meaning of the formal sector
 Formal sector refers to businesses that are registered and pays tax.
 The formal sector within the mainstream of the economy
 This sector includes small, medium and large businesses.
 Employees are protected in many ways such as Unemployment funds, disability and
injured on duty of industry
 They are controlled by laws and regulations of the government
 Keep accounting records and audit their books.
 It is capital intensive as it involves using machinery/equipment etc.
 They operate under an acknowledged form of ownership such as partnerships, close
corporation, companies and sole proprietors

The importance of the formal sector

 They supply legal products
 Products supplied by the formal sector are guaranteed, which means that faulty goods
can be returned.
 They employ many people with different skills and qualifications.

2.2 Meaning of informal sector

 Informal sector refers to businesses that are not registered and does not pay tax.
 This sector includes activities by people who are unable to find jobs.
 Fall outside the mainstream economy
 It is labour intensive as it does not require a huge capital outlay for establishment.
 Employees are not protected and they can be exploited.
 Not monitored by government
 Not added into the Gross Domestic Product (GDP) figures.
 Examples of informal businesses include street vendors, spaza shops, hairdressers, flea
markets, day care for children, general handyman services.

The importance of the informal sector

 Provides jobs/ income to communities thereby alleviate poverty.
 People working in the informal sector gain work experience to be used for the formal
sector.
 Encourages entrepreneurship as self-employment.
 Provides opportunity for marginalised /disadvantaged by encouraging street trade.
 Serves as buffer between employment and unemployment.

4
 2.3 Differences between formal and informal sectors
FORMAL SECTOR INFORMAL SECTOR

 Industries in this sector are legally registered.  This sector is not legally registered
 Fall between the mainstream of the economy  Fall outside the mainstream economy (also
known as the second or marginalised economy)
 It is registered and pays tax.  It is not registered and does not pay tax.
 Made up of small, medium and large  Small scale operations
businesses
 Employees are protected as they receive  Employees are not protected and can be
unemployment funds, disability funds, injured exploited
on duty funds
 They are controlled by the laws and  They are not tracked by any form of government.
regulations of the government.
 Higher capital is required in this sector.  Low capital needed for operation.
 Output can be measured into the country’s  Estimates should be made to measure
GDP contribution into the country’s GDP.
 Usually more labour intensive  Usually more skill intensive.
 Usually include manufacturing, banking,  Usually include street vendors, spaza shops,
insurance and large retail companies. hairdressers and other home based activities.
 Employees have a steady income  Employees’ income is inconsistent
 Not easy to enter this sector as businesses  Easy to enter the sector as there are no legal
had to be legally registered formalities needed.
 Higher capital is required in this sector  Low capital needed for operation

3 The public and private sector

3.1 Meaning of the public sector

 Public sector is state owned/state run or parastatals
 Aimed at meeting the needs of society
 Non-profit organisations are categorized under the public sector
 Businesses in this sector are partly or wholly funded by tax money
 The motive is not to make profit but offer a service.

Purpose of the public sector

 The public sector includes those industries that are controlled by the government.
 Offers affordable services that the private sector.
 Aims to meet the needs of society.
 Public sector businesses do not aim to make profit.
 Provides people with job opportunities.
 Improves the general standard of living of all people.
 Controls pollution and protects/conserves natural resources such as water, wildlife and
precious stones.
 Ensures that wealth of the country is spread equally among the rich and the poor.
 Offers valuable services such as public roads/ public hospitals/public schools etc.

5
3.2 Meaning of a private sector
 Privately owned by entrepreneurs
 Aimed at meeting both the need and wants of the society
 Profit-driven businesses
 Owners provide own funds or loans to run their businesses.
 Examples include businesses owned privately as sole traders, partnerships or
companies with a profit motive.
 The businesses are focused to meet the demand of consumers.
 Businesses in this sector that do not operate to make profit are NGOs (non-government
organisations) and NPOs (non-profit organisations).
 Some services from the public sector are repeated in this sector, such as education,
healthcare and housing, and could be of better quality that the government service.

Purpose of the private sector

 Creates job opportunities for different types of skills.
 Provides businesses with the opportunity to create wealth.
 Offers more competitive salaries than the public sector.
 Offers variety of goods and services than the public sector.
 Offers opportunities for employees to be part of more innovative projects with
cutting-edge infrastructure.

3.3 The differences between the public and private sectors

PUBLIC SECTOR PRIVATE SECTOR

 Aim is to meet the needs of the society  Aim is to meet both the need and wants
of the society.
 State owned/state run or parastatals  Privately owned by entrepreneurs
which are operated by private
company.
 Partly or wholly funded by tax money  Owners raise capital to fund their
businesses
 Motive is to provide a service  Motive is to make a profit
 State ownership  Owned by different forms of ownership.
 State owned businesses report to  Businesses in this sector do not report
government to government but owners.
 Government monitors and oversees  Owners oversees their performance
their performance

6
TOPIC 2: CONTEMPORARY SOCIO-ECONOMIC ISSUES

CONTENT DETAILS FOR TEACHING, LEARNING AND ASSESSMENT PURPOSES

 Explain the meaning of socio-economic issues and the reason why they pose a
challenge to businesses.
 Define/Give the meaning of inequality and poverty.
 Explain/Discuss/Describe the impact of inequality and poverty on businesses.
 Define the term “inclusivity” and explain the purpose of inclusivity in the
workplace.
 The meaning of the term unemployment
 The meaning of the term unproductive work force

1.1 Meaning of socio-economic issues

 Socio-economic challenges are issues that affect people and the
economy in a negative way.
 They are problems that come from social/people and economic/money
circumstances.

1.2 Reason socio-economic issues pose a challenge to businesses

 Socio-economic issues affect consumer spending due to poverty and
unemployment.
 These issues place extra burdens and expenditure on businesses as they have
to develop policies/support systems/ informative programs to address them.
 Businesses are expected to create as many job opportunities as possible to
assist government address these issues which places a financial burden on
them.
 They must also educate employees on social issues and how to become
involved in the community to address these social issues.

1.3 Types of socio-economic issues

 Inequality and poverty
 Inclusivity
 Unemployment
 HIV/Aids
 Gambling
 Piracy
 Counterfeiting
 Bootlegging
 Strikes /political disturbance
 Crime

7
2 Inequality and poverty
2.1 Meaning of inequality
 Inequality is the degree to which people do not have the same opportunities and are
treated differently because of their social status.
 It means that people are not equal e.g. some have lots of money/access to
education, while others are desperately poor.

2.2 Meaning of poverty

 Poverty is the state in which people have little or no money to buy their basic needs.
 People in poverty usually have poor living conditions, hunger and increased
susceptibility disease.

2.3 Impact of inequality and poverty on businesses

 People cannot participate fully in the economy.
 Businesses spend more money on social responsibility programmes to address
inequality and poverty.
 Poverty shrink the market because people cannot afford to buy luxuries.
 Poverty lead to crime such as shoplifting and robberies on businesses.
 Increases violence as groups scramble for better status and social positions.
 Businesses spend money on improving security due to robberies and shoplifting.
 More money is spent on relieving poverty through their social responsibility
programmes.
 Inequality results in lack of skills and job opportunities.

3 Inclusivity

3.1 Meaning of inclusivity

 Inclusivity means giving everyone opportunities without discriminating based on age,
race, gender, sexual orientation, disabilities/HIV status etc.
 Inclusivity means valuing the differences between people and consciously
encouraging diversity in the workplace.

3.2 Purpose of inclusivity in the workplace

 Inclusivity enables businesses to make the best use of all human resources.
 Promotes equal opportunity for every employee to obtain skills that will lead to
promotion and career path.
 Promotes respect for each person and their contributions in the workplace.
 Promotes healthy/happy working environments, which in turn increase job
satisfaction and productivity.
 Increase tolerance of each other’s ideas and beliefs.
 Increase communication in the workplace so that business goals/objectives are
achieved.
 Businesses are able to use a variety of talents and skills.
 Inclusivity increases education and training resulting to a decrease in poverty.

8
 Increases the number of middle-class people participating in the economy.

4. Unemployment
4.1 The meaning of unemployment
 Unemployment is the condition where people want to work and are able to work,
but cannot find a job.
 The state of job-seeking people in the economically active population who are
able to find work despite being willing and able to work
 Unemployment often goes with a lack of skills or the wrong skills for the current
job market, but if the economy is not growing fast enough to absorb new job-
seekers, many skilled people will also struggle to find employment.

4.1.1 Possible Solutions to unemployment

 Improvement of skills, better education and training.
 The government should change the labour laws to encourage small businesses
to employ workers
 Businesses can provide skills development programmes through learnerships.
 Offer bursaries to the community to improve the level of education.
 Businesses must create jobs for members of the community.
 Provide entrepreneurial programmes that can promote self-employment.
 Support existing small businesses to create more employment opportunities.

4.2 Unproductive Labour Force

 Unproductive work force refers to workers who do not work at the required level
of productivity for a business to be sustainable.
 Workers produce less than they should.

4.2.1 Impact of unproductive workforce on businesses

 There is always tension between the employers and employees because
employees are not performing below employers’ expectations.
 Low profits for business and make it difficult to survive an economic recession.
 Stress for both employees and employers.
 Unproductive labour is a major stumbling block to economic growth and
sustainability.
 It pushes up production costs and make way for cost-efficient foreign competition
who employ highly qualifies skilled and motivated people.
 Could result in decreased employment opportunities if businesses switch over to
advanced technology to replace labourers.

9
CONTENT DETAILS FOR TEACHING, LEARNING AND ASSESSMENT PURPOSES
 Evaluate the negative impact of HIV/Aids on businesses.
 Outline the different types of gambling and explain their impact on businesses
 Define/Elaborate on the meaning of piracy
 Discuss the impact of piracy on businesses.
 Recommend solutions to piracy, e.g. copyright, patent and trademarks.
 Explain the meaning of counterfeiting /bootlegging/strikes /political disturbance
&crime
 Explain/Discuss the impact of the above-mentioned socio-economic issues on
businesses.
 Identify socio-economic issues from given scenario/statements. Support your
answer by quoting from the scenario.
 Explain the impact of socio-economic issues identified in scenarios/statements on
businesses.

1. HIV/Aids
1.1 Meaning of HIV/Aids
 Aids is a disease caused by a virus called HIV.
 When HIV gets into a person’s body, it attacks the immune system / lowering the
body’s natural ability to fight infections.

1.2 Negative impact of HIV/Aids on businesses

 Loss of skilled staff due to HIV related illnesses.
 Profits will be lower as production decreases.
 High absenteeism from illness resulting to a decrease in productivity.
 Conflict can arise among staff if they discover that a worker is HIV positive.
 Businesses find it difficult to keep up production levels and to meet deadlines
because of poor staff morale.
 Businesses face increased costs of finding/recruiting/training replacements.
 The pool of available skilled workers is getting smaller due to the high rate of HIV
infection.
 The costs of finding replacement employees and recruiting are high.
 Business need to invest money in programmes to educate the workers regarding
AIDS.
 Decrease in the number of consumers cause a drop in the demand for goods and
services.
 Costs such as insurance/retirement funds/health/safety are higher as a result of HIV
for the business.
 Businesses face increased costs of paying benefits like housing subsidies, medical
care, funeral care and pension funds.
 Staff morale might be low as they are concerned about their health thus lowering
productivity.

10
2 Gambling
2.1 Meaning of gambling
 Gambling means to bet on something of which the outcome is not sure.
 It can take on form of playing games in the hope that some money could be won.
 Although gambling is legal, it gives false hope.

2.2 Types of gambling

 Pyramid schemes
 Money laundering
 Card games
 Casino
 National lottery
 Scratch cards
 Slot machines
 Horse betting
 Fafi/Mochina
 Unofficial lottery type schemes
 Bingo halls
 Unlicensed casino’s
 Internet gambling, as it is sometimes linked to organised crime· animal fighting.
 Unlicensed operations offering gambling to the public.

2.3 Impact of gambling on businesses

 Employees may not work overtime at short notice.
 High rate of employee absenteeism.
 Local businesses forced out of business.
 Gambling hides criminal activities and can lead to workplace violence.
 Compulsive gamblers cannot focus on work while preoccupied with gambling.
 Compulsive gambling puts a strain on relationships in the workplace.
 Addicted employees could also steal to get money for gambling.
 Reduces productivity as it encourages crime and corruption.
 When gamblers lose their money, they have less to spend on goods and services,
which affects business negatively.
 Decrease in savings leads to a decrease in future production.
 Less buying power as people may lose their money on pyramid schemes, casino
gambling etc.

3 Piracy
3.1 Meaning of piracy
 Piracy refers to the illegal copying of original music/films/books/patent rights/trade
marks without the rightful owner’s permission.
 It can involve physical copies/electronics copies that are downloaded illegally from
the internet.

11
  Pirated goods are unauthorised copies of copyright material such as DVDs or CDs.
3.2 Impact of piracy on businesses
 Consumers no longer value the worth and quality of genuine products sold by
businesses
 The business image and reputation can be damaged by inferior counterfeit goods.
 The businesses producing the original goods have their profits reduced if piracy
occurs.
 Piracy also deprives the original artist of his/ her or income.
 People who buy pirated copies contribute to the problem for businesses.

3.3 Solutions to piracy

3.3.1. Copyright
 The owner of intellectual property has the right to produce and copy the intellectual
property.
 Includes literacy/musical works/artistic works etc.

3.3.2 Patent
 Exclusive right to make use of or sell the invention or a product made an invented
process for a limited period of time.
 It is invention, someone who holds a patent has the sole right to produce and sell in
invention.
 A discovery/scientific method/a literary etc.

3.3.3 Trademarks
 Registration of the use of a brand name/slogan/symbol or a combination to make a
product or services recognisable and known.
 A unique mark that represents a business enterprise and which belongs to the
business enterprise.
 Includes words/slogans/sign etc.

4 Counterfeiting

4.1 Meaning of counterfeiting

 Counterfeits goods are copies/imitations of genuine goods such as clothing/shoes
that are marked with a fake logo/trademark.
 They are products that are imitated and packed to resemble the original, high priced
goods.

4.2 Impact of counterfeiting on businesses

 Counterfeits often result in price increases of original goods
 Consumers are often tempted to buy counterfeits because of the considerable price
differences.
 Counterfeits reduce the sales and profits of businesses.

12
 Businesses lose money that could have been used for expansion and the creation of
job opportunities.
 Counterfeits often result in price increases of original goods.
 Consumers are often tempted to buy counterfeits because of the considerable price
differences.
 Counterfeits reduce the sales and profits of businesses.

5 Bootlegging
5.1 Meaning of bootlegging
 It is the recording of live/broadcast performance without the permission of the
performers/songwriters/ record company which are copied and sold.
 The example of bootlegging is selling of illegal copied DVDs of latest movies on
street corners.
 Criminals go to great extremes to record movies with handheld devices during a live
cinema screening.

5.2 Impact of bootlegging on businesses

 Businesses lose out on profit.
 Businesses may experience decline in sales due to fake/imitated distribution of
products.
 Businesses may be forced to implement price adjustment strategies to minimise the
impact.
 Businesses expenses will increase if legal actions are taken.

6. Strikes

6.1 Meaning of strikes

 A strike/labour dispute is a collective refusal of employees to work because of an
issue in the workplace, aimed at forcing the employer to give in to demands.
 It is a collective action taken by a group of unhappy employees to accept their
demands.
 Strikes may take form of a go slow, lock outs and sympathy strikes.
 It is a dispute between the employer and employees when they cannot agree on
wage increases/changes in working conditions, even after negotiations.

6.2 Impact of strikes on businesses

 This could make the business to be unable to meet its contractual obligation and the
business losing contracts.
 The cost of making up all the working hours is too high.
 Strikes can be violent because strikers intimidate those employees who do not want
to go on a strike
 Scares off potential investors.
 May results in losses of production as employees stay absent from work during
strikes.
 Strike actions may lead to production losses and decline in sales.
13
  Businesses may be forced to close down operations after strike actions.
 May lead unhealthy working relationships between the management and workers.
 May force businesses to retrench some of its skilled workers to recover from losses.

7 Political disturbance
7.1 Meaning of political disturbance
 It is a form of protest by a group of people showing their displeasure on lack of
service delivery/proper housing/poor pay/poor work conditions/etc.
 Political disturbance reflects frustration on the part of communication who may not
feel that they have an effective voice in formal political processes.
 It is when a group of people protest against a socio-economic problem and feel that
the government is not doing enough to solve the issue.

7.2 Impact of political disturbance on businesses

 People in township/informal settlement areas may block roads preventing employed
people from going to work due to service delivery protests.
 Scares off potential investors.
 Businesses may be forced to close especially those located in townships.
 May results in losses of production as employees stay absent from work during
political disturbances.
 Many businesses suffer losses as a result of damage to property.
 Riots can result in increased unemployment if shopkeepers are forced to shut down.

8 Crime

8.1 Meaning of crime

 Any unlawful and harmful act related to loss of goods in a business due to
burglaries/ robberies/theft/corruption/hijackings etc.
 Theft is the unlawful taking of someone else's property to make it your own.

8.2 Impact of crime on businesses

 Loss of staff and customers.
 Insurance/security costs become expensive.
 Loss of profits due to stolen goods from businesses.
 Business loose skilled people resulting to a decline in productivity.
 Increased medical expenses as workers are injured during the break ins
 Businesses spent money on installing effective security measures e.g. alarms,
burglar proofing.
 Loss of goods in a business can happen as a result of burglaries, shoplifting,
customer theft and employee theft.
 Cost of damage to property increases as businesses pay higher insurance
premiums to protect themselves.

14
 High rate of absenteeism due to affected employees having to go for trauma
counselling
 Loss of essential equipment causing temporary closure of the business
 Employees can become involved in fraud, bribery, corruption and kickbacks.
 If there is an ensuing court case it can create negative publicity for the business.
 Smaller businesses often cannot afford insurance and have to replace the stolen
goods themselves at greater loss.
 Lower profits affect the decision to expand and employ more people/pay higher
wages.
 Crime causes increase in health costs of employees due to injuries or stress.
 Discourages foreign investment and reduces tourism which impacts negatively on
business.
 Crime brings about unfair competition from stolen goods resold at a lower price.

TOPIC 3: SOCIAL RESPONSIBILITY

CONTENT DETAILS FOR TEACHING, LEARNING AND ASSESSMENT PURPOSES

Learners must be able to:

 Define the term “social responsibility” and give practical examples.
 Recommend/Suggest initiatives businesses can take to address socio-economic
issues.
 Interview local businesses on the initiatives taken to address socio-economic
issues.
 Evaluate the extent to which these initiatives have addressed the socio-economic
issues.

1.1 Definition of social responsibility

 Social responsibility is when each person is responsible for the effects their
behaviour and lifestyle has on the environment and others.
 It means that any person/group/organisation has a responsibility to act in a way
that benefit society as a whole.
 Social responsibility also means getting actively involved in projects that can
have a positive impact on society in a sustainable way.
1.2 Definition of corporate social responsibility/CSR
 It is the term used when a business takes responsibility for its impact on society
and the environment.
 It is an ethical way of doing business in the interest of both the business and the
wider community.
 Corporate social responsibility means that a business needs to be careful that all
its actions protect the environment and improve the quality of life for the citizens
of the country.
 The way businesses manage their resources/processes to impact positively on
society.

15
  The environment consists of:
o The air we breathe-this can be polluted by harmful smoke or other gases
that are released into air.
o Rivers and other natural water resources –which can be pollutes by
factories
 Businesses should avoid doing things that harm the environment and people.
 The goal of CSR is to have a positive impact on the
environment/consumer/employees/communities/stakeholder.

2.1 Initiatives business take to address socio -economic issues

2.1.1 Initiatives businesses can take to address inequality and poverty
 Provide bursaries for employees’ children
 Offer learnerships for employees
 Develop employee’s skills
 Invest in a young starting SME that can be a business competitor, buyer or
supplier.
 Offer best volunteering programs.
 Support poverty alleviation programmes that are offered by the government.
 Donate money/food parcels to local NGO’s.
2.1.2 Initiatives businesses can take to address HIV/Aids
 Counselling programmes/train counsellors to provide infected and affected
persons/employees.
 Develop counselling programmes for infected/affected persons/employees.

 Conduct workshops on HIV/Aids programmes/campaigns.

 Offer Voluntary HIV/Aids testing and counselling in the workplace.

 Roll out anti-retroviral (ARV) treatment programmes (ART) for the infected
employees.

 Encourage employees to join HIV/Aids support groups.

 Develop strategies to deal with stigma and discrimination.
 Participate in the HIV/Aids prevention programmes implemented in the
community.
 Support non-governmental organisational/community-based

2.1.3 Initiatives businesses can take to address gambling

 Offer financial literacy education
 Businesses must make use of organisations such as Gamblers Anonymous and
the National Council on Problem Gambling to help gamblers fight their addiction.

2.1.4 Initiatives businesses can take to address unemployment

 Provide skills development programmes through learnerships.
 Offer bursaries to the community to improve the level of education.
16
  Create jobs for members of the community.
 Provide entrepreneurial programmes that can promote self-employment.
 Support existing small businesses to create more employment opportunities.

2.1.5 Initiatives businesses can take to address poverty and inequality

 Invest in a young starting SME that can be a business competitor, buyer or
supplier.
 Attract the best employees by being socially responsible and offering the best
volunteering programs.
 Support poverty alleviation programmes that are offered by the government.
 Donate money/food parcels to local NGO’s.
 Increase employment through economic growth.
 Introduce more training programmes and apprenticeship to develop skills.
 Encourage entrepreneurship through business training and mentoring
entrepreneurs.
 Improve infrastructure and services in poor communities.

2.1.6 Initiatives businesses can take to address crime

 Offer employment
 Get involved in the local community on sustainable projects with community.
 Sponsor special sports programmes by providing finance (prize money) for
special community events
 Adopt a school; by providing most of its needs.

2.1.7 Initiatives businesses can take to address violence

 Provide an employee assistance programme (EAP) to enable employees with
personal problems to seek help.
 Provide counselling facilities / refer victims to private counsellors.

3 Other examples of corporate social responsibility initiatives

 Producing socially responsible goods and services
 Treating employees in a socially responsible way
 Ensuring production techniques are socially responsible
 Initiating community projects.

17
TOPIC 4: FORMS OF OWNERSHIP
CONTENT DETAILS FOR TEACHING, LEARNING AND ASSESSMENT PURPOSES

Learners must be able to:

 Outline/Name the factors that must be considered when choosing a form of
ownership.
 Define the meaning of different forms of ownership.
 Explain/Discuss/Describe the characteristics/ advantages/disadvantages of each
form of ownership.
 Distinguish/Tabulate/Differentiate/Compare different forms of ownership.
 Identify forms of ownership from given case studies/scenarios/cartoons/pictures
 Select a best form of ownership and justify the reasons for selection.

TERMS AND DEFINITIONS

TERM DEFINITION
Form of ownership The legal position of the business and the way it is owned.
Continuity Continue to exist even if a change of ownership takes place,
e.g a member or shareholder dies or retires.
Surety If a person or business accepts liability for the debt of another
person or business.
Securities Shares and bonds issued by a company.
Limited liability Loses are limited to the amount that the owner invested in the
Unlimited liability The owner’s personal assets may be seized to pay for the debts
business.
of the business.
Sole Trader /Sole A business is owned and controlled by one person who takes all
proprietor the decisions, responsibility and profits from the business they
Partnership run.
An agreement between two or more parties that have agreed to
finance and work together in the pursuit of common business
Personal liability goals.
A personal liability company is a voluntary association of 1 or
company more person.
Partnership A document that contains exhaustive provisions with regards
Article to the matters concerning the business and the partners.
Annual General A meeting held once a year where the shareholders receive
Meeting (AGM) a report stating how well the company has done.
Audit Process where an organization’s accounts are checked to
make sure its financial operations are honest

2.2 Factors to be considered when choosing a form of ownership

 The size and nature of the business
 The way in which the business is controlled and managed/ Management

18
  Who bears the risk/ Risk bearing
 How capital is going to be raised
 How profits and losses will be dealt with/ Sharing of Profit
 Who is responsible for any debts made by the business/Liability
 Tax implications for profits earned by the business
 The life span of the business/ Continuity
 The vulnerability of the business in terms of lawsuits/ Legal person.
2.3 Forms of ownership
 Sole trader
 Partnership
 Close Corporation (CC)
 Personal liability Company (PLC)
 Private company (Pty Ltd)
 Public company (Ltd)
 State Owned Company (SOC)
 Non- Profit Company (NPO)
 Co-operative

2.4 Characteristics/Advantages and Disadvantages of different forms of

ownership

2.4.1 Sole trader/Proprietor

Definition
 A sole trader is a business that is owned and managed by one person.
 The business owner handles everything including the activities of the business, its
processes and decisions.
 It is most suitable for service businesses such as a doctor/hairdresser/electrician
etc.

Characteristics of a sole proprietor

 Owner can sell the business to anyone at any time.
 There are no legal requirements regarding the name of the business
 It is easy to establish as there are no legal formalities in forming the business.
 Sole traders are not compelled by law to audit financial statements
 The owner has a personal interest in the management and the services that is
rendered.
 The owner has unlimited liability/The owner is personally liable for the debt of the
business.
 A sole trader has limited company for expansion and lacks continuity of existence.
 The business has no legal personality and therefore has no continuity/Continuity
depends on the life and health of the owner.
 The owner provides capital from his/her saving/borrow money from the bank.

19
  The owner has a personal interest in the management and the services that is
delivered.
 Profit is added to the rest of the owner’s taxable income.
 There are no special requirements when the owners want to close the business.

Advantages of a Sole trader/proprietorship

 Requires little capital to start.
 Quick and easy decisions can be made
 No legal process and requirements
 Can easily adapt to the needs of the client/customer
 The assets of the business belong to the owner personally
 A sole trader can close contracts and trade in his own name
 The owner takes all of the profits made by the business and are entitled the
ownership of assets.
 There is personal encouragement and personal contact between the owner and
customers.
 Sole traders are generally closer to their customers and offer a more personalised
approach and improved customer service.

Disadvantages of a Sole trader/proprietorship

 It is not always possible to pay high salaries
 Unlimited liability which means that the owner is personally liable for all the debts
and losses suffered by the business.
 Growth of business can be restricted due to lack of capital.
 The owner is responsible for providing all the capital needed which may be difficult
to raise a big amount.
 If the owner does not have enough knowledge/experience the business may fail.
 A sole trader lacks continuity especially in the event of death or illness.
 Difficult to attract highly skilled and knowledgeable employees.
 Tax is calculated according to a progressive income system, which can be up to a
maximum of 40%.

2.4.2 Partnership
Definition
 An agreement between two or more people who combine labour, capital and
resources towards a common goal.
 Partners share the responsibility of the business and they share the financial and
management decision of the business.

Characteristics of a partnership
 There are no legal requirements in starting a partnership except the drawing up of
a partnership agreement.
 Partners combine capital and may also borrow capital from financial institutions.
 Profit is shared according to the partnership agreement.

20
 Partners share responsibilities and they are all involved in decision making
 Partners have unlimited liability and are jointly and severally liable for the debts of
the business
 No legal requirements regarding the name of the business.
 No legal formalities to start, only a written partnership agreement is required.
 Partnership has no legal personality and therefore has no continuity.
 The partnership does not pay income tax, only the partners in their personal
capacities.
 Auditing of financial statements is optional.
 Partners share responsibilities and they are all involved in decision making.
 Diversity/Specialisation/Different skills of the partners can be used.
 There is no specific suffix to be reflected in the name of the partnership.

Advantages of a partnership
 Can bring in extra partners at any time.
 All partners have a personal interest in the business.
 The workload and responsibility is shared between partners.
 Partners invest new capital into the business to finance expansion
 It is easy and inexpensive to establish even with a written agreement.
 Partners share any profits and are therefore motivated to work hard.
 Partners share responsibilities for decision making and managing the business.
 Attract prospective employees with the option or incentives of becoming a partner.
 Partnerships are not compelled by law to prepare audited financial statements.
 Each partner can focus on their own individual strengths when sharing the
workload.
 Partners are taxed in their own capacities, which could lead to lower taxation,
depending on the level of income of the individual.
 Raising additional capital to finance further business expansion is easy, because
there is no limit on the number of partners allowed in each partnership.
 The partners able to put their knowledge and skills together to collectively make
the best decisions.
 Partnerships are relatively easy to establish. There are no formal requirements for
the creation and running of a partnership.

Disadvantages of a partnership
 Partners might not all contribute equally.
 There can be lack of capital and cash flow.
 Partners are jointly and severally liable for the actions of the other partners.
 Partnership lacks continuity, if one partner dies/retires, the remaining partners
need to draw up a new agreement.

21
  Partnership is not a separate legal entity and therefore partners are liable for the
debts in their own capacity.
 Different personalities and options of partners can lead to conflict it
disagreements.
 Each business partner is legally responsible for the joint liability of the partnership.
 A partnership has unlimited liability which means that partners risk losing their
personal possessions.
 Discussion between partners can slow down decision making, and they may
disagree on important business decisions.
 In large partnership, the partners may struggle to agree on business issues.
 Changes or transfer of ownership can be difficult and generally require a new
partnership to be established.
 Loss in profits and stability of the business can occur if a partner
resigns/dies/loses interest in the business or is declared bankrupt.
 Profits are divided between partners according to the partnership agreement and
not according to the income distributed.

1.3.3 Differences between a sole trade and a partnership

Sole trader Partnership
- A sole trader is a business that - An agreement between two or more people
is owned and managed by one who combine labour, capital and resources
person towards a common goal.

- Quick and easy decisions can - Discussion between partners can slow
be made down decision making, and they may
disagree on important business decisions
- If the owner does not have - The partners able to put their knowledge
enough knowledge/experience and skills together to collectively make the
the business may fail best decisions

2.5 Close Corporation

2.5.1 Definition
 It is businesses that is owned by members and can have between one and ten
members.

1.4.2 Characteristics of a Close Corporation

 Can have a minimum of one and maximum of ten members who share a common
goal.
 The name must end with the suffix CC.
 Members of the CC both own and control the business.
 Profits are shared in proportion to the member’s interest in the CC.

22
  A CC has its own legal personality and therefore has unlimited continuity.
 Each member makes a contribution of some/assets/services towards the
corporation.
 The word ‘close’ means that all members are involved and participate in its
management.
 Members have unlimited liability except where the CC has had more ten members
for six months or longer.
 Auditing of books is optional as members only need an accounting officer to check
financial records.
 Transfer of a member’s interest must be approved by all other members.
 Members of the CC are paid according to the percentage interest owned by each.

1.4.3 Advantages of a Close Corporation (CC)

 A CC is a legal entity and has continuity of existence
 A Close Corporation is easy to establish and to operate because there are fewer
legal requirements than companies.
 A Close Corporation is not required to hold annual general meetings (AGM).
 Meetings are not compulsory and can be held on an ad hoc basis
 Members have limited liability.
 A Close Corporation can be converted to a Private company and members may
become shareholders.
 The ‘Business Rescue’ clause work to the advantage of the CC because it
facilitates the rehabilitation of a CC when it is financially distressed.
 Transfer of ownership is easy as it can be transferred to individual if all members
agree.
 There are no directors therefore, no complex rules like in companies where
directors are subjected to more rules.
 Close Corporation may be exempted by CIPC from auditing its financial
statement.

1.4.4 Disadvantages of a Close Corporation

 Limited growth and expansion since a CC cannot have more than ten members
 A member of a CC can be held personally liable for the losses of CC if the
member acts is incompetent.
 Audited financial statements may be required when applying for a loan
 All members must agree to dispose of a member’s interest. This could make it
difficult for members to leave the CC or to pay a member their portion.
 Every member act as an agent of the CC and the CC is bound by the member’s
actions.
 It is not possible to sell a CC to a company because companies cannot be
converted into CCs.
 A CC is taxed on its income and Standard Tax of Company (STC) based on
member’s dividends/ Double taxation.

23
CONTENT DETAILS FOR TEACHING, LEARNING AND ASSESSMENT PURPOSES

Learners must be able to:

 Outline/Explain the differences between profit and non-profit
organisations/companies.
 Outline the forms of ownership and classify them into profit and non-profit
organisation.
 Define the meaning of different forms of ownership.
 Outline/Explain/Describe/Discuss the characteristics/ advantages/disadvantages of
each form of ownership.
 Distinguish/Differentiate between /different forms of ownership.
 Identify forms of ownership from given case studies/scenarios/cartoons/pictures
 Name the different types of co-operatives
 Outline/Explain/Describe/ Discuss the advantages and disadvantages of co-
operatives
 Select a best form of ownership and justify the reasons for selection.

TERMS AND DEFINITIONS

TERM DEFINITION
Securities Shares and bonds issued by a company.
Limited liability Loses are limited to the amount that the owner invested in the
Unlimited liability owner’s personal assets may be seized to pay for the debts
business.
The
of the business.
Memorandum of The document that sets out the rights, responsibilities and duties
Incorporation (MOI) of shareholders and directors. (Serves as a constitution of a
company). association of persons united voluntarily to meet
Co-operative society Autonomous
their common economic/ social needs/aspirations through a
jointly owned and democratically controlled enterprise.
Company A company is a legal person who has capacity and powers to act
on its own.
Profit Companies A company incorporated for the purpose of financial gain for its
shareholders.
Prospectors A document used by a public company to buy shares.
Annual General A meeting held once a year where the shareholders receive
Meeting (AGM) a report stating how well the company has done.
Directors People elected to the board of a company by the
shareholders to represent the shareholders’ interests.
Audit Process where an organization’s accounts are checked to
make sure its financial operations are honest

24
 2.6 Differences between profit and non-profit companies
Profit making Companies Non-Profit-making Companies
 The company is established for  The company is established for charity
only one aim and that is to make purposes or to promote social and
profit. cultural activities
 A company incorporated for  A non-profit company is an
financial gain for its shareholders. association incorporated not for gain.
 The Memorandum of  The Memorandum of Incorporation
Incorporation sets out who the defines the purpose and its operations
directors and shareholders are as  The company have an independent
well as their rights, duties legal entity, but the board of trustee is
responsibilities. protected unless found negligent or
 It also sets out the number of fraudulent.
shares that the company is
authorised to issue.

2.7 Classification of forms of ownership according to profit and non-profit

companies
Forms of ownership: Companies Classification according to non &
non-profit companies
 Private Companies: to be reflected
as Proprietary Limited or (Pty) Ltd
 Personal Liability Companies: to
be reflected as Incorporated or Inc Profit companies
 Public Companies: to be reflected
as Limited or Ltd
 State-owned Companies: to be
reflected as SOC Ltd
 Non-Profit Companies to be Non-Profit companies
reflected as NPC

1.3 Non-profit Company

1.3.1 Definition
 A non-profit company/NPO I not formed with intent to make a profit but established
for public benefit.

1.3.2 Characteristics of non-profit companies

 The main aim is to provide service and not to make a profit.
 They are funded by donations and foreign funding.
 The name of the company must end in NPC.
 All profits must be used for the primary objective of the non-profit company.
 It must prepare the Memorandum of Incorporation.
 Qualifying NPCs are granted tax-exempt status.
25
  The board of a non-profit company must comprise at least three directors (3 or
more directors).
 Non-profit companies do not have a share capital and cannot distribute shares or
pay dividend to their members.

1.3.3 Advantages of a non-profit company

 Profits are used solely for the primary objective of the organisation.
 They provide social services to various communities.
 Donors receive tax deductions.
 The liability of the members is limited
 Has a legal personality and continuity of existence.
 Can receive grants grants/aid
 Surplus of income is retained to further the goals of the business
 Must prepare the financial statements at the end of the year and is not compelled
to audit the financial statements.
 Non-profit companies are not compelled to attend the general annual meeting
(AGM).

1.3.4 Disadvantages of a non-profit company

 Need professional assistance to set up this organisation
 Does not generate enough capital to cover their expenses.
 Donations may not always be enough to finance the company’s expenses.
 Assets are not distributed to the members upon closing down.
 Creating a non-profit company takes time/effort/money.
 Obtaining grants can be a slow and tiring process.
 Incorporators cannot take along the assets accumulated by the NPC if they
decide to leave.
 They are not allowed to pay bonuses to members
 They are compelled to prepare annual financial statements

1.4 PROFIT COMPANIES

 Profit Company is established with a primary aim of making a profit for its owners
or shareholders.

1.4.1 Private company

Definition
 A private company has between one or more shareholders
 It can be a small or large company and has one or more directors.

Characteristics of a private company

 It needs a minimum of one shareholder and there is no limit on the number of
shareholders
 Requires one or more directors and one or more shareholders.
 Raises capital by issuing shares to its shareholders.

26
 The company name ends with letters (PTY) Ltd.
 Investors put capital in to earn profit from shares.
 The company has a legal personality as well as unlimited continuity
 A private company is not allowed to sell shares to the public.
 Shareholders have limited liability and a separate legal entity.
 Profits are shared in the form of dividends in proportion to the number of shares
held.
 Register with the registrar of companies by drawing up Memorandum of
Incorporation.
 Shareholders have a limited liability and will not lose their initial capital invested if
the business goes bankrupt.
 The Act imposes personal liability on directors who are knowingly part of the
carrying on of the business in a reckless or fraudulent manner.
 Private company must prepare annual financial statements but is not required to
lodge its annual financial statements with the Commission.
 Annual financial statements need not be either audited or independently reviewed,
unless prescribed by regulation.

Advantages of a private company

 A company has continuity of existence.
 Managed at least by one competent highly skilled director.
 Information in a private company is only available to shareholders.
 Not required to file annual financial statements with the commission.
 The company has unlimited number of shareholders and its life span is perpetual.
 Shareholders can vote for/ appoint the most capable directors to manage their
company.
 Own legal identity and shareholders have no direct legal implications/ limited
liability
 Large amount of capital can be raised since there is no limit on the number of
shareholders.
 Even though shares are not freely transferable, large private companies can
raise considerable amount of capital
 It is possible to sell a private company as it is a legal entity in its own right.
 The management of the company can improve since directors are accountable to
shareholders.
 The company can access long term capital and therefore has good long term
growth opportunities.
 The company is a separate legal person it can buy property in its own name.
Liabilities of the shareholders are limited.

Disadvantages of a private company

 Difficult and expensive to establish a private company compared to Close
Corporations and Sole Proprietorship
 Large management structures can result in decision-making taking time.
 The private company is not allowed to sell shares to the public.
27
  Directors may sometimes act in their own interest, not in the company's best
interest.
 Annual financial statements must be reviewed by a qualified person, which is an
extra expense to the company.
 Difficult and expensive to establish as the company is subjected to many legal
requirements.
 Pays tax on the profits of the business and on declared dividends/Subject to
double taxation.
 Financial statements must be reviewed by a qualified person, which is an extra
expense to the company.
 Directors will be held personally responsible for debts if it can be proven that that
they committed fraud.
 Some shareholders may not exercise their voting rights resulting in choosing the
wrong person as a director.
 A meeting may not begin, or a matter may not be debated unless at least three
shareholders are present.

1.4.2 Personal liability Company

Definition
 A personal liability company is very similar to a private company except that the
present and past directors are personally responsible for any debts of the
business.
 The name of the personal liability company ends in INC and the name of the
private company ends in (PTY) Ltd.

Characteristics of a personal liability company

 The company name must end with letters INC
 Directors have unlimited liability and they are jointly liable for the debts of the
business even if they are long out of office.
 The memorandum of Incorporation should state that it is a personal liability
company.
 They must at least have one director on their board of directors.
NOTE: Other characteristics of a personal liability company are the same as
the private company except the above mentioned two characteristics.

Advantages and disadvantages

 NOTE: The advantages of a personal liability company are the same as the
private company.
 The disadvantages are also the same as the private company except that the
directors of the personal liability company have unlimited liability.

28
1.4.3 Public company
Definition
 A public company is a company that is registered to offer its stock/shares to the
general public. This is mostly done through the Johannesburg Securities/Stock
Exchange (JSE).
 The public company is designed for a large scale operation that require large
capital investments.

Characteristics on a public company

 A minimum of one person is required to start a public company.
 The company name ends with letters Ltd
 Shareholders have a limited liability.
 A prospectus is issued to the public to raise capital.
 Has legal personality and therefore has unlimited continuity
 A public company has a separate legal personality.
 Requires three or more directors and three or more shareholders.
 Profits are shared in the form of dividends in proportion to the share held
 A public company is required to hold an AGM (Annual General Meeting).
 Register with the Registrar of Companies by drawing up Memorandum of
Incorporation.
 Raises capital by issuing shares to the public and borrowing capital by issuing a
debenture.
 Auditing of financial statements us compulsory and audited statements are
available to shareholders and the public
 The new Act forces personal liability on directors who knowingly participated in
carrying out business in a reckless/fraudulent manner.

Advantages of a public company

 The business has its own legal identity and can own assets/property.
 Managed by at least one competent highly skilled director.
 Directors bring creative ideas which encourage innovation/high productivity
 Shareholders can sell/transfer their shares freely.
 Attracts small investors as shares can be transferred freely/ easily
 Strict regulatory requirements protect shareholders.
 Easy to raise funds for growth through the sale of shares.
 Additional shares can be raised by issuing more shares or debentures.
 No limitation on the number of shareholders, so growth/ expansion is not limited
 Shareholders have a limited liability for the debt of the company/Shareholders
may only loose the amount which they invested.
 The management of the company can improve since directors are accountable to
shareholders.
 The public has access to the information, and this could motivate them to buy
shares from a company.

29
 Disadvantages of a public company
 Difficult and expensive to establish as the company is subjected to many legal
requirements
 Must disclose all financial information which can be used by its competitors
 Directors may not be motivated to work very hard because shareholders decide
on the directors' remuneration.
 Directors may not have a direct interest in the company, which can hamper
growth and profit maximisation
 Directors' fees increase the company's expenses which reduces net profit.
 Some shareholders may not exercise their voting rights resulting in choosing the
wrong person as a director
 A full report must be submitted to the major shareholders each year
 Large management structure can result in decision making taking time
 Large amount of funds are spent on financial audits.
 Financial affairs must be known to publicly, this information could be used to
competitors’ advantage.
 Management may be open to legal challenges if their reports do not comply with
King Code III.
 Public companies are subject to more disclosure and transparency requirements.

Differences between the private company and public company

PRIVATE COMPANY PUBLIC COMPANY
- May no offer shares to the - Trades its shares publicly on the
general public. Johannesburg Securities Exchange.
- Shares are not freely - Shares are freely transferable.
transferable
- Minimum of one director. - Minimum of three directors.
- Name must end with - Name must end with Limited/Ltd.
Proprietary Limited/(Pty) Ltd.
- Annual financial statements - Annual financial statements need to be
need not be audited and audited and published.
published.
- Does not need to publish a - Have to register and publish a prospectus
prospectus as it cannot trade with the Companies and Intellectual
its shares publicly. Property Commission/CIPC.
- The company is not required to - Must raise a minimum subscription prior to
raise the minimum commencement of the company.
subscription/ issue minimum
shares.

30
Differences between the private and a personal liability company
PRIVATE COMPANY PERSONAL LIABILITY COMPANY
The name ends with (PTY) Ltd The name ends with INC
The directors are not personally The directors are personally liable for the
liable for the debts of the business. debts of the business.

1.4.4 State owned company

Definition
 A state-owned company has the government as its major shareholder and falls
under the department of Public Enterprise.
 These companies take on the role of commercial enterprise on behalf of the
government.

Characteristics of a state-owned company

 The name ends with letters SOC.
 SOC is listed as a public company.
 It is owned by the government and operated for profit.
 One or more persons may incorporate and there is no limit on number of
shareholders.
 Requires three or more directors and one or more shareholders.
 Register with the Registrar of Companies by drawing up Memorandum of
Incorporation.
 State-owned companies support private businesses by providing infrastructure
such as communication service /Post office and supply of electricity/Eskom.
 A state-owned company enjoys financial autonomy because they are to depend
on the government for initial investment.
 The Act imposes personal liability on directors who are knowingly part of the
carrying on of the business in a reckless or fraudulent manner.
 State-owned company is compelled to have its financial statement audited.
 A state-owned company is compelled to attend an annual general meeting
(AGM).
 A state-owned company has a separate legal personality and have limited
liability. Shareholders have limited liability

Advantages of a state-owned company

 Shareholders have limited liability.
 Profits may be used to finance other state departments.
 Offer essential services which may not be offered by the private sector
 Wasteful duplication of services is eliminated.
 Jobs are created for all skills levels.
 Generates income to finance social programmes.
 Prices are kept reasonable/Create sound competition with the private sector to
make services affordable to more citizens.
 Planning can be coordinated through central control

31
  Provides a healthy competition to private sectors because of government
contributions.
 Most of the government companies run on sound business lines as they have
their surpluses to run their projects.
 State-owned company can be expanded by means of selling its shares to the
public.
 A state-owned company has a separate legal personality.

Disadvantages of a state-owned company

 Inefficiency due to the size of the business.
 Financial statements must be audited.
 Losses must be met by the taxpayer.
 Government can lose money through the business.
 Shares are not freely tradable making it difficult to raise capital.
 A lack of incentive for employees to perform if there is no absence of other
motivator such as productivity bonuses.
 A lack of incentive for employees to perform if there is no share in the profit.
 May result to poor management as government is not always as efficient as the
private sector.
 Often rely on government subsidies which may not cover all the company’s
expenses.
 SOC must follow strict regulations for operations to raise capital.
 A state-owned company is compelled to attend an annual general meeting
(AGM).
 State-owned company is compelled to have its Financial statement audited

1.5 Co-operatives
 A cooperative is a traditional way of a group of interested parties getting together
and sharing resources/infrastructures and costs to achieve a better outcome.

Types of Co-operatives
 Housing co-operative.
 Worker co-operative.
 Social co-operative.
 Agricultural co-operative.
 Co-operative burial society.
 Financial services co-operative.
 Consumer co-operative.
 Transport co-operative

Characteristics of Co-operatives
 Minimum of five members is required to start a cooperative.
 The word ‘Cooperative Limited’ must appear at the end of its name.
 They are motivated by service rather than profit.

32
 They are managed by a minimum of three directors.
 Decisions are taken democratically
 Members own and run the business together and share equally in its profits
 Legal entity and can own land and open bank accounts.
 Must register with the Registrar of Cooperatives Societies
 The objective of a co-operative is to create mutual benefit for the members.

Advantages of Co-operatives
 Access to resources and funding.
 Decision making is by a group
 Members have limited liability
 The decisions are democratic and fair
 Co-operatives have continuity of existence
 Profits are shared equally amongst members
 Each member has an equal share in the business.
 A co-operative can appoint its own management
 Members are motivated because they are working for themselves
 Can gain extra capital by asking its members to buy shares.
 Resources of many people are pooled together to achieve common objectives.

Disadvantages of Co-operatives
 Difficult to grow a co-operative.
 Shares are not freely transferable
 Very few promotion positions for staff.
 Decisions are often difficult to reach and time consuming.
 It can be difficult to get a loan because their main objective is not always to make a
profit.
 The success of cooperatives depends on the support of the members.
 All members have one vote regardless of the number of shares

END OF TERM TWO NOTES

33