Module 7 • The management plan 1.1 Sole proprietor


One person owns this type of business. The business was either started from scratch or bought in his/her own name and in doing so he/she took all the risks personally. A one-person business has therefore unlimited liability. This means that the business is not a separate legal entity, but the person is personally liable for all claims against his/her business. It is important to note that the owner stands to lose everything, including his private estate if the business fails.


Advantages You are your own boss


Decision-making is quick since you don’t need to get someone else’s permission.


There are hardly any legal requirements that you must adhere to. It is easy to set it up.


Disadvantages Access to financial resources is limited You are accountable for all aspects of the business.


If something goes wrong the entrepreneur can lose everything.


1.2


Partnerships


A partnership is formed when two or more people, but not more than twenty, bind themselves contractually to form a business. A contract verbal or written must come into existence. It is advisable to put it into writing. The most important aspect to keep in mind is that partners are jointly and severally liable for any claims against them. This means that if your partner is in financial trouble (even in his private life), you can be called on to make the necessary payments.


PAUSE FOR THOUGHT


There is a saying that, “When friends fall out, partners can rely on a written agreement.”


Each partner must bring something into the partnership. It can be money, labour or knowledge. Profits is shared according to the partnership agreement. It can be 50:50, but the profit share precentage must be agreed upon upfront.


Advantages


Additional capital can be acquired by bringing in a partner


Does not require any legal formalities except a contract


Method of bringing skills into the business Disadvantages


Disagreement amongst the partners could affect the business negatively


One partner can enter into a contract on behalf of the other – might not be to their mutual benefit


The partnership ceases upon death of a partner


1.3 Close Corporation (CC)


A Close Corporation is founded when at least one person, but not more than ten, enters into an agreement by means of a founding statement. A separate legal entity is formed with the aim of pursuing a common purpose. Profit making need not necessarily be the motive of such a Close Corporation. This gives small business people the opportunity to trade through an entity similar to a company but with fewer formalities.


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