1(e) Simplifying Shares
Shares are units that make up a company .Think of these as cells of a body,a corporate body .The major difference is that shares are numbered . A company is the legal vehicle you use to deliver your idea/solution to the consumer and in return, earn financial rewards through it. As you may have heard of Public companies or Private limited companies or Limited Liabilty companies -all these descriptions represent various legal vehicles with the major difference being in the share structures .
When people with an interest in a company are said to own shares in a company ,it means that they exchanged shares for money.The money they used to buy the shares is used as capital and it is known as share capital .The owners of shares ( those who exchanged money for the shares) become known as shareholders.Share holders are in actual fact the true owners of the companies .Shareholders appoint directors,directors employ managers ,and managers oversee workers .This is the hierarchy structure of companies .This formation appears in a business plan under the heading Organisation Structure .
Private companies And Public Companies .
Private companies are simply legal entities whose shares are owned privately. This means that the owners have no obligation to reveal the financial perfomance to anyone except to other private owners and tax authorities.Where a private company makes profits the dividend ( amount from the profits available to shareholders ) are paid out to the private owners . In some cases, the identity of shareholders in private companies is unkown to the public.
Public companies on the other hand are companies which are partly owned by the public.The founders of the company can still hold a controlling interest (majority shareholding) and release the rest of the company shares to the public. Company shares become available to the public through an Initial Public offer (IPO) .This happens when a previously private company intends to convert into a public compoany .The other turn of phrase to describe the process of going public is " listing" or " floating shares ".
The Process of Going Public ( Converting from Private Company to Public Company)
Stock Exchange Authorities have a series of requirements for companies that intend to go public. These companies must meet those requirements and must disclose certain information about the companies officers ,the company's compliance to Financial regulations such as Tax returns and its operations. All financial and operational information of public companies must be made public.This ranges from what qualifications and experience the company directors have , how much the directors are paid ,how many shares they hold in their capacities ,and the company's business and future plans .
A stock exchange or stockmarket is where public companies' shares are traded. To simplify this defination, it is basically known that a market is where goods and services are exchanged for money-where the buyer and seller meet . A stock market is where public companies shares are exchanged for money .Stockmarkets are where share owners or holders of buy and sell their shares through intermediateries called Stock Brokers. In basic economics the price of any commodity is determined by forces of demand and supply and where these two forces meet is where the price is determined this point is called the equilibrium . For instance, if there is flooding and the supply of potatoes is reduced and potaoes become scarce ,their price goes up because there is higher the demand for potatoes as compared to low supply of potatoes.
Now,lets say the flooding causes a bumper harvest of potatoes such that there is far too many potatoes to the point that they are even going bad because of low demand from buyers -the price of potatoes will fall so that buyers can buy them before they go bad on the seller .
We must also remember that there other factors that can affect the deamnd and supply of potatoes such as cost of transport, cost of agricultural imputs ,wages flactuations of potato farm workers ,effeciencies of farming systems (use of mechanised methods to improve output and quality,etc .The point here is there are many factors that can ultimately cause the price of potatoes as a commodity to move up or down.
The same principle operates on the stock market -where more people demand the shares(also known as equity) of a certain company, the price of the shares rises .Where more share holders/owners are selling their shares compared to those buying them, the price of the shares will drop. Certain factors can also affect the prices of shares besides demand and supply ,these can be information and perception of value of the company.
The Stock exchange or stock market is also referred to a Capital Market because it is where companies raise capital by going public. It is at the point of going public or listing that an entreprenuer makes genuine money and it is at this same point other investors exit a company ( most venture financiers exit here) . The point of going public is considered the ultimate measure of an entreprenuers success.It should be the goal of every entrepenuer who thinks big to take his company public.
Wednesday, February 9, 2011
Creating Successful Business Plans (Pre Business Plans Questions)
1(d)Pre Business Plan Questions
What structure will the business idea take ? In other words what legal vehicle will you choose to run the affairs of your business idea.
These are several I have listed some are American and some are those we use in African Countries ( the Law is more or less the same wherever you are ,regardless of different names or titles) :-
- Sole Proprieter :-here you are personally liable for all the companies assets and debts ( liabilites ) What this means is you're exposed if the business fails you must personally pay back every cent or penny .
-General Partnership (USA format) :- you partner with some one to run the business . Here you and your partner are responsible for all assets and liabilities . Should you go bank rupt you creditors will sue you and your partner to recover thier money.If you make profits you equally share them .
-Partnership ( African Format -Roman Dutch law ) :-This is the same as the one mentioned above and shares the same characteristics as in General Partnership. Most Law firms ,Accounting Firms and Medical Practices are structured in this format.
-Limited Partnership(USA format): -here you partner with several partners but the other partnesr have limited liability and interest ( right to profits ),At least one Generel Partner must exist within such a company .
-Limited Liabilty Company(USA format) :- Here the company is structured in such a way that th members have limited (or reduced exposure to) liabilty.This futher branches out into two formats that is -'C' Class Corporation -this is a corporation that affords you limited (or less exposure to) personal liabilty and in some instances no personal liabilty. However ,the company is required to pay Corporate tax and members arealso taxed personally.'S' Class Corporation -this is corporation is the same as a 'C' class the only difference is that S class are taxed at a persoal level .
Private Limited Company
According to Zimbabwe Company law ( Based on Roman-Dutch Law) -which I'm fimiliar with, a
when you apply for registration of a company the first stage is to involves ensuring that the chosen name for the company does not sound or appear like another as this may affect already registered entities . This means that the first stage involves a name search.
Upon satisfying the Registrar of Companies that your chosen company names( you will provide 5 options ) are unique, the Registrar will select one as the acceptable name .
The second stage involves submitting a Memorandum of Association this is a legal document which explains what your company sets out to doand an Articles of Association which spells out that the who members of the named company are ,when they met to form a company and what levels of exposure they have based on the shares they hold in the Private Company. In simplified terms the extent of members liabilty is limited by the shares they hold . The best arragement in this case is for members to hold one paid up share as the least of their exposure to liabilty.
Thereby,qualifying the term Limited Liabilty . The comlexity of such matters is best left to Corporate Legal experts .In that country that is how a company is incorporated and upon satisfying all the Registrar of Companies ' requirements ( and some that I've left out here ). The Company is brought to life when a Certificte of Incorporation is issued . It is supported by a Stamped Memorandum & Articles of Association, a Company Registration form 14 ( CR14)which lists the Names of the Directors& their Physical Addresses ,and a Company Registration form 6 ( CR6) which states the companies registered domicile .
Why a Company?Why not just do your thing and carry on with the business of making money? The truth is once your payments, for whatever business idea you have ,start to flow ,the tax authorities will pick them up unless you not using a bank acount and store all your revenue in a safe( only drug dealers and other illegals hide money from the authorities).If you are going to succeed financially then all routes for cashflow will have to be utilised and that includes using a Bank accounts . Remember ,bank notes belong to the Central Bank (their state Property ) and the State is obligated to charge us something for using their Bank Notes its called tax .It is wiser to have the company pay your taxes instead of you paying .
A registered comapny is the best way to do business for the entreprenuer because it becomes a representative of the entreprenuer ,actually his double ( and it takes almost all the risk ) while at the same time being a custodian of the business idea . If anything goes wrong,it is considered as the company failed not the entreprenuer . This means the entreprenuer can keep his house his furniture and his life even if the business idea (now the company) fails . He is only obligated to pay up to the extent of his liabilty -where the company is a Limited liabilty Company Structure.
A company is a legal person who acts on behalf of the entreprenuer while being controlled by the entreprenuer (whose exposure to the company's liabilites is at a minimal ) while controlling the company and earning profits or interest from it . ( Roman Dutch Law) or Private Company (UK format):-is similar to the Limited liabilty Company (USA format)of course without the 'C' &'S' class Corporations structures.The major similarity is that the members have limited liability (or exposure to liability) and no liabilty feature does not exist with Private Limited. On the tax matters ,the company is required to pay Corporate Tax.
What structure will the business idea take ? In other words what legal vehicle will you choose to run the affairs of your business idea.
These are several I have listed some are American and some are those we use in African Countries ( the Law is more or less the same wherever you are ,regardless of different names or titles) :-
- Sole Proprieter :-here you are personally liable for all the companies assets and debts ( liabilites ) What this means is you're exposed if the business fails you must personally pay back every cent or penny .
-General Partnership (USA format) :- you partner with some one to run the business . Here you and your partner are responsible for all assets and liabilities . Should you go bank rupt you creditors will sue you and your partner to recover thier money.If you make profits you equally share them .
-Partnership ( African Format -Roman Dutch law ) :-This is the same as the one mentioned above and shares the same characteristics as in General Partnership. Most Law firms ,Accounting Firms and Medical Practices are structured in this format.
-Limited Partnership(USA format): -here you partner with several partners but the other partnesr have limited liability and interest ( right to profits ),At least one Generel Partner must exist within such a company .
-Limited Liabilty Company(USA format) :- Here the company is structured in such a way that th members have limited (or reduced exposure to) liabilty.This futher branches out into two formats that is -'C' Class Corporation -this is a corporation that affords you limited (or less exposure to) personal liabilty and in some instances no personal liabilty. However ,the company is required to pay Corporate tax and members arealso taxed personally.'S' Class Corporation -this is corporation is the same as a 'C' class the only difference is that S class are taxed at a persoal level .
Private Limited Company
According to Zimbabwe Company law ( Based on Roman-Dutch Law) -which I'm fimiliar with, a
when you apply for registration of a company the first stage is to involves ensuring that the chosen name for the company does not sound or appear like another as this may affect already registered entities . This means that the first stage involves a name search.
Upon satisfying the Registrar of Companies that your chosen company names( you will provide 5 options ) are unique, the Registrar will select one as the acceptable name .
The second stage involves submitting a Memorandum of Association this is a legal document which explains what your company sets out to doand an Articles of Association which spells out that the who members of the named company are ,when they met to form a company and what levels of exposure they have based on the shares they hold in the Private Company. In simplified terms the extent of members liabilty is limited by the shares they hold . The best arragement in this case is for members to hold one paid up share as the least of their exposure to liabilty.
Thereby,qualifying the term Limited Liabilty . The comlexity of such matters is best left to Corporate Legal experts .In that country that is how a company is incorporated and upon satisfying all the Registrar of Companies ' requirements ( and some that I've left out here ). The Company is brought to life when a Certificte of Incorporation is issued . It is supported by a Stamped Memorandum & Articles of Association, a Company Registration form 14 ( CR14)which lists the Names of the Directors& their Physical Addresses ,and a Company Registration form 6 ( CR6) which states the companies registered domicile .
Why a Company?Why not just do your thing and carry on with the business of making money? The truth is once your payments, for whatever business idea you have ,start to flow ,the tax authorities will pick them up unless you not using a bank acount and store all your revenue in a safe( only drug dealers and other illegals hide money from the authorities).If you are going to succeed financially then all routes for cashflow will have to be utilised and that includes using a Bank accounts . Remember ,bank notes belong to the Central Bank (their state Property ) and the State is obligated to charge us something for using their Bank Notes its called tax .It is wiser to have the company pay your taxes instead of you paying .
A registered comapny is the best way to do business for the entreprenuer because it becomes a representative of the entreprenuer ,actually his double ( and it takes almost all the risk ) while at the same time being a custodian of the business idea . If anything goes wrong,it is considered as the company failed not the entreprenuer . This means the entreprenuer can keep his house his furniture and his life even if the business idea (now the company) fails . He is only obligated to pay up to the extent of his liabilty -where the company is a Limited liabilty Company Structure.
A company is a legal person who acts on behalf of the entreprenuer while being controlled by the entreprenuer (whose exposure to the company's liabilites is at a minimal ) while controlling the company and earning profits or interest from it . ( Roman Dutch Law) or Private Company (UK format):-is similar to the Limited liabilty Company (USA format)of course without the 'C' &'S' class Corporations structures.The major similarity is that the members have limited liability (or exposure to liability) and no liabilty feature does not exist with Private Limited. On the tax matters ,the company is required to pay Corporate Tax.
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