1
SECONDARY SCHOOL IMPROVEMENT
PROGRAMME (SSIP) 2015
GRADE 12
SUBJECT: BUSINESS STUDIES
LEARNER NOTES
(PAGE 1 OF 54)
© Gauteng Department of Education
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TABLE OF CONTENTS
SESSION
TOPIC
PAGE
9
Investments and Securities
10
Insurance
16 to 29
11
Forms of Ownership
29 to 42
12
Presentation and Data Response
42 to 54
© Gauteng Department of Education
3 to 15
3
SESSION NO: 9
TOPIC: Investments and Securities
NOTES FOR THE LEARNER:
A range of available business investment opportunities are available.
By the end of this session, you should be able to:
1. Discuss types of investments, e.g. business investments, types of shares, unit
trust and government retail bonds
2. Discuss returns, e.g. dividends and interest.
3. Calculations (interests, etc.)
4. Differentiate between compound interest and simple interest.
You will be assessed on your ability to:
1. Investigate a range of available business investment opportunities.
2. Evaluate types of investments in terms of their advantages/positives and
disadvantages/negatives.
3. Analyse the risk factor of each type of investment opportunity.
4. Discuss the types of shares, their preference, rights and limitations.
5. Describe and evaluate/positives/negatives of the government (RSA) retail
bonds and unit trusts.
6. Discuss the functions of the Johannesburg Securities Exchange (JSE).
7. Define/Explain the meaning of debentures, dividends, capital gain, simple
interest, compound interest.
8. Calculate and understand investment factors such as return of investment
(ROI), investment term/period, tax implications and the influence of the
inflation rate on investment.
9. Distinguish between compound interest and simple interest.
10. Calculate the compound and simple interest from given scenarios.
11. Recommend types of investments based on the calculations
SECTION A: TYPICAL EXAM QUESTIONS
QUESTION 1: (10 Marks: 6 Minutes)
(Various Sources)
Four options are provided as possible answers to the following questions. Choose
the answer and write only the letter (A – D) next to the question number (1.1.1 –
1.1.15) in the ANSWER BOOK
1.1
Investment products that are sold by the Government to, for example,
compensate for a shortfall for the Government Budget
A
C
Bonds.
Debentures
B
D
Shares
Interest
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1.2
This type of share receives a fixed rate of return and paid out before any other
form of share.
A
Ordinary shares.
B
Debentures
C
Preference shares. D
Founder Shares
1.3
Angel funding …
A
is a long term investments that offer fixed rates of return.
B
are supplied by wealthy entrepreneurs who offer financing for a
business.
C
not availa
D
having projects that involve employees.
1.4
A type of share that receives a fixed payment for profit made by a company
A
unit trust.
B
preference share
C
ordinary share
D
debenture
1.5
The return on investment on ordinary shares , is known as …
A
interest
B
bonus shares
C
dividends
D
rent
QUESTION 2 (53 Marks; 32 Minutes)
Adapted from Exemplar Paper 2014
The following investment options are presented to an investor, who wants to invest
an amount of R300 000 for 3 years:
Option 1
A fixed-deposit bank account for three years at simple interest of 12% per year
Option 2
Shares in a well-known local listed company at R6 per share. Dividends of 105 cent
per share have been paid out in the past two years. The directors have indicated that
this amount will not change for the next three years.
Option 3
Government retail bonds for three years at 9.5% per year, compounded annually
Option 4:
A small shopping centre with 12 shopping outlets (units). Rent per unit will be fixed
at R54 000 per year for the next three years.
2.1
Complete the following table for each of the investment options:
Option Type
Risk
Term
Tax
implication
1
E.g.
Fixed Deposit
2
3
4
(15)
© Gauteng Department of Education
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2.2
2.3
Calculate the return on each investment option (Show all calculations)
(16)
Which investment option will be the best for the investor? List the top two
investment options according to your calculations above. Give ONE reason
why a specific any of the remaining investment options should not be
considered.
(6)
SECTION B: NOTES ON CONTENT
Investments
The term investment refers to the use of money to generate wealth and income. This
implies that money increases without labour effort. A business invests surplus funds.
Businesses make use of investment managers to make sure that the business’s
money is invested in the best possible way. A business should diversify its portfolio
to reduce risk.
The success of an investment is assessed according to the following elements:
Risk
- The greater the risk, the greater the potential
loss
- Bank Deposits are generally a low risk
investment.
- Shares investments are a high risk investment
- Investors decide on the risk they want to take.
Return on Investment
-
The amount of money the owner received on
an investment, expressed as a percentage (%)
Investors may receive:
 Dividends
 Interest
 Capital appreciation
Influence of Inflation
-
Good investments yield returns higher than the
inflation rate.
Investment
planning factors
-
The duration of the investment.
The investors attitude towards risk
The performance factors of a company
Term of the investment
Tax Implications
Consider the length of the investment.
Some investments are exposed to further tax, for
example interest income
Dividends received from local companies are
exempted from tax.
© Gauteng Department of Education
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Capital gains
investments
tax are
applicable to unit trust
Money can either be invested on the short term or the long term:
Business Investments
Property
investments
Offshore
investments
Share investments
Money Market Funds
Bank Deposits
People invest in property for two reasons. The one reason
is to generate
income in the form of rent. The second reason is that
people hope that the
value of the property will increase over time. Property
investments are most effective as a long term investment.
Asset managers advise that 25%-30% of an investment
portfolio should be
invested abroad. A fund manager will use local currency to
buy foreign investments. An offshore investment will give
you the opportunity to spread the risk over more than one
market, i.e. both emerging markets and established
markets
People invest in shares mainly for two reasons: the first
reason is that an
investment in shares creates income in the form of
dividends. Secondly,
people hope that the value of the shares will increase over
time and that they
can sell their shares for a profit. Shares have proven to be
successful in the creation of wealth for investors over the
medium to long term.
The aim of investments into the money market funds is to
create wealth over the short term.
A variety of Bank Deposits exist. Some offer fixed interest
rates, whilst others offer variable interest rates. Deposits
are made for a fixed period of time OR with a relevant
notice period.
Shares
•
Companies issue shares to raise the capital they need. Share capital is the
capital of a company represented by different kinds of shares. Any member of
the public can own a part of a listed company. If you own shares, you own
part of a company.
© Gauteng Department of Education
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It works like this:
• A listed company issues shares to the public which are then traded on the
JSE.
• Share prices are influenced by the company’s performance, as well as the
overall economy.
• While you own the shares, you receive dividends.
• Dividends are a form of profit distribution (the return you receive on your
share investment). The more shares you own, the more dividends you will
receive.
• Some people have grown wealthy by buying shares when they were cheap
and selling them when the prices increased.
• If a business wants to invest in shares, it is best to work through a stock
broker. The stock broker will buy and sell shares on the business’s instruction
at the best possible price of the day.
The SERVICES OF THE JSE:
 The JSE fulfils the following functions, or services.
 Provides a mechanism for securities to be priced and traded.
 Regulate the activities of its members.
 Ensure that the market operates in a transparent manner to protect the
interest of the investors.
 Regulates applications for listing, and ensuring that listed companies
comply with legal obligations.
 Monitor applications for alterations to existing listings
 Provide a Stock Exchange News Service (SENS) through which it
distributes company news to the media
Different types of shares are:
Preference shares - Shares bearing a fixed annual rate of dividend
Have a preference over ordinary shares in the payment of dividends
(dividends are first paid to preference shareholders)
If the company is liquidated, preference shareholders share in proceeds
after creditors have been paid out, but before ordinary shareholders.
Participating preference shares
If there is surplus profit after all shareholders have received dividends,
these shareholders can share in that surplus.
Cumulative preference shares
Enable shareholders to be compensated for any past dividends they
may have missed during loss-making years.
Non-cumulative preference shares
Holders cannot be compensated for past dividends they may have
missed during loss-making years.
© Gauteng Department of Education
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Benefits of Preference Shares
Drawbacks of Preference Shares
1. There is LESS Risk
1. A fixed rate of return can limit the
2. Receive dividends before ordinary
return on this investment
shareholders
2. If the business is not doing well, they
will NOT receive any dividends
Ordinary shares (equity shares)
 Holders receive dividends from profits that remain after fixed dividends
have been paid to preference shareholders.
 May receive larger dividend than preference shareholders when profits
are high, because dividends on these shares are not fixed.
 Ordinary dividend is decided by the company’s directors and depends
on the company’s profit.
 If the company is liquidated, ordinary shareholders share in proceeds
after creditors and preference shareholders have been paid out
 Share prices of ordinary shares are more volatile than preference share
prices
 Most of the shares published in the newspaper are ordinary shares.
Benefits of Ordinary Shares
1. The more shares, the higher the
dividend payouts
2. There is limited liability on this
investment
3. Voting rights exist for shareholders
4. Shares can be traded on the JSE
Drawbacks of Ordinary Shares
1. Dividends are received after
preference share dividends
2. The risk is HIGH
3. The company is under no obligation to
pay dividends
Founders’ shares
Issued to the founders of a company.
Bonus shares
When the company has a large reserve fund, they issue bonus shares
to existing shareholders. These shares are not sold; shareholders receive it without
any payment.
Normally ordinary shares.
Return on share investment
Emlyn bought 1000 shares @ 1200c per share. Calculate the return on investment if
Emlyn received dividends of 60c per share.
R12 X 1000 = R12 000
R0.60 X 1000 = R600
(600÷12 000)X100 = 5%
© Gauteng Department of Education
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Debentures



Every company has the right to borrow money.
A very good way of money is to issue debentures. Therefore the company
borrows money from the general public.
A debenture is a document issued by a company to a person from whom it
borrows money. On it is specified the rate of interest and the date of
repayment.
Types of Debentures
Debentures to bearer
Redeemable
Debentures
Irredeemable
Debentures
They are not registered in the name of any person and
ownership thereof is freely transferable by simply handing
over the debenture itself.
Here, the debenture holder receives fixed interest at the
end of every specified period where the loan is paid back
at the end of such period.
This is where the loan is not repaid, the interest is paid
annually.
Shareholder vs Debenture Holder
Shareholder
Debenture Holder
1.
Part-owners of a company
1.
Creditors of a company
2.
Contributes to own capital
2.
Contributes to borrowed capital
3.
May vote at the AGM
3.
Not entitled to vote at AGM
4.
Receive dividends
4.
Receive interest
5.
No profits – no dividend
5.
No profits – still receive interest
© Gauteng Department of Education
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Unit trusts (Collective Investment Schemes)
Unit trusts are investments where one buys units in a share portfolio.
In this way an individual can share in the rewards of the JSE.
Unit trusts have proven to be successful in the creation of wealth for
investors over the medium to long term.
Simple and effective way of saving money over the long term.
Unit trusts allow a large group of people to pool their capital for investment in the
stock, capital or money markets, or in general funds, specialist funds or income
funds. Because their investment is spread out, the risk is reduced.
Money is invested on an individual’s behalf by an asset management company.
The asset managers do not give the shares to the investor, but combines the shares
in a portfolio which are then divided into equal units. Anyone can buy units by
investing a single lump sum, or by investing on a regular
monthly basis
Advantages of unit trusts include:
- low risk investment
- easy and affordable to invest in unit trusts
- your portfolio is managed by experts
- investors can diversify and spread their investment over a
spectrum of low risk, medium risk and high risk, investments.
Savings and fixed deposit accounts
Interest
Interest is the cost of borrowed money, or the return on an investment.
There are two types of interest: simple interest and compound interest
Simple interest
Simple interest is interest paid on the principal (original amount) only, and not on the
interest accrued. There are three components to calculate simple interest:
Principal or the original amount borrowed or invested
Interest rate (in %)
Time
Formula for calculating simple interest:
Simple Interest = P x I x t
I=interest
P=principal
r=interest rate (per year)
t=time (in years or fraction of a year)
Example
Peter borrowed R100 000 from the bank to purchase a car. He agreed to pay the
amount in 54 months, plus simple interest at an interest rate of 11% per annum. If he
repays the full amount of R100 000 in 54 months, the interest would be:
© Gauteng Department of Education
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I = Prt
I = 100 000×0.11×4.5 (why 0.11? - 11%=11/100=0.11) (why 4.5? – 54/12=4.5)
I=R49 500
Cara invested R20 000 for a period of 3 years at an interest rate of 7.5%. The
interest on this investment is:
I=Prt
I=20 000×0.075×3 (why 0.075? - 7.5%=7.5/100=0.075)
I=R4 500
Cara will receive R20 000 + R4 500 = R24 500 when her investment matures.
Compound interest
Compound interest means that the interest will include interest calculated on interest.
If you have an investment, it earns interest. This interest is constantly added to your
original investment. As the interest is added to your investment, your capital
increases. You will now earn interest on a bigger investment.
The components to calculate compound interest are:
S=total amount (original investment + interest)
P=principal (original amount)
i=interest rate per conversion period
n=total number of conversion periods
Formula for calculating compound interest: S = P (1+i) n
Example
Annie invested R10 000 for five years at an interest rate of 7.5% compounded
quarterly.
P=R10 000
I=7.5% per conversion period
=7.5/100 per conversion period
=0.075/4 (why 4? There are four quarters in a year)
=0.01875
n=4×5=20 (why 4? There are four quarters in a year)
Therefore, the amount, S, is:
S=P(1+i)n
S=R10 000(1+0.01875)20
S=R10 000×1.449948
S=R14 499.48
S=R14 499.50
© Gauteng Department of Education
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Government Retail Bonds
•
•
•
•
•
•
A low risk investment option for the general public
Offers the investor a secure and market related return on investment
A minimum of R 1 000 can be invested
A maximum of R5 000 000 can be invested
The bond is redeemed when maturity is reached.
How to purchase a Government Retail Bond:
o You must 18 years old, or older
o You must permanently reside in RSA
o You must have an RSA Identity Number
o Must be in the possession of a RSA Bank Account.
TWO types of Savings Bonds Exist
RSA Fixed Rate Retail Savings Bond
- 2, 3 or 5 year options exist
- Earns a fixed interest rate
- Interest is paid on designated dates
- The Bond Holder may choose to reinvest the interest
- Investors over 60 may choose to
receive their interest on a monthly
basis.
RSA Inflation Linked Savings Bond
- 2, 3 or 5 year options exist
- The amount is inflation adjusted, semiannually
- Interest is paid 6 monthly until the bond
reaches maturity
- A floating interest rate apply
The benefits of the RSA Retail Bond
RSA Bonds are accessible
Investors can choose between TWO types of investments
Payments can be made by in several ways at places such as Pick ‘n Pay
Investments are safe.
Returns are guaranteed
Bonds are affordable
No – risk investment.
© Gauteng Department of Education
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SECTION C:
HOMEWORK QUESTIONS
QUESTION 1: 30 minutes (26)
Adapted from (DOE Nov: 2008)
Study the following scenario and answer the questions that follow.
Investment Opportunities and Returns
Three family members, Bob, Sam and Rina, received R400 000, R200 000 and
R300 000 respectively from their deceased grandfather’s estate in January 2005.
Bob immediately invested his R400 000 in fixed property in Ballito, a coastal resort
in KwaZulu-Natal. In September 2007, the local government gave the go-ahead for
the construction of the King Shaka International Airport and this boosted the demand
for residential property in the surrounding area. In December 2007, Bob received an
offer of R500 000 from an estate agent and sold his property.
Sam, on the other hand, invested his R200 000 in Gold Reef Shares. He purchased
20 000 shares at R10 each in January 2005. In December 2007 Sam sold all his
shares at R20 each.
Rina invested her R300 000 for two years in a fixed deposit account at a commercial
bank at an interest rate of 15% p.a.
1.1
1.2
1.3
1.4
1.5
Analyse each family member's investment in terms of the risk factor for (6)
the two-year period
Determine which investment earned the highest return. Show (10)
calculations to substantiate your answer.
Name the institution that facilitates the buying and selling of shares in (2)
South Africa
Name TWO functions of the institution mentioned in QUESTION 1.3.
(4)
Recommend TWO ways of investing in this institution
(4)
QUESTION 2 (40 Marks; 32 Minutes)
Source: Feb/March 2012
James and Nontokozo run a successful partnership at Empangeni known as
JN Partners. They want to increase their wealth and capital by investing some of the
business income they have generated over the past five years.
As a financial advisor of JN Partners, evaluate the different factors that must be
considered when making informed investment decisions. Also explain FIVE types of
formal investment opportunities and elaborate on the risk factors for each.
[40]
© Gauteng Department of Education
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SECTION D:
SOLUTIONS FOR SECTION A
QUESTION 1: (10 Marks: 6 Minutes)
(Various Sources)
A √√
C √√
B √√
B √√
C √√
1.1
1.2
1.3
1.4
1.5
QUESTION 2 (40 Marks; 32 Minutes)
2.1
Option Type
1
E.g.
Fixed Deposit
2
Shares √
3
Government
Retail Bond √
Property
Investment √
4
2.2
Adapted from Exemplar Paper 2014
Risk
Low Risk √
Term
Short/Long
Term √
Low Risk for this Medium to Long
type √
term √
No risk
Medium Term √
investment √
Low Risk √
Long Term √
Tax implication
Income tax payable on
interest received √
Dividends are free
from tax √
Income tax payable on
interest received √
Capital Gains Tax √
(30)
Calculate the return on each investment (ROI) option (Show all calculations)
Return on Investment:
Option 1
SIMPLE INTEREST
Simple Interest = P x I x t √
= R300 000 x 0.12 x 3
= R108 000 √
ROI =
R108 000 x 100
R300 000
1
√
ROI = 36% √
Option 2
SHARES
Number of Shares Bought = R300 0000 / R6 per share
= 50 000 shares
Dividends earned: 105 cents x 3 years = 315 cents √
© Gauteng Department of Education
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Total Value of Dividends: 50 000 x 305cents = R157 500 √
ROI = R157 500 x
R300 000
100
√
= 52.5% √
Option 3
COMPOUND INTEREST
S = P (1+i) n
√
S = R300 000 (1+0.095) 3
S= R393 879.72 √
ROI = R393 879.72 – R300 000
R300 000
x 100
1
√
ROI = 31.3% √
Option 4
RENT INCOME
Rent for 12 units: R54 000 x 12 = R648 000 per year √
Rent Income for 3 years: R1,944,000.00 √
ROI= R1 ,944, 000 – R300 000
R300 000
ROI = 548%
unit)
2.3
x 100
1
√
√ (Keep in mind that he still needs to maintain each
(16)
Which investment option will be the best for the investor? List the top two
investment options according to your calculations above. Give ONE reason
why a specific any of the remaining investment options should not be
considered.
The Top TWO investment options would be:
1. Property investment where rent income is earned on 12 units √√
2. Fixed Deposit at 12% simple interest for 3 years. √√
(4)
The Investment Options NOT to consider:
Shares investments - no company can guarantee dividend pay-outs. √√
© Gauteng Department of Education
(2)
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SESSION NO: 10
TOPIC: Insurance
NOTES FOR THE LEARNER:
A range of available business investment opportunities are available.
By the end of this session, you should be able to discuss:
1. Compulsory and non-compulsory insurance
2. Understanding life insurance and retirement
3. annuities
4. Insurance of goods (compulsory and non compulsory)
5. Calculation of underinsurance
6. Unemployment Insurance Fund (UIF) and Road
7. Accident Fund (RAF)
You will be assessed on your ability to:
1. Understand the concepts, principles and importance/advantages of insurance
for a business.
2. Identify and explain insurable and non-insurable risks.
3. Identify and explain the types of life insurance.
4. Discuss/Evaluate the viability and relevance of these to both individuals and
businesses.
5. Explain advantages of life insurance and retirement annuities.
6. Analyse the differences between life insurance and retirement annuities.
7. Distinguish between compulsory and non-compulsory insurance and give
examples.
8. Distinguish between insurance and assurance and give examples.
9. Explain over-insurance, under-insurance, average clause and reinstatement,
using examples.
10. Make calculations in the case of underinsurance.
11. Explain the benefits of the UIF.
12. Know the rights of workers registered for UIF.
13. Explain the provisions of the RAF.
14. Know the rights of road users in terms of the RAF.
15. Keep abreast of the changes in legislation from time to time e.g. the RAF is
currently undergoing changes.
© Gauteng Department of Education
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SECTION A: TYPICAL EXAM QUESTIONS
QUESTION 1: 40 Marks; 28 Minutes
(DOE Mar.. 2009)
Just as your home and car needs insurance cover, your business also requires
protection against theft, damage and liability. A major burglary or a fire can make an
uninsured or under-insured business bankrupt. Minimising risks and losses is one of
the pillars of business success especially for small businesses.
[Source: Succeed, December 2006 (adapted)]
Write a report indicating whether you agree or disagree with the above statement.
Your report must clearly establish the reasons/significance for insurance, show a
distinction between compulsory and non-compulsory insurance, as well as be able to
illustrate each type using examples.
[40]
Hint:
This is an essay question. Structure is important. Introduction, body and conclusion.
Sub-headings are important to use as they count for analysis.
Do not write in paragraph style. Use full sentences but in point form.
Use current examples of entrepreneurs to obtain marks for originality.
QUESTION 2: 12 Marks;10 Minutes
(DOE Exemplar 2008)
Classify each of the following descriptions under COMPULSORY INSURANCE
or NON-COMPULSORY INSURANCE. Write the appropriate category next to
the question number and give a reason for your answer.
2.1 Safety of passengers travelling in a taxi on a public road
2.2 Business premises destroyed by fire
2.3 Protection of employees against injury in a factory employing 60 workers
[12]
© Gauteng Department of Education
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QUESTION 3: 7 Marks; 5 Minutes
(NOV. 2009)
Study the following scenario regarding insurance and answer the questions that
follow:
Karen Jones owns a retail outlet at the Century City Shopping Centre in Cape Town.
She sells imported ladies' garments. The business is insured against fire for R800
000. The market value of her business enterprise is R1 000 000 (one million rand).
Fire caused damage to her business, which was assessed at R300 000.
3.1 Calculate the compensation that Karen Jones will receive from the insurance
company.
(5)
3.2 Give a reason for using the calculation method in QUESTION 3.1 above.
(2)
[7]
© Gauteng Department of Education
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SECTION B:
NOTES ON CONTENT
Insurance
Definition
An insurance contract is a contract between the insurer and the insured.
The insurer undertakes to compensate the insured for losses suffered as a result of
a specified risk. The insured undertakes to pay a monthly premium to the insurer.
The purpose of insurance is to indemnify the insured against risk, e.g. fire, storms,
burglary.
Purpose of insurance:
Insurance helps to reduce the risk / losses by shifting the risk to the insurer.
Insurance provides protection to business enterprises against future losses.
Insurance helps to keep high reinstatement costs under control.
How an insurance policy is taken out
Proposal form must be completed – all questions must be answered in good faith.
Insurer quotes a premium after risks have been studied.
If satisfied, insured pays premium.
Insured receives a receipt (cover note) which serves as preliminary policy.
Insurance policy is handed to insured – policy is a statement of the terms, risks and
conditions of the insurance contract.
The benefits of Insurance for a business:
 Certain key persons life’s (such as business partners) can be insured against
death/disability
 Protect themselves against fire through fire insurance
 Protect themselves dishonest employees through fidelity insurance
 Protect themselves against money in transit
 Protect themselves against product liability insurance against losses due to
damage or injury caused to a person due to product failure.
 Protect themselves against employer’s liability where the business cover the
loss against employee injuries/illnesses caused due to the employers fault.
The difference between insurance and assurance
Insurance
Covers for an event that might happen.
E.g. losses due to fire, theft, burglary, etc.
Only pays out if insured claims.
Assurance
Covers for an event that will happen.
E.g. retirement or death.
Will always result in payment – if the person covered by a life assurance policy dies
or retires, a sum of money will be paid out.
© Gauteng Department of Education
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Principles of insurance
Indemnification
This principle is based on the possibility of loss due to
risks that might occur, such as fire or theft.
The object of indemnification is to place the insured after the loss in the same
position that was occupied immediately before the loss.
The insured is not to be placed in a better or worse position.
This means that neither the insurer, nor the insured may profit from insurance.
Security
This principle is based on the possibility of loss due to events that will occur, such as
death and retirement
The object of security is to provide security in the form of money to the deceased’s
dependants, for example life insurance.
Other important principles and concepts relating to insurance
Insurer - Enterprise which provides cover against insurable risks.
Insured - Person/business enterprise that needs the insurance coverage.
Clause - Paragraph in an insurance contract.
Subrogation - Means “to stand in the place of”. Suppose A drives negligently and
causes an accident damaging B’s car. B will claim damages from his/her insurer,
which in turn will claim from A. B is not allowed to claim damages from both his/her
insurer and from A, if B’s claim against A has been taken over by B’s insurer.
Contribution - Often a person has more than one policy on the same asset.
Since the principle of indemnity forbids the insured from recovering more than the
loss, he/she cannot recover the full value of the loss from each policy.
Average clause (over and under insurance)
Under insurance means that property is not insured for its full market value.
If goods/buildings are not insured for their full value, the full amount of the loss will
not be paid out.
Compensation to the insured is calculated as follows:
(Insured value × damages) ÷ replacement value
Over-insurance means that property is insured for more than its market value.
In the case of under-insurance the insured will have to bear part of the risk.
In the case of over-insurance, the insurer can choose to reinstate the insured for the
losses suffered.
Reinstatement - The insurer can replace the damaged or stolen goods, instead of
paying the amount to the insurer.
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Cession of insurance policy - The rights a person has in a policy may be
transferred to another person by means of a written agreement
Only life policies may be ceded - Eg. Policy of a house may be ceded to a
bondholder; policy on a person’s life may be ceded as security.
Excess - Short term insurance companies expect the insured to pay a certain
amount when a claim is lodged.
Amount differs – excess when claim is lodged to replace a front window of a vehicle,
will be less than when the vehicle is stolen.
Pooling - The combination of several small groups into one large group for
insurance purposes, such as obtaining lower premiums or more group benefits.
Iron safe clause - Insured must keep a complete set of books in a fireproof safe at
night to enable the insurer to have evidence of amount of stock on the premises. If
safe is damaged, contract is still viable and damages will be paid.
Market / replacement value - Fixed property is often insured for more than book
value, because fixed property generally appreciates. Fixed property should be
insured at its market or replacement value.
Replacement value refers to the price of the asset at that moment
Book value - Book value = purchase price less depreciation.
Surrender - Applies to life assurance and means to terminate a policy.
A cash amount is paid to the policyholder, no further premiums are paid and no
further cover is provided.
Fully paid up - Applies to life assurance. Payment of premiums is stopped, but the
policy is not terminated. No cash is paid to the policyholder, coverage is maintained,
but the extent of the coverage is reduced.
Insolvent estate - A business/individual has been declared bankrupt.
Requirements of a valid insurance contract
Good faith
Insured must disclose everything that may affect the extent of the risk.
All questions asked by the insurer must be answered honestly.
Otherwise, the policy may be declared void in a court of law.
Both parties must disclose all material facts.
Proposal forms are drafted carefully to cover all possible questions.
Insurable interest
Insured must be able to proof that he/she derives a financial benefit from the
existence of the object which is being insured and/or that the insured stands to lose
financially if goods are destroyed or by the death of a person.
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Examples of insurable interest include:
An employer has insurable interest in the life of an employee.
A debt creates insurable interest between a debtor and creditor.
Marriage spouses have an insurable interest in one another’s lives.
Life assurance
Insurance of life of a human being (that cannot be replaced).
Includes life policies, endowment policies and disability policies.
Allows a person to make provision for their dependants when the person dies or
becomes permanently disabled.
A life insurance policy pays out a lump sum after a person has died, to provide for
dependants and settling of debt, e.g. outstanding balance on car or house. The
principle of security is applicable.
Retirement annuities (RA) (type of long term insurance)







A personal pension plan (governed by the Pension Funds Act) which aims to
create wealth for retirement.
Originally created for self-employed people, because self-employed people do
not receive any employer’s contributions towards a pension fund.
One of the main advantages of investing in an RA is the tax advantage,
because RA contributions are tax deductible up to a specified amount.
When you become a member of an RA fund, the fund makes investments on
your behalf.
Alternatively, individual policies may also be bought.
A person can make a monthly, annual or lump sum contributions to an RA.
A person may only access the money in the RA once the person reaches
retirement age, unless the person is disabled.
A person then has 2 choices
1/3 of the value of the RA may be taken in cash, while 2/3 of the RA must be
contributed towards a monthly pension fund.
OR
A person can contribute the full value of the RA towards a monthly pension fund.
You may not contribute to an RA past the age of 69.
You can retire from an RA fund at any stage between the ages of 55 and 69,
whether you are still working or not.
Insurance of goods (non-compulsory insurance)
Insurance of material goods that can be replaced. Insurance that is not enforceable
by law - businesses or individuals choose to insure themselves against risks covered
by short-term insurers. The principle of indemnification is applicable.
Insurable risks include:
A number of covers are being combined under one policy document.
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They are designed to protect the assets and interests of the insured enterprise
against loss or damage caused by fire, storms, floods, earthquakes, sprinkler
leakage, riots and strikes, theft and malicious damage.
Fire
Fire insurance indemnifies the insured against losses due to fire.
It is the duty of the insured to notify the insurer and the police that there was a fire at
the business premises.
According to the Iron Safe Clause, the insurer is compelled to keep all financial and
stock records in a fire proof safe to enable the insurer to provide evidence of the
amount of stock that was on the premises.
The premium that the insured pays to the insurer depends on the value of the items
that need to be insured, as well as on the risk.
The insurer will calculate the premium with the probability of the risk occurring in
mind.
Important factors that may affect the risk are:
 Nature of the products or buildings
 Availability of fire sprinklers
 Nature of adjoining buildings
Storms
Insurance against storm damages indemnifies the insured against losses due to
storms, wind, rain and hail.
Burglary
Insurance against burglary indemnifies the insured against losses due to forced entry
into the business premises when the business is not open for business
Theft
Insurance against theft indemnifies the insured against losses due to all forms of
theft, such as shoplifting and theft by employees.
Shoplifting means that money or goods were stolen from the business during
business hours when a person took something without paying.
However, shoplifting is a risk not usually accepted by insurers.
Money in transit
Business owners should insure their businesses against losses occurring when cash
is stolen while it was being transported from the business to the bank
Compulsory insurance - Insurance that is enforceable by law.
Unemployment Insurance Fund (UIF)
To insure workers against loss of earnings arising from unemployment and to
provide employees with financial support during their efforts to find employment.
Employers must pay UIF contributions of 2% of the value of each worker’s pay per
month - the employer and the worker each contribute 1% towards the UIF.
© Gauteng Department of Education
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Types of benefits provided by the UIF:
Unemployment benefits - Applications should be submitted within 6 months of
becoming unemployed. Workers can claim from the day they stopped working, until
their benefits are exhausted, or they start working again. No tax is payable on
benefits. The UIF may stop paying benefits if you refuse to accept a job / go for
training / go for advice.
Illness benefits - Illness benefits can be claimed if a person is unable to work for
more than 14 days and not receiving a salary, or only part of his/her salary.
Illness benefits cannot be claimed if the contributor refuses to undergo medical
treatment.
Maternity benefits - Maternity benefits can be claimed for up to 17 weeks (four
months). Persons who had miscarriages can claim for six weeks.
Adoption benefits - Can be applied for when a child below the age of two is
adopted and the person takes unpaid leave or is receiving only a portion of his/her
salary while at home caring for the child. Only one parent may claim.
Dependants benefits - Can be applied for if the person who has been financially
supporting the household dies. The spouse of the deceased can claim the benefit
whether he/she is employed or unemployed.
Road Accident Fund (RAF)
To provide cover for all drivers of motor vehicles against claims by persons injured in
vehicle accidents, or claims of dependants of people killed in vehicle accidents.
Cover is provided by means of a levy on fuel.
The RAF only indemnifies the driver to compensate for losses suffered due to bodily
injuries sustained, or the death of a person and not for damage to the property.
In the following cases the RAF will pay claims to injured parties, but has the right of
recovery by the driver:
 where the car has been stolen or where the person is driving the car without
the consent of the owner.
 where the driver was under the influence of alcohol or any other substance.
 where the driver is not in possession of a valid driver’s license.
 where the driver causes an accident owing to negligence.
© Gauteng Department of Education
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SECTION C:
HOMEWORK QUESTIONS
QUESTION 1: 10 minutes
Source: Nov 2010
The property of Turbo Distillers has a current market value of R300 million.
The warehouse was partly damaged by fire. Damages were assessed at
R60 million. The insurance company is not prepared to pay the full amount of
the claim because Turbo Distillers insured the property for only R200 million.
1.1
Which principle of insurance is applicable to the above claim?
(2)
1.2
Calculate the compensation that Turbo Distillers will receive from the
insurance company. Show ALL the calculations.
QUESTION 2:
(6)
[8]
14 minutes
The following questions are based on the Unemployment Insurance Fund (UIF).
2.1
Define the nature of the fund.
(2)
2.2
Describe how it is funded.
(4)
2.3
List THREE benefits of the fund for employees.
2.4
Does the UIF benefit the employer? Motivate your answer.
(6)
(4)
[16]
QUESTION 3: 6 Marks; 4 Minutes
State THREE provisions of the Road Accident Fund (RAF).
(NOV. 2010)
[6]
QUESTION 4: 8 Marks; 10 minutes
(NOV. 2008)
Bongani's General Dealer business is not insured. You are an insurance broker.
Bongani approaches you to advise him on insurance. You complete a proposal form
for Bongani's business. The monthly premium is calculated at R2 800 on a total
value of goods amounting to R2 800 000.
4.1
Identify the type of insurance that Bongani needs and give ONE reason why
this insurance is beneficial to him.
(4)
© Gauteng Department of Education
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4.2
Bongani states that the premium of R2 800 per month is not within his budget.
What advice would you offer? Provide TWO suggestions.
(4)
[8]
SECTION D:
SOLUTIONS FOR SECTION A
QUESTION 1
Introduction:
- I agree/disagree with the statement. √
- Many businesses are faced with risks such as fire, theft, burglary, storm
damage etc. √
- Should any of these perils/dangers occur and the business is not insured, then
the businessperson could suffer major financial losses. √
- Any relevant contribution towards introduction.
Any 3 x 1 = (3)
Reasons/significance/purpose:
- Transfer of the risk from the businessperson to the insurance company.
The transfer of the risk is subject to the terms and conditions of the contract. √√
- The business will be compensated for the insurable losses eg. destruction of the
property through fire or the loss of life. √√
- Insurance protects the businessperson against future losses.
The size of the loss is reduced considerably.
Businesspersons do not have control over fire, floods, storms etc. √√
- Replacement costs for damaged machinery and equipment are very high
because of inflation.
Insurance against these losses is essential. √√
- Protects the business against the loss of earnings as a result of natural disasters
such as floods, storm damage and fire.
e.g. Strikes by employees result in losses worth millions of rand.
Therefore, the enterprise can purchase insurance for protection against loss of
earnings. √√
- Insurance can be taken against the life of partners in a partnership business as
well as key personnel within the organisation. √√
- Should the services of these key personnel be lost as a result of accidents or
death, the proceeds of the insurance policy are paid out to the business. √√
- It is also possible for a business to insure against bad debts ie. debtors who
default on the payment of their accounts. √√
Any 4 x 2
Max. 8
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Distinction between compulsory insurance and non-compulsory insurance
Compulsory insurance
- In South Africa there are three types of insurances that are compulsory by law. √
- Premiums are contributed by the business into a common fund which is
administered by Government. √
Non-compulsory insurance
- The following types of insurance are voluntary since the organisation can
decide whether or not to make use of it. √√
Max 4
Types/examples:
Compulsory insurance
(a) Unemployment Insurance Fund (UIF) √√
- It is compulsory for the employer and the employee to contribute to the UIF. √√
- This fund provides benefits to workers who have been working and are now
unemployed. √√
- Benefits are also paid to the dependants of deceased contributors. √√
- UIF also provides benefits to people who are not working as a result of illness or
are on maternity leave. √√
Max. 6
(b) The Road Accident Fund (RAF) √√
- The Government levy that all motorists pay when they buy petrol or diesel ensures
that there is sufficient funds to be paid against claims. √√
- Compensation is paid when a person is disabled or injured in a road accident and
to the dependants of the individual killed in a road accident. √√
Max.6
(Max. 12)
Non-compulsory Insurance
Examples:
(a) Fire Insurance√√
- This refers to losses incurred by fire to a business. √√
- Fire damages the property and assets of the business. √√
Max. 4
(b) Theft Insurance√√
- Losses that result from burglaries and robberies. √√
- Insurance in this regard protects the business by compensating for the losses as
well as the cost of repairing any damage to property during the burglary. √√
Max.4
(c) Life Assurance √√
- The death of key personnel such as partners, management personnel etc. may
cause serious problems and financial losses to the enterprise. √√
- Therefore, it is possible for the enterprise to take life assurance against the death of
such key personnel. √√
Max.4
(d) Motor Vehicle Insurance√√
- Most business enterprises have assets such as motor vehicles. √√
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- Losses as a result of theft, hijacking and accidents are for the cost of the
enterprise. √√
- Therefore, most business enterprises insure their vehicles. √√
Max.4
(e) Public Liability Insurance √√
- This type of insurance protects the business from claims arising out of
injuries to an individual on the business premises. √√
Max.4
(Max 12)
- Any other relevant example of non-compulsory insurance
Conclusion
- From the above discussion it is clear that insurance is more a need rather than a
luxury in the business environment. √
- There is a growing trend for business to protect themselves adequately against all
the risks mentioned above. √
Sub Total : Max 32
Insight:
Structure
Synthesis
Analysis and Interpretation
Originality, examples and how recent
2
2
2
2
[40]
QUESTION 2: 12 Marks;10 Minutes
(DOE Exemplar 2008)
Classify each of the following descriptions under COMPULSORY INSURANCE
or NON-COMPULSORY INSURANCE. Write the appropriate category next to
the question number and give a reason for your answer.
2.1
2.2
2.3
Compulsory Insurance √√ - this refers to the Road Accident Fund √√
Non-Compulsory Insurance √√– Fire Insurance is advisable for all businesses
to indemnify them against possible losses due to fire. √√
Compulsory Insurance√√ – the Compensation for Occupational Injuries and
Diseased in the workplace is important for the safety and health of workers √√
[12]
QUESTION 3: 7 Marks; 5 Minutes
(NOV. 2009)
Study the following scenario regarding insurance and answer the questions that
follow:
Karen Jones owns a retail outlet at the Century City Shopping Centre in Cape Town.
She sells imported ladies' garments. The business is insured against fire for R800
© Gauteng Department of Education
29
000. The market value of her business enterprise is R1 000 000 (one million rand).
Fire caused damage to her business, which was assessed at R300 000.
3.1
Compensation = Insured amount x Loss/damage
Market value
√
= 800 000
√ x 300 000 √
1000 000√
= R 240 000 √
(5)
3.2
The Business was under insured so the Average Clause was applied √√
(2)
[7]
SESSION NO: 11
TOPIC: Forms of Ownership
NOTES FOR THE LEARNER:
Determining the extent to which a particular form of ownership can contribute to the
success or failure of a business.
Taxation, capacity, management, capital, division of profits and legislation.
Know the characteristics, advantages and formation of all the forms of
ownership.
You will be assessed on your ability to:
1. Discuss important issues to consider within each form of ownership:
• Capacity determines the ability/potential of management to start the
business in the
planned form and its influence on business success/failure.
• Explain the composition of each form of ownership and the influence of
thereof on the life span (continuity) of the business and its influence on
business success/failure.
• Each form of ownership and the different tax requirements should be well
understood to determine the impact of taxation of the different forms of
ownership on business success/failure.
• Management: Analyse the impact of ownership of each form of ownership on
management functions.
• Capital: Understand/Evaluate/Compare the different sources of capital for
the different forms of ownership and their impact on business
success/failure.
2. Explain/Discuss/Compare how the division of profits of the different forms of
© Gauteng Department of Education
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ownership influences business success/failure.
3. Discuss how legislation/legal requirements of each form of ownership can
impact on business success or failure.
4. Evaluate the impact of the different forms of ownership on business
success/failure.
SECTION A:
TYPICAL EXAM QUESTIONS
Question 1
Describe how the division of profits of a sole trader, close corporation and
public company may affect the success of a business
(12)
QUESTION 2
Zanele and her three friends are running a successful informal hairdressing salon at
KwaMashu. They have formalised their growing business operation by forming a
partnership
Discuss in detail how the following factors will impact on the success or failure of
theirpartnership as a form of ownership, namely management, capital, legalisation
andtaxation. Do you think a close corporation is a more suitable form of ownership
for Zanele and her friends? Motivate your answer.
[40]
SECTION B:
CONTENT
Forms of Ownership
Deciding upon a form of ownership is one of the first and most important decisions
that a new entrepreneur should make.
Factors which influence the form of ownership are:
• Ownership of the business (who owns the business)
• Management of the business (who manages the business, is it the owners or
not?)
• Taxation of the business (who is responsible for paying the business’s tax?
What tax rates are applicable?)
• Capital (how can the business raise capital?)
• Continuity (does the business continue to exist if there was a change in
ownership?)
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•
•
•
Division of profits (who is entitled to the profit of the business?)
Capacity (is the business a legal entity?)
Legislation (what legislation impacts on this business?)
The form of ownership does not only impact on the success of the business, but also
on the business’s ability to:
• Grow
• Raise capital
• Enter into contracts
• Continue to exist when a change in ownership took place
• Apply for government tenders
The different forms of ownership are:
Sole proprietorship/sole trader; partnership; close corporation; private
company; public company
Sole proprietorship
Advantages
• Self-interest prompts owner to be hard working.
• Easily started and ended – no legal formalities.
• Close ties can develop between sole trader and customers.
• Sole trader gains experience of all aspects of business management.
• Easily adapts to changing conditions.
• Existence of number of small one man businesses is conducive to healthy
• competition.
•
•
•
•
•
•
Disadvantages
Difficult to acquire good employees, because a sole trader can’t offer
security/promotion.
Unlimited liability for debt.
No continuity – existence depends on life and health of owner.
Limited capital hampers expansion.
Owner must depend on own judgment and bear all responsibilities.
Problems to obtain loans because of limited assets to give as security.
Partnership
Advantages
• Procedure for formation is simple and inexpensive.
• Easy to obtain credit/loans, because partners are jointly and severally liable
for debt.
• Combining of capital strengthens financial position of business and
enables partnership to expand.
• Unlimited liability of partners prompts partners to work hard.
• Combining of skills and abilities enable partners to specialise in what they are
best at.
• Capital can be increased/reduced/withdrawn without legal procedures.
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•
•
•
•
•
•
Disadvantages
Limited capital limits expansion – capital is limited to the contribution of 20
partners.
Each partner is an agent of the partnership – their actions bind co-partners.
Lacks continuity - partnership dissolves when partner dies or retires.
Urgent decisions can’t be made quickly - all partners must first be consulted.
Misfortune of 1 partner can affect other partners - partners are jointly and
severally liable for debt.
Problems may develop between partners, especially when there is an oral
agreement.
Close Corporation
Advantages
• Not required to hold meetings.
• Interest of members does not need to be in proportion to their contributions.
• Members have limited liability for debt of CC.
• Easy and inexpensive to change founding statement.
• Registration is easy and inexpensive.
•
•
•
•
•
•
•
Disadvantages
New CC’s may no longer be established. One can only purchase an existing
CC.
No separation between ownership and management.
Capital is restricted to the contribution of 10 members – limits growth of CC.
All members must agree to the disposal of a member’s interest.
Member can be liable for losses suffered by the CC.
Impossible to sell CC to a company – CC must first convert to a company
which complicates the sale.
Financial statements needn’t be audited, but a bank will require an audit when
a CC applies for a loan.
Private company
Advantages
• Suitable for undertakings in which secrecy is a requirement.
• Suitable for undertakings where people have initiative, but limited capital.
• Membership can be increased to 50 shareholders – adequate share capital
can be raised.
• Shareholders have limited liability.
• Not compelled to hold statutory meetings.
• No minimum subscription is required.
•
Disadvantages
Double taxation: Companies pay tax on taxable income of the company and
companies pay secondary tax (STC tax) on the dividends distributed to
shareholders.
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•
•
•
•
Not allowed to invite members of the general public to subscribe to their
shares.
Not suitable as form of ownership for large business undertakings.
Capital limited to what 50 shareholders can contribute.
Shares are not freely transferable and can’t be listed on the JSE.
Public Company
Advantages
• Losses caused by failure of company are not as harsh, because losses are
spread among many shareholders.
• Investors can buy shares in a number of companies to divide the risk.
• Large amount of capital can be raised.
• Companies Act and strict conditions of JSE before it grants a listing to a
company protects shareholders.
• Even smallest investor can share in large undertakings and in the country’s
economy.
• Management is in capable hands because most competent directors can
be appointed.
Disadvantages
• Double taxation: Companies pay tax on taxable income of the company and
companies pay secondary tax on the dividends distributed to shareholders.
• Expenses in connection with formation are high and procedures are
complicated.
• Companies have to publish financial reports, which may include information
useful to competitors.
• Admin costs are high, because of registration and transfer of shares.
• Failure of large company may have disastrous results for many workers and
their families.
• Objects and powers of companies are laid down in Memo of Association –
can’t be changed easily.
FACTORS TO CONSIDER FOR SUCCESS OR FAILURE
Capacity
Refers to the owner’s potential to start the enterprise in its planned form.
Sole trader - The law does not distinguish between personal assets and your
business’s assets. There is also no difference between your debt and the debt of the
business.
Partnership - The law does not recognise the difference between the partnership’s
assets and debts and the assets and debt of the partners themselves. The law also
does not recognise a difference between the assets and debt of the different
partners. This means that the debt of one partners is also the debt of the partnership.
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Close corporation - The people who own and manage a CC are called members.
Each member has an interest in the CC which is expressed as a %. The sum of all
members’ interest is equal to 100%. The law sees a CC as separate from its
members. This means that the assets and liabilities of the business belong to the CC
and not its members.
Private/Public companies - Private companies have shareholders and directors.
Shareholders can be people, or other companies. Shareholders own the private
company, while directors manage the private company. The law sees a company as
separate from its shareholders and directors. The assets and liabilities of the
business belong to the company, and the assets and liabilities of the shareholders
and directors have nothing to do with the company.
Taxation
Everybody earning an income above a certain amount must pay tax.
Businesses generate income and must therefore pay tax. If you own a business, you
must register your business as a tax payer.
Sole trader - A sole trader calculates tax by taking his/her income and deducting all
the money spent on the business. The profit of the sole proprietorship is added to
any other income the owner receives, and the owner is taxed as an individual tax
payer on his/her share of the profit.
Partnership - Partners calculate tax by taking the income of the partnership and
deducting al the money spent on the business. The business doesn’t pay tax partners pay tax in their personal capacity. The profit of the partnership is added to
any other income each partner receives, and each partner is taxed as an individual
tax payer on his/her share of the profits.
Close corporation - A CC pays tax on the income brought into the business, after the
expenses of running the business have been deducted. The profit of the CC belongs
to the CC. A CC pays income tax at 28% of the taxable income. The profit (after tax)
is distributed to members – The CC then pays STC tax (secondary tax) on the
money distributed to members.
Private/public company - A company pays tax on the income brought into the
business, after the expenses of running the business have been deducted. The profit
of the company belongs to the company. Companies pay tax at 28% of taxable
income. The profit (after tax) is distributed to shareholders - this is called dividends
Companies pay (secondary tax/STC tax) of 10% on the dividends distributed to
shareholders.
Management
Sole trader - Owned and managed by the owner. Owner has full control over the way
in which the business is managed. Owner must rely on own instinct to make tough
decisions.
Partnership - Owned and managed by the partners. Partners are actively involved in
managing the partnership. Partners have access to expertise of other partners when
© Gauteng Department of Education
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tough decisions need to be made. Decision making can be time consuming as all
partners have to agree first.
Close corporation - No separation between ownership and management - members
are also managers. Members are actively involved in managing the partnership.
Members have access to expertise of other members when tough decisions need to
be made. Decision making can be time consuming as all members have to agree
first.
Private company - Ownership and management are separated. Owned by
shareholders and managed by at least 1 director. Shareholders are not actively
involved in managing the company. Shareholders have the power to elect suitable
directors, but not all shareholders exercise their voting rights.
Public company
Ownership and management are separated. Owned by shareholders and managed
by at least 3 directors. Shareholders are not actively involved in managing the
company. Shareholders have the power to elect suitable directors, but not all
shareholders exercise their voting rights. Qualified, creative and innovative directors
can be appointed to manage the company.
Capital
Sole trader - Limited to the amount that the owner can contribute. Limits growth and
expansion. Owner can borrow money if necessary.
Partnership - Limited to the amount that 2-unlimited partners can contribute.
Close corporation - Each member contributes to the capital of the CC.
Contributions may be increased/decreased at any time, as long as all members
agree. Limited to the amount that 1-10 members can contribute. Limits growth and
expansion. However, more capital can be acquired by inviting more members to join
the CC.
Private company - Limited to the amount that 1-50 shareholders can contribute – this
may limit growth and expansion. The shares of a private company are not freely
transferable; hence, a private company cannot issue shares to the public if it wants
to raise capital. Even though share capital is limited to the contributions of fifty
members, it is still possible to raise a considerable sum of money.
Public company - The shares of a public company are freely transferable. Anyone
can own shares in a public company. Shares can be issued if a public company
needs to raise capital.
Registered/nominal capital: max amount of capital which a company may raise.
Issued/subscribed capital: nominal values of shares issued to the public.
Large amounts of capital can be raised to start large business undertakings.
© Gauteng Department of Education
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Division of profits
Profits are shared according to legal stipulations in establishment documents, or
agreements.
Sole trader - All profit accrues to the owner.
Partnership - Profits belong to the partners. The profit of the partnership is divided
proportionally according to the partnership agreement.
Close corporation - The profit of the CC belongs to the CC. It is distributed to the
members in terms of the CC’s association agreement. Members must agree on
when profit will be distributed and on the amount of money that will be kept in the
business to grow the business.
Private /Public company
The profit of the company belongs to the company. It is distributed to shareholders
according to the number and value of their shares. Shareholders must agree on
when profit will be distributed and on the amount of money that will be kept in the
business to grow the business.
Legislation
Some legislation applies directly to the different forms of ownership.
Apart from these laws, businesses should comply with the Skills Development Act
/Basic Conditions of Employment Act /Employment Equity Act, etc.
Sole trader - Income Tax Act (No. 58 of 1962)
Government is encouraging people to become self employed. Sole traders can apply
for local tenders. Because the law does not distinguish between the business’s
assets and the owner’s assets, sole traders have unlimited liability for the debt of
their businesses.
Partnership - Income Tax Act (No. 58 of 1962)
Partnerships can apply for local tenders. The law does not recognise the difference
between the partnership’s assets and debts and the assets and debt of the partners
themselves. This means that the debt of one partner is also the debt of the
partnership.
Close Corporations Act (No. 69 of 1984) - Income Tax Act (No. 58 of 1962)
Registration document - Founding statement (CK1)
Contents of the founding statement
• Full name of CC
• Postal address and physical address of the registered office
• Principal activity of CC
• Interests of members expressed as %
• Date on which financial year ends
• Full names of members and their ID numbers
• Name and address of accounting officer of CC
© Gauteng Department of Education
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Close Corporations must be registered by the Registrar of Close Corporations.
Founding statement provides detail about certain management aspects of the CC.
Members have limited liability for the debt of the CC.
Private company - Companies Act (No. 61 0f 1973)-Income Tax Act (No. 58 of 1962)
Registration documents:
• Written consent of each director to act as a director
• Receipt of paying annual tax
• Receipt of paying prescribed registration fees
• List of chosen directors
• Memorandum of Incorporation
It is very complicated process to start a company.
Public company - Companies Act (No. 61 0f 1973) - Income Tax Act (No.58 of 1962)
Registration documents:
• Written consent of each director to act as a director.
• Receipt of paying annual tax.
• Receipt of paying prescribed registration fees.
• List of chosen directors.
• Memorandum of Incorporation
• Power of attorney by the promoters in favour of the person instructed to
o lodge the documents with the registrar, unless one of the promoters
does so himself.
• A written undertaking by each nominated director to buy and pay the
o prescribed shares.
• A written undertaking by the auditor to act in that capacity.
• Copies of all contracts which were signed on behalf of the company before
incorporation.
It is a complicated process to start a company.
SECTION C:
HOMEWORK
QUESTION 1
1.1
These forms of ownership do NOT have separate legal personalities, and the
owners are liable for the debts of the business:
A
Close corporation and partnership
B
Sole proprietorship and private company
C
Partnership and sole proprietorship
D
Public company and close corporation
1.2
This business enterprise can be listed on the Johannesburg Securities
Exchange:
A
Kerushan and Saylin Plumbers CC
© Gauteng Department of Education
38
B
C
D
Sparks Sports Ltd
Robin and Sons
Nozintombi (Pty) Ltd
1.3
This form of ownership stipulates a maximum of ten members:
A
Close corporation
B
Partnership
C
Public company
D
Private company
1.4
This form of ownership is not subjected to corporate tax.
A
Close corporation
B
Partnership
C
Public company
D
Private company
1.5
Boston (Pty) Ltd has a maximum of … shareholders.
A
10
B
20
C
50
D
unlimited
QUESTION 2
2.1
Compare the following factors which can contribute to the success or failure of
Nedbank Ltd. and Optical CC:
2.2.1 Taxation
2.2.2 Management
2.2.3 Capital
2.2.4 Profits
(16)
2.2
Explain any FOUR advantages that Optical CC has over Joes Take Away’s.
(8)
2.3
Discuss THREE characteristics of a form of ownership such as Beds and
Beyond (Pty) Ltd.
(6)
[30]
QUESTION 3
KARMELBU AND PARTNERS
Three friends, Jabulani, Melissa and Karen, are running a well-established
partnership business in Soweto. They manufacture, supply and install kitchen
cupboards directly to the public. Their turnover is R30 million per year and they make
a net profit of R9 million per year. They have been in business for the past ten years.
They are BBBEE compliant.
© Gauteng Department of Education
39
The partners want to change from a partnership to a public company. Advise them
on any FOUR factors that may affect both the success and the failure of the new
form of ownership. Recommend whether they should change to the new form of
ownership. Motivate your answer.
[40]
SECTION D:
SOLUTIONS FOR SECTION A
QUESTION 1
Success Factors
Sole trader -
Close Corporation -
Public Company
The owner takes all the profits. √√
- The owner can use his/her profits to
improve the quality of the
product sold or services rendered. √√
- Any other relevant answer related to the
success of a sole
trader regarding the division of profits.
(Any 2 x 2) (4)
The profits belongs to the CC. √√
- Members decide on the date for profit
distribution. √√
- Profits may also be retained for future
growth. √√
- Any other relevant answer related to the
success of a close
corporation regarding the division of
profits.
(Any 2 x 2) (4)
Profits belong to the company. √√
- Profits are distributed to shareholders
according to the number
and value of the shares √√
- Shareholders decide on the payment
date for dividends. √√
- Any other relevant answer related to the
success of a
- close corporation regarding the division
of profits.
(Any 2 x 2) (4)
(12)
© Gauteng Department of Education
40
QUESTION 2
Introduction
- Various factors need to be considered before deciding on the form of
ownership. √
- The factors are important because they have an impact on the success or
failure of the business. √
- The form of ownership determines the size of enterprise. √
- Any other relevant introduction related to forms of ownership.
(3 x 1)= (3)
BODY
A:
FACTOR
SUCCESS
FAILURE
Management
- Lack of commitment by one
- Partners are actively involved in
the management of the business. partner in
business management may
√√
lead to
- Combined management skills by
failure. √√
partners may lead to success of
- Quick decision-making
the business. √√
cannot take
- Any other relevant answer
place since all partners have
related to impact of management. to agree.
√√
- Any other relevant answer
related to
impact of management.
Max. 6
Capital
- A larger amount of capital can be - Fewer members may limit
capital for business
raised as compared to a sole
expansion. √√
trader due to unlimited
- Any other relevant answer
membership. √√
related to impact of capital.
- Capital can be increased,
Max. 6
reduced or withdrawn without
legal procedures. √√
- Any other relevant answer
related to impact of capital.
Legislation
- Simple and inexpensive formation
procedure. √√
- Unlimited liability encourages
partners to work harder. √√
- Any other relevant answer related
to impact of legislation.
- An oral agreement may
create problems for partners
in future which can affect its
success. √√
- A partnership is not
compelled to audit
its financial statements
which minimise opportunities
for financial support. √√
- Partners are jointly and
© Gauteng Department of Education
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Taxation
- Partnership on its own does not
pay tax.√√
- Partners running small
businesses enjoy tax concession
from the government. √√
- Profit generated may be used
forexpansion or division to
partners. √√
- Any other relevant answer
related to impact of taxation.
severally liable for business
debts. A partnership may
fail if one partner incurs
debts which the business
cannot repay. √√
- Any other relevant answer
related to impact of
legislation.
Max. 6
- Failure to comply with tax
regulations by one or more
partners may lead to
business closure. √√
- Individual tax paid by
partners on income earned
is higher than fixed tax
rate percentage paid by
companies/close
corporations. √√
- Any other relevant answer
related to
impact of taxation.
Max. 6
NOTE: Maximum of 6 marks for success or failure or both. (4 x 6)= (24)
B:
YES (2)
Advantages of a close corporation
- A close corporation has a simple establishment procedure. √√
- Liability to its members is limited. √√
- Financial statements of a CC need not to be audited. √√
- It is easy to transfer ownership of a CC. √√
- All members are actively involved in the management of the business. √√
- A close corporation is not compelled to hold annual general meetings. √√
- Small close corporations enjoy tax concession from the government. √√
- Any other relevant answer related to advantages of a close corporation. √√
Yes (NO MARK)
(6 x 2)(12)
Max. 12
C:
NO
Disadvantages of a close corporation
- New close corporations cannot be registered. √√
© Gauteng Department of Education
42
- Capital of a CC only limited to what ten people can contribute. √√
- Close corporations may find it difficult to borrow money from financial institutions as
it is not compelled to audit its financial statements. √√
- Quick decision-making cannot take place without consensus by all members. √√
- A close corporation pays income tax at a fixed rate set by SARS.√√
- Any other relevant answer related to disadvantages of a close corporation.
No (0 MARKS)
(6 x 2)=(12)
Max. 12
D:
Conclusion
- From the above discussion it is clear that the success or the failure of business
depend
largely on the extent of control of the above-mentioned factors. √√
- The business may not have total control on some of these factors. √√
- Any other relevant conclusion related to partnership/forms of ownership.
(1 x 2)= (2)
Facts: Max 32
Layout 2
Analysis, interpretation 2
Synthesis 2
Originality, examples 2
TOTAL MARKS 40
SESSION NO: 12
TOPIC: Business Presentations
NOTES FOR THE LEARNER:
Accurate and concise verbal and non-verbal presentation of a variety of businessrelated information (including graphs), respond professionally to questions and
feedback, and amend information as necessary
You should be able to:
1. Present business information (verbally and nonverbally) in a professional
manner.
2. Present/Interpret/Evaluate business information in a verbal/non-verbal formal
manner.
Verbal presentation includes written reports, scenarios and case studies or
any other written information.
Non-verbal presentation includes a variety of types of graphs, e.g. line, pie,
bar charts etc, and other non-verbal types of information ,e.g. pictures and
photographs.
3. Discuss/Outline the criteria for logical and effective presentations.
4. Plan and use visual aids, including multimedia presentations to process and
© Gauteng Department of Education
43
style presentations.
5. Explain advantages/disadvantages of visual aids in both verbal and nonverbal format.
6. Explain how to respond to questions about work and presentations in a nonaggressive and professional manner
SECTION A:
TYPICAL EXAM QUESTIONS
QUESTION 1: 5 Minutes
(DOE Preparatory 2008)
Indicate whether the following are verbal or non-verbal presentations:
1.1
The marketing manager using the Microsoft Power Point computer programme
to present a business idea to a new client
1.2
Sales figures for 2005 and 2006 displayed on a histogram
1.3
Video recording from the South African Institute of Chartered Accountants
(SAICA) explaining the requirements of the various careers in Accounting
[6]
Hints: Write down the question number and simply state whether it is verbal or nonverbal.
QUESTION 2: 15 minutes
(Nov. 2010)
The graph below illustrates the distribution of claims and accidents according
to provinces in South Africa. Study the information and answer the questions
that follow.
© Gauteng Department of Education
44
80
70
60
50
ACCIDENTS %
40
CLAIMS %
30
20
10
0
GP
LP
MP
WC
EC
NW
KZN
FS
NC
PROVINCE
2.1
Identify the type of graph used in the above illustration.
2.2
Which province has the highest accident rate in the country?
2.3
Write a report stating possible reasons for the high accident rate in the
province identified in QUESTION 2.2
(2)
(2)
(6)
2.4
Which province has the lowest number of claims against the Road Accident
Fund (RAF)?
(2)
[12]
Hints: All questions are based on the graph. Your answers should be related to the
graph.
© Gauteng Department of Education
45
QUESTION 3: 6 Minutes)
(Nov. 2009)
The following graph illustrates the monthly sales figures of air conditioners for Cool
Air Connection from October 2008 to March 2009.
RANDS
250000
200000
150000
100000
50000
0
OCT
NOV
DEC
JAN
FEB
MAR
MONTH
3.1
3.2
Identify the type of graph that Cool Air Connection uses to present their
business-related information.
(2)
You are required to provide feedback at a meeting to the management of Cool
Air Connection regarding their sales performance. Explain how you would
analyse the information from the graph to provide feedback.
(6)
Hints: The answer for 3.2 should be based on the graph. You are expected to
analyse the graph and give an answer on your analysis.
QUESTION 4: 4 minutes
(Nov. 2008)
Fanie Botha is an advertising consultant. He is the owner of Advertising Solutions, in
Sandton. He wants to promote his advertising business and has invited marketing
managers to a presentation.
He makes a presentation based on the sales figures of Sanele's Exhaust and Tyre
Shop, which has been a client of his advertising agency for the past two years.
© Gauteng Department of Education
46
1st Qtr, 100000
2nd Qtr, 200000
4th Qtr, 450000
3rd Qtr, 250000
4.1
4.2
Give ONE reason why Fanie used the sales figures of Sanele’s Exhaust
and Tyre Shop.
(2)
What, in your opinion, has influenced the sales figures? Motivate
your answer.
(4)
Hints: These are open-ended questions. Remember that for question 4.2 you have
to provide motivation. No motivation, no marks.
SECTION B:
CONTENT
Business Presentations
Presentation of business information
 Before any information can be presented to certain people, the presenter must
ensure that this information is valid and relevant.
 Business information must be presented in such a way that recipients can
easily understand the information.
 The presenter must prepare properly for the presentation.
 If the presenter uses technological and electronic equipment, he must have
knowledge of the using of those equipment, or he must use another person
who has the knowledge.
 Communication is important in any type of presentation.
© Gauteng Department of Education
47


The choice of the method of presentation is important, because the presenter
must hold the attention of the audience and all the information must be
communicated in a simple manner.
Avoid drawn-out presentations.
There are different reasons why presentations are done:
a. To inform – A presentation for the shareholders on progress of the company
b. To convince or persuade someone – A presentation to the board of directors
so as to obtain approval on a certain project.
Methods of information
One or a combination of the following methods can be chosen to present information:
Verbal - Must be confirmed with written information to avoid confusion and
unnecessary questions.
Written - Compile the presentation or key words and hand it out to the audience.
Visual/Electronic - Presenters can make use of visuals such as tables, graphs,
charts, illustrations and diagrams to make business information easier to understand.
Normally used to present difficult information like figures in a logical manner.
This will help management to identify trends, challenges and make decisions.
Tables - Tables help to present information in ways that highlights the logical
structure of the information.
Graphs - A graph is a visual representation of data that displays relationships among
Variables
Different types of graphs are:
Line graphs - A line graph is a graph in which points representing data are plotted
and then connected with lines.
© Gauteng Department of Education
48
180
160
140
120
North
100
80
East
60
40
20
0
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Bar graphs - A bar graph is a graphic representation of a set of values shown as a
series of rectangles or bars. It works well for showing the results of one or two data
series for comparative purposes.
90
80
70
60
50
40
East
West
North
30
20
10
0
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Pie charts - A pie chart is a circular chart divided into segments where the data is
represented as slices of a pie. A pie chart only accommodates one data series.
© Gauteng Department of Education
West
49
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Requirements of a presentation:
 Decisions are based on information and therefore the presenter must present
the correct information, concisely and in a simple manner.
 The presenter must be well prepared.
 Speak loud and clear.
 Keep contact with the audience.
 Be in control of the presentation.
 Be aware of your body posture (carriage), face expression, hand signs, voice
tone, etc.
 The presentation must be aimed at the particular audience.
 Keep to the purpose of the presentation.
 The presenter must keep to the time limit set for the particular presentation.
 The presentation must include verbal and non-verbal information to keep the
audience interested.
 The presentation must include an introduction, body and conclusion.
How to respond to work related questions
• Question and answer sessions are productive if they are managed properly.
• The presenter should encourage questions from the audience, but should also
be prepared to answer them.
• Acknowledge questions with words like: “That is a very good question”.
• Rephrase the question if you are not sure what a member of the audience
means by saying: “I am not sure if I know what you mean. Do you want to
know…”
• Alternatively, ask the member of the audience to clarify his/her question.
• If you don’t know the correct answer to a question, don’t try to fake it.
• You can rather refer the question to someone who knows the answer, or
make a note to yourself to find the answer later.
• When you do, contact the person who asked the question as soon as
possible.
• Address the whole audience and not only the person who asked the question.
© Gauteng Department of Education
50
•
•
Do not get involved in a debate, rather ask the person to meet you afterwards
so that the matter can be discussed.
If you are bombarded with difficult questions, respond with something like:
“That is a valid point. I will look into that.”
Feedback received on a presentation should be studied, considered and
integrated to improve the presentation for the future.
•
SECTION C:
HOMEWORK
QUESTION 1: 8 Marks; 7 Minutes
(DBE Mar 2010)
The graph below represents the income from the sale of hotdogs at Diepkloof
Secondary School during the four school terms of 2009.
HOT DOG SALES
TERM 4, R 7,000.00
TERM 1, R 10,000.00
TERM 3, R 18,000.00
1.1
TERM 2, R 15,000.00
Identify the type of graph shown above.
(2)
© Gauteng Department of Education
51
1.2
1.2.1
1.2.2
1.2.3
Which term recorded the lowest sales of hotdogs?
(2)
Give ONE possible reason why the lowest sales were recorded during
this term.
(2)
Recommend ONE strategy that Diepkloof Secondary School could use
to improve the poor sales performance of the term identified in
QUESTION 1.2.1
(2)
QUESTION 2: 18 Marks; 20 minutes
(Mar. 2009)
As the financial manager of ABC Gold Mining Company, you are requested by the
executive director to do a presentation to shareholders at the annual general meeting
on the financial performance of the company.
2.1
State THREE requirements that you will consider so that the presentation is
good, clear and accurate.
(6)
2.2
The sales department has provided you with the three representations of data
regarding the sales of gold over the past five years. The questions that follow
are based on these representations.
(a) Identify the type of graph for REPRESENTATIONS 2 and 3.
(2)
(b) Which representation would be most suitable for the presentation?
Motivate your answer.
(6)
(c) State ONE trend that you can observe from the representations below. (2)
(d) Based on QUESTION 2.2(c) above, what recommendation can you make
to the shareholders?
(2)
[18]
REPRESENTATION 1
YEAR
2004
2005
2006
2007
2008
SALES OF GOLD
(in R million)
300
330
310
400
360
© Gauteng Department of Education
52
REPRESENTATION 2
SALES OF GOLD IN MILLIONS OF RANDS 1
400
350
300
250
200
150
100
50
0
2004
2005
2006
2007
YEAR
REPRESENTATION 3
Sale of gold in millions of rands
2008, 360
1st Qtr, 300
2004, 300
2007, 400
2005, 330
2006, 310
© Gauteng Department of Education
2008
53
SECTION D:
SOLUTIONS FOR SECTION A
QUESTION 1
1.1 Verbal √√
1.2 Non- verbal √√
1.3 Verbal √√
(3 x 2) = [6]
QUESTION 2
2.1 Line graph √√
(2)
2.2 GP/Gauteng Province √√
(2)
2.3 Report:
- GP/Gauteng has the highest number of vehicles registered in
the country. √√
- Traffic congestion during peak hours leading to accidents. √√
- Large concentration of businesses and industries in this
province which leads to a large traffic flow of trucks, busses,
taxis and cars. √√
- Poor infrastructure. √√
- Many road works. √√
- Contravention of road regulations. √√
- Examples illustrating the same cause maximum 2 marks.
- Any other relevant motivation regarding road accidents in GP.
(Any 3 x 2)= (6)
2.4 NC/Northern Cape
(2)
QUESTION 3
3.1
3.2
Bar graph √√ (mark histogram wrong)
(2)
- To look at the tendency of the sales √√ e.g. increase/decrease of sales over
a period of time. √
- There was a gradual increase in the sales of air conditioners from October to
December, √√ e.g. R100 000 to R250 000 √
- There was a gradual decrease in the sales of air conditioners from January
to March. √√ e.g. R250 000 to R75 000√
- The highest sales of air conditioners were recorded in the month of
December, √√ e.g. R250 000 √
- The reason for high sales in December was the high temperature levels in
the summer month, √√ e.g. consumers receive their holiday bonuses which
was spent on air conditioners. √
© Gauteng Department of Education
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- Accept percentages but it must be correct and allocate marks accordingly.
- Any other relevant answer relating to the sales performance from the graph.
Fact (2)
Example (1)
(any 2 x 3) (6)
[8]
QUESTION 4
4.1
- Fanie uses Sanele’s business because this business uses his agency . √√
- Showed a progressive increase in sales from the first quarter to the last
quarter. √√
(any 1 x 2) (2)
4.2
- Since Fanie’s advertising agency has given wider exposure, sales figures
have increased, which indicates a positive impact on the business.√√
- Indicates that businesses must advertise so that the consumer public is
aware of its existence and supports the business. √√
- Sanele operates an exhaust and tyre shop - Black Economic Empowerment. √√
Alternative answer:
- Advertising opinion . √√
- Motivation √√
- E.g. Opinion: Adverts √√
Motivation: Increased sales due to advertising. √√
© Gauteng Department of Education
(2 x 2) (4)
Max: 4