Define Enterprise:

Enterprise is the willingness to take on a new project, an undertaking or business venture while taking all the risks, losses and profits that come with it. It is the preparation, planning of going into business by an individual or a group of individuals to start it, run it and also consider all factors of how it will operate within a short or long term frame.

TYPES OF ENTERPRISES

There are a number of different enterprises together with their advantages and disadvantages that one or a group of entrepreneurs can consider and venture into.

1. Sole Proprietorship / Sole Trading: Is a business owned and controlled by one person who takes all the risk, decisions, responsibility, profits and even losses from the business they are running. This person is often called a self-employed person. In most cases such an enterprise has no legal existence, organizational structure, employment policies, because it is wholly operated by one person; meaning all the risks, profits and losses are handled by one person (sole owner). This is the easiest, simple, common and most practiced type of business or enterprise.

There are many advantages and disadvantages of sole trading or proprietorship, among many below are a few selected ones.

Advantages:

• It is easy to start.
• You are able to make informed decisions sooner than later.
• All the profits are yours alone – profit retention.
• Requires low capital for startup.
• You are your own boss, giving you total control to decide what direction the business should take.

Disadvantages:

• Personal Liability: You and your business are perceived to be one and not as a separate legal entity. When you operate as a sole trader or sole proprietor, your liabilities and debts are your liabilities and debts too. If the business fails with debts to be paid, not only will you lose your income but you would have to lose your personal assets to pay back the debts owed by your business.
• Lack of Business Continuity: Since the business is attached to one person, it limits you from doing other things or pursuing other business opportunities, because once you fall sick or miss a few days of operating, the business comes to a standstill; which means loss of revenue.
• Limited to Access Finances: Sole traders find it difficult to acquire finances whether startup capital or working capital, because there is no grantee that the business will work. Most startup businesses fail in their early stages due to lack of experience, lack of proper business plan and support.
• Lack of Informed Decision Making: All decisions must be made by the sole trader. There is no room for help by others or a second opinion to advice whether the decisions you are making are right for the business. So the success or failure of the business rely on one person.
• No Division of Labor: Because the business is owned by one person all the responsibilities needed to run the business fall on one person.

2. Partnership: Involves two or more people with the view to form and run a business while sharing all the profits and losses equally. Some partnerships share profits depending on the contributions, input, or performance of each individual. Usually a partnership goes up to a maximum number of twenty (20) people only, anything beyond that it becomes difficult to manage.

Advantages:

• Simple and costs less to start.
• Easy access to finance.
• Division of Labor; there is shared responsibilities among partners.
• There is clear informed decision making, shared control and management with other partners.
• Business Continuity: the business’ operations do not have to rely on one person; it can be delighted to other partners without interrupting the flow of the business.
• Partners share profits, losses and risks equally.

Disadvantages:

• There are likely to be disputes over profit sharing, management control and which direction the business must take.
• Partnership is not a separate legal entity, each partner is responsible for the debts and liabilities incurred on behalf of the business by other partners with or without their knowledge. That is why in partnership it is important that there should be clear and defined job descriptions for each individual to help take ownership and responsibility.
• Partners are responsible for each other’s actions.
• Unlimited liabilities.
• As opposed to sole proprietorship where one person enjoys all the profits made from the business; in partnership profits are shared among partners.

3. Limited Company: Is a legal separate entity, where the company’s finances are completely separate from the personal finances of the owner (directors and shareholders).

There are several types of companies but in this module we will focus only on a few and the most common and practiced ones.

1. Private Limited Company: Cannot offer or sell shares to the general public and it is limited to a maximum of 50 shareholders, it limits owner liability to their shares, because a Private Limited Company (PLC) has separate finances and is legally separate from its owners; and shareholders have limited liability; this simply means that owners and shareholders are not personally liable for any losses or debts incurred by their business, in other words owners and shareholders do not need to sell their personal assets to pay the debts caused by the business.
2. Public Limited Company: Can raise capital by offering or selling its shares to the general public. Shares are traded on the stock exchange (Lusaka Stock Exchange – LUSE). This structure/type of limited company is more common for larger, more established businesses such as Zambeef, Lafage cement, Konkola Copper Mines, Trade Kings, Standard Chartered Bank Plc, BP Zambia, Shoprite, Zanaco, Zambia Sugar but to mention a few.

Advantages of Limited Company:

• Limited Liabilities: Shareholders are only legally responsible to the extent of their original investment, and only lose the capital they initially put into the business. Should anything go wrong, owners won’t have to sale personal assets to recover the losses from the business.
• Business Entity: There is legal separation between the business and its owners.
• Easy access to funding (finances).Business Continuity: It is easy to transfer ownership in the event the shareholder retires or dies.
• Investment, Lending and Borrowing Opportunities; because of the professional structure it carries, it gains a lot of trust and credibility by financial institutions, other companies and also customers.

Disadvantages of Limited Company:

• Requires a lot of legal documentation such as certificate of incorporation, certificate of share capital, certificate of tax registration, etc.
• Requires to disclose personal and corporate information on public record – No privacy.
• It is not easy to start and consumes a lot of time.
• High administrative costs.

4. Corporation: Is a business entity that is owned by its shareholder(s) or a group of companies who elect or appoint board of directors to oversee the business’ day-to-day activities. It is also separate from its owners (shareholders) legally. It is comprised of shareholders who are the main owners of the business; board of directors who are elected by the shareholders to manage the day-to-day affairs of the business and officers who actually assists the board of directors to run the company.

Advantages:

• Unlimited Liabilities: Being a legal separate entity from its owners, they are not personally responsible for the debts and other liabilities of the business.
• Easy to raise funds as they are likely to sale shares in the company to other investors at any given point in time.
• Business Continuity: In the event of death of the owner(s), the company can still survive for it has easy transfer of ownership. The business flow can never be interrupted.

Disadvantages:

• Difficult to start as it involves high expenses.
• Difficult to manage by the owners, shareholders may be the owners but the full responsibility of managing and deciding the direction of the business is given to the board of directors, therefore owners (shareholders) may not manage the business as they would want.
• Profits and losses are shared according to the percentage ownership of each individual shareholder.