Democratic Autocratic Bureaucratic Laissez-Faire/Free Reign Description Employees included in decision making. Participative style and centred around people Management makes all decisions Centred around the leader Employees to follow rules and policies strictly Employees allowed to make own decisions Advantages Employees involved Variety of skills and inputs Greater variety of ideas Encourages innovation decision making Effective when employees are unskilled Good for crisis situations Practical in large businesses Employees are disciplined Increase productivity Employees make the decisions Employees are empowered and motivated Variety of skills and input Disadvantages Incorrect decisions can be taken if employees inexperienced Discussions can take time Not effective in of crisis Clear division between management and staff Poor motivation and productivity Little input from employees No/ lack of flexibility Incorrect decisions can be taken if employees inexperienced Employees can lose focus Can be time consuming Transactional Charismatic Description Leader motivates the workers through a system of rewards and punishments, and workers are expected to achieve routine performance goals. Uses personal charm and inspiration rather than domination. Uses praises rather than authority to get what he or she Advantages Simple system that is easy to apply Does not need much training. Provides a powerful motivation for employees. Gets results. Expert at selling vision and achieve excellent results. Leader is very energetic and motivating. Inspires loyalty and hard work Disadvantages Does not provide for any individual treatment. Discourages any innovative ideas from workers. When problems occur the leader blames the employees. Relies on the leader being present. Leader believes more in himself or herself than the business. Projects can collapse if the leader leaves Managers tend to be stifled as they do not express their ideas. Application of Leadership styles
out after the creditors, but before the ordinary shareholders. 2.6 Describe / Evaluate the positives & negatives of the following forms of investment: • Government [RSA] retail bonds • Unit Trusts • Shares • Deposits Government Retail Bonds Advantages Disadvantages Government Retail Bonds Safe way to invest with low risk. Guaranteed returns. Convenient and accessible, if the need arises. No extra cost or commission. Convenient method of purchase, e.g. At the Post Office Low return on investment, because of the low risk Government default on payment in the event of war or financial crisis Advantages Disadvantages Unit Trust Allows the investor to buy a of share and securities from a variety of companies. the potential risk. Spread the risk amongst some high risk and some low risk investment. Professional fund managers will invest the funds to ensure maximum returns and growth Provide a source of income on retirement Unit trust could decrease in value over time. Depended on the growth of blue chip companies. External factors impact negatively on the value of the unit trust. Shares Advantages Disadvantages Can offer a much higher return on investment than other investment options. Example Fixed deposits. The value of the share price fluctuates over time
Compounding Period (n) Principal (P) Yearly rate (r) Time (t) Period rate (r/n) Number of period (n.t) Amount (A) Total interest (I) Annually [1] 1 000 9% 5 yrs. Semi- Annually [2] 1 000 9% 5 yrs. Quarterly [4] 500 8% 3 yrs. Monthly[12] 350 12% 5 yrs. 2.10 Recommend types of investments based on calculations TYPE OF INVESTMENT RECOMMENDATION 1 Shares 2 Business Investment
COMPARISON OF THE DIFFERENT FORMS OF OWNERSHIP SOLE TRADER PARTNERSHIP CLOSE CORPORATION Name No specific suffix No specific suffix End with CC Ownership 1 2 – no limit 1 - 10 Name of owners Owner Partners Members Liability Unlimited Jointly & Severally Limited Management Owner All/Some partners All/Some members Formation documents No requirements Partnership Agreement Founding Statement – NOT APPLICABLE Tax Tax in personal capacity Tax in partners personal capacity Company tax – Double tax Profits Profits paid to owner Divided between partners Paid according to % interest held by member PRIVATE COMPANY PUBLIC COMPANY PERSONAL LIABILITY COMPANY Name (Pty) Ltd Ltd Inc
Number 1 – no limit 1 – no limit 1 – no limit Owners Shareholders Shareholders Shareholders Liability Limited Limited Company, directors and previous directors - Jointly & severally Management 1 or more directors 3 or more directors 1 or more directors Formation documents MOI MOI MOI Tax Company tax – Double tax Company tax – Double tax Company tax – Double tax Payment to owners Dividends – Board approval Dividends – Board approval Dividends – Board approval STATE OWNED COMPANIES CO-OPERATIVES NON-PROFIT COMPANIES Name SOC Ltd “Co-op” NPC
Number 1 – no limit 5 – primary 2 – no limit 3 – no limit Owners Shareholders Member/Shareholder Not required Liability No one is liable Limited Director(s) Management 1 or more directors Board of Directors 3 or more directors Formation documents MOI MOI MOI Tax Company tax – Double tax Tax on income retained May qualify for tax exemption Profits Dividends – approval Members portion of surplus – proportion to the value of transactions conducted by a member No part of income may be paid to director 4.2 Critically evaluate the forms of ownership in terms of the following criteria: [Refer Exam Guide] • Capacity • Taxation • Management • Capital • Division of Profits • Legislation Sole Trader Success Factors Failure factors 1 Capacity The business is easy to control because it is Personal attention of owner is given. Difficult for one person to control all the business functions. There is also no difference between your debt and the debt of the business. Difficult to continue and grow long term Taxation The is taxed as an individual tax payer on his/her share of the profit. Business does not pay secondary or companies tax If the scales are increased, the owner will have less profit. If profits are very high it might be not be a good idea to form a sole proprietorship as the increased tax might be higher than a CC or company.