COM4: CONTAINERIZATION

This unit contains Containerization, partnerships and business units as described in commerce.

CONTAINERIZATION

What is containerization?

Containerization is a new development in transport where goods are loaded in large standardizes metal boxes which are specially designed to carry certain goods.

These boxes are made of steel with hard and long equipment. They are installed at points of loading and offloading containers are sealed by exporters or their agents.

Advantages of containerization

  • Containers are specially built and designed to carry special types of goods for example some are designed to carry general merchandise, some are for petroleum products, etc
  • Containers economize on carriage space on ships or trains this is because the standard sizes of containers.
  • Containers minimize the loss and damage on goods since it may be difficult to open and steal contents in a container. The handling of goods is also minimized once goods are packed in a container
  • Goods are assured of safety even from atmospheric conditions since they are sealed in containers.
  • Containerization saves time in handling goods esp to the loading and unloading points. This is because special equipment likes cranes for loading and unloading
  • A number of ships have been built to handle containers of special types and this minimizes the cost of transport.

Disadvantages of containerization

  • Containers are designed and suitable for only large cargo therefore small volumes cannot benefit from them economically.
  • Containers require special equipment to handle them while loading and unloading. This results in unemployment since a large number of labours would have been required. The equipment ie the cranes are also very expensive.
  • A lot of skilled and efficient man power is needed to operate the handling equipment.
  • The containers that are designed to carry special kind of goods may not carry another type after their use.

BUSINESS UNITS

This is the simplest and oldest type of business owned and operated by one man known as a sale trader. He provides the capital, takes all the decisions, bears all the risks and enjoys all the profits or faces all loses. It is the most predominant business unit in East Africa.

Why the sole trader business is the most operated business in Uganda (advantages)

  • They operate on small scale; therefore on a small market it is easy to adjust to meet any charges in the market eg change in consumer tastes. It is flexible.
  • They require little initial capital to set up. This can easily be raised by small business operators.
  • Decision making and implementation is very easy. The owner can decide on the spot and because he has no one to consult, implement the decision immediately.
  • Here is a lot of independence enjoyed by the owners. He is not influenced by anybody. He is the master of himself.
  • It is easy and quick to farm because it does not require any legal procedures to be followed as in the case of a country.
  • It can ensure business secrets since it is less than one man unlike in partnership.
  • The management of the business is easy since it does not require much skills
  • It can get free labour from the members of the family to assist the owner in the running of the daily business.
  • There is a personal contact between owner and the customers. He can therefore cater for the personal needs of the customers unlike in companies.
  • The owner has the incentive to work harder since the success of the business means profits for him.
  • This type of business can be set up anywhere, even in remote rural areas unlike other types like companies which must be situated in strategic places.
  • In terms of tax, the sole trader only pays the income tax until companies that pay other forms of taxes and more over hear.
  • It is easy to stop this business at any moment without legal procedures like court winding up.

What are the problems associated with this type of business

  • He (owner) has unlimited liability ie his private property can be taken to pay for the business debts where the business fails to pay such debts.
  • The size of the business is limited by the ability of the owner to raise enough capital. The capital is small.
  • The success and continuity of the business is threatened by the death or absence of the owner. The business may come to an end at the death of the owner or it may be closed in case the owner is absent or sick.
  • He cannot easily borrow from the bank due to the small size of the business and lack of collateral security.
  • He cannot employ skilled or specialized labour and specialized machines because of the small size of the business and lack of sufficient capital to pay such skills and machines.
  • The profitability of the business will depend on the personal ability of the owner to ensure success.
  • The sole traders works for long hours and has very little time to rest because he runs the business alone. He is salesman, purchasing officer, accountant, secretary etc
  • He has no one to advise him on important matters affecting the business.
  • Since he is not allowed to appeal to the public for financial aid, he has limited capacity to expand his business.

PARTNERSHIP

A partnership is an association of people who come to gather for the purpose of carrying out business to make profits. It is a relationship which exists between persons carrying on a business in common view to profit. It consists of two to twenty members. Every partner has full authority to act on behalf of the firm when carrying the business activities.

What is a partnership deed and what are its contents

A partnership deed is a document containing the rules and regulations made between partners to govern both the firm (partnership) and the members in carrying out their partnership business. It is important in handling disputes, misunderstanding and disagreements in the course of running the business.

The contents

  • Names, addresses and occupations of each partner.
  • The status of each type of partner in the partnership eg dormant minor, quasi and partner etc
  • The percentage ratio in which to share the profits and losses
  • The right and duties of each partner
  • The method of calculating the good will.
  • The aims and objectives of the firm
  • The manner in which the books of account are to be kept.
  • The voting right of each partner.
  • The procedure to be followed when retiring a partner or admitting a new partner.
  • Time the procedure to be followed when dissolving the business
  • Time when the business should be dissolved
  • The business name, address, location and nature of the business
  • How management is shared ie election of management communication fee.
  • Arbitration clause which spells out the arbitration in case of disagreements instead of going to court.

Types of partnerships

  • Limited partnership

It is where some members have limited liabilities ie their contribution towards the business debts is limited to the amount they contributed as capital. Their private properties cannot be taken to meet or pay business debts. This type is common in E. Africa although there should be at least one general partner whose ability is unlimited.

  • Ordinary partnership

This is one where the partners’ liabilities are unlimited ie partner are fully responsible for all the business debts to the extent of their personal properties. They are sold to meet the debts of the firm in case the capital contributions are insufficient to do so.

  • Temporary partnership

This is a partnership formed either for a specific period of time or purpose at the expiry of which the partnership is dissolved eg one formed to construct a building – once built then, the partnership is dissolved.

  • Permanent partnership

This is a partnership whose time of operation is indefinite and the continuity is everlasting. There is no time for it to be dissolved

Types of partner

  • Active partner

This is a member or a partner who takes part in the daily administration and management of the business in addition to the contribution of capital. He shares the profit and losses

  • Dormant/ sleeping /silent partner

This is a member of a partnership who only contributes capital, shares the profits and losses of the business and does not participate in the daily running of the business.

  • General partner

This one exists in a limited partnership. He provides capital shares profits and losses of the business and has full authority to participate in the management of the business but has unlimited liability.

  • Limited liability partner

This one also exists in a limited liability partnership. He provides the capital shares the profits and losses of the business and has limited liability.

  • Quasi partner ( ostensible ) nominal

This is a member who does not contribute capital or participate in the management of the business but only allow his name to be used because of his reputation as a member of the business. In exchange, he is paid eg Micheal Jordan, Micheal Jackson, Mike Tyson Etc. those individuals have their names used by big partnership because of their reputation.

  • Minor partner

This is a member of a partnership below the age of eighteen years. When he becomes 18yrs, he is free to apply to become a major partner. A minor is nor personally liable and his separate property cannot be touched for the firms debts ie obey and the capital contributions.

  • Major partner

This is a member of a partnership whose age is eighteen and above.

  • Real partner

This is a member of a partnership who contributes capital, shares the profits and losses of the business and may be responsible for the business debts.

  • Retired partner

He is also referred to as an outgoing partner. He is the one who has withdrawn from partnership. His liability for the losses is only for the debts of the firm before his withdrawal.

Duties and rights of partners

  • No partner is allowed to sign or transfer his partnership interest to outsides without the consent of others. No new partner is admitted without the consent of others.
  • All partners must share all the losses together.
  • In case a partner carries out his duties carelessly, then he must be punished and penalized.
  • Every partner has the right to inspect the books of accounts of the business.
  • Every partner must carry on business of the firm whenever called upon to act.
  • No partner shall carry out a competing business to the partnership.
  • Partners are supposed to display most good faith in carrying out the firm’s business.
  • No partner is expelled without dissolving a partnership.

Circumstances under which a partnership may be dissolved

Dissolution of a partnership is the termination or bringing the existence of a partnership to an end. This may be due to the following reasons;

  • When the fixed term (period) expires.
  • When the venture intended to be carried is perfectly completed (for which it was created).
  • By mutual agreement at anytime like formation and creation is by consent of members, dissolution of the partnership could be by agreement.
  • When a partner or partners become(s) insolvent or die(s).
  • If an event occurs that makes the partnership an lawful eg introduction of all banding under takings similar to the firms activities
  • When a partner notifies the other partners in writing of his intensions to end up the business. This is called exercise of option.
  • When any other interested party, apart from partners places forward a case.

Advantages of operating a partnership business

  • They can raise more capital through members’ contribution than a sale trader. It is easy and possible for them to expand their business or to operate on a large scale.
  • They can easily borrow money from financial institutions because they operate on a large and most important because they have collateral security for the loans.
  • It brings together a wider, combined experience and talents in the business from different individuals (members). This may include secretaries, accountants, sales then etc which a sole trader/proprietor lacks.
  • Partners share the business burden and liabilities unlike in the case of the sole proprietor who faces and bears all the losses and the business debts alone.
  • Its formation compared to companies is easy. It does not follow or require many legal procedures. Simple registration of the business name is sufficient.
  • The business can expand by admitting new partners into the business to raise more capital.
  • The work is well divided among the partners. This will inevitably reduce the work load for each partner and loads to specialization.
  • The business information can be kept as a secret to partners only without the public knowing.
  • The absence of a partner does not have the business operations like it does with the sole trader.
  • A partner is a full agent of the firm. He has full authority in the daily running of the firm. He can order for goods and accept pay ment on behalf of the firm unlike in LTD liability companies where management is under the elected board of directors.
  • In seasons of high profits, partners are entitled to bonuses in addition to their share of profits. This is an incentive which motivates them in the business.
  • Ina partnership shares are freely transferable only with the consent of other member unlike in a private LTD liability company where the other of director has to be informed.

Disadvantages

  • Apart from where a limited partnership exists, members have unlimited liabilities ie their private property may be taken to pay the business debts where the business incurs such debts
  • Decision making and implementation is slow. All members must be consulted in order to pass a decision. This delays implementation of business activities.
  • All members may suffer loss or penalty resulting from the mistake made by one of the members. This is because the actions of a partner during business transactions of the firm birds all the rest.
  • The business may come to an end due to death and bankruptcy of any member, unlike in a company where continuity is assured.
  • Disagreement among members over important issue may hinder the success and progress of the business.
  • Unlike the sole proprietorship, partners have to share the profits. This reduces the amount of profits enjoyed by each partner.
  • Where one partner works hard and the profits arising out of his sweat are shared by all the partners, it discourages this partner.
  • Where the firm heavily depends on one partner and he dies or leaves the business the firm can easily collapse.

Process involved in the formation of limited liability companies

The persons forming the company are required to prepare two legal documents ie

  • The memorandum of association.
  • Articles of association.

These documents are filed with the register of companies who now issues a certificate of incorporation immediately.

For private limited companies at these levels after acquiring the certification of incorporation business can commence. However, for public limited companies, they have to issue a prospectus to the general public inviting them to buy shares of the company. This is meant to raise the minimum required capital upon which realization of a trading certificate is issued by the registrar to allow the public limited companies to commerce business. The company can sue or be sued in its own name. The owners are separate persons from the company. It is now a factious person. It can sue or be sued by members.

JOINT STOCK COMPANIES

Joint stock companies are a corporate association of persons formed to carry out given functions which are defined? It is registered as an artificial person created by complying with the requirements of the companies Act. It is a person entirely distinct from the persons who own shares. They are basically divided into two categories;

  • Private limited company and
  • Public limited company

Distinguish between;

  1. Limited companies and unlimited companies

Limited companies are those whose members’ liability is limited to the stated amount, normally the capital contribution made. The share holders’ personal belongings are not touched to pay the company’s debts.

Unlimited companies are those whose member’s liability is unlimited. Should the company incur debts, then the personal belongings of the share holders are taken to pay this debt?  Sole traders and neural partners fall under this, although unlimited companies don’t exist in E. Africa.

  1. Limited by share and limited by guarantee

Limited by share is where the liability of a share holder is limited to the face value of the share held by him. The company must be the type that has shares.

That means that if the face value of a share is 500,000sh and the company has to pay debts, then the share holder pays amount of 500,00sh and not more.

Limited by guarantee is where the company has no shares but members guarantee to contribute a given amount to pay debts. In case the assets cannot meet the debts. This guarantee is done at the moment when individuals are taking up membership in the company.

Differences between partnerships and companies

  • A limited company is a separate legal entity while a partnership has no separate legal existence. It’s simply an association of persons carrying on a business together to make a profit.
  • A company as soon as it is incorporated becomes a legal entity which can sue or be sued in its name. The partnership firm has no rights and obligations separate from the partners.
  • The liability of partners except in limited partnerships is unlimited for the firm’s debts and obligations. However, the share holder’s liability in companies is limited to the extent of their share contributions for the company’s debts.
  • A partner of a firm cannot sell or transfer his share without the consent of all other partners. However, share holders in public limited companies can sell their shares without any restriction.
  • A partnership is formed by a simple agreement, but a company requires the registration of various documents.
  • A partnership can engage in any business activities, but a limited company is prohibited from pursuing any other activity not stated in the ‘‘object clause”
  • A trading partnership (with exception of professionals) can’t have more than twenty members< but a public company has no limit in terms of members.
  • A partner’s actions in the course of conduction the firm’s business bards all the partners but a share holder of limited company is not held liable as an individual for the actions of the directors.

Common characteristics on features of Limited Liability Company

  • They are a separate entities from the owners ie share holders
  • The share holders’ liability is limited to the capital contributions
  • They are voluntary organizations formed by interested persons
  • They are formed with the aim of making profits
  • The company capital is divided into small units called shares
  • For public limited companies, shares are freely transferable while with private limited companies their shares are not freely transferable.
  • Public limited companies must publish their annual accounts for public consumption and inspection.
  • Shares are open for the public to buy especially through stock exchange (public limited company)
  • Public limited companies have a membership of 7 to infinity while private limited companies have a membership of 2 to 50 people.

Why would you advise a group of 20 business men to carry a joint stock company? (Advantages)

  • Members have limited liability unlike in partnership where the members property can be taken to settle business debts
  • The company has perpetual success or continuity ie the death of the members does not affect the existence of the company. It can continue in existence even after the death of all members
  • The company can raise more capital through share contribution of the members. They have a big membership than partnerships and sale proprietors
  • They can easily borrow money from lending institution because they are based of collateral security and they can operate on a large scale.
  • The company has legal entity, different and separate from that of its members. It can sue or be sued in its own name unlike in a partnership where members are agents of the firm.
  • It is possible to specialize esp. in the employment of specialists in the business eg managers, accountants etc. this is because there is money to pay specialists.
  • Companies normally realize and enjoy large profits as compared to scale traders and partnerships. This lessons operation costs.
  • The publicity of the company accounts protects the share holders against fraud. This is because they are exposed for public inspection
  • The employees of the company can be encouraged to buy shares in the company which not only increases the capital base but also work as an incentive for them to work hard
  • For public limited companies, shares are freely transferable. This is an assurance to investors that they can convert their shares into cash at any given moment of need.

Disadvantages

  • The formation of companies’ requires a considerable number of documents and procedures that turn out to be expensive and time consuming
  • The majority of the members may not have a say in the daily management of the business which is left to an elected board of directors.
  • Decision making is slow since all members must be consulted to resolve on issues affecting the company. This delays implementation of crucial issues affecting the business.
  • There is no personal contact between owners (shareholders) of the company and the customers.
  • The company activities unlike the sole proprietorship are limited by the objectives stated in the memorandum of association (objective) clause. No any other form of business may be carried out apart from what was stated at the birth of the business.
  • Companies being large scale firms, they suffer from dis-economies of large scale production.
  • There may be lark of personal initiative on the side of the directors whose interests may conflict with interests of the company
  • Companies lack privacy since their accounts and activities must be published for the public interests. The expenditure, income, assets and liabilities are all exposed unlike in a sole proprietorship.
  • The company income is double taxed, the first tax is company tax and the second is the personal income, taxed on dividends of share holders.

By showing the constituents distinguish between the memorandum of association and articles of association

A memorandum of association is the document that governs the company’s relationship with general public. It defines the constitution and powers of the company

It informs the members’ creditors and all people dealing with the company and the general public as to what formed to do, its capital and nationality. It has the following clauses.

  • The company’s name

The name of the company with the word “limited” at the end most is stated. All business transactions with the company are carried out in this name. The word limited warns that public that the liability of the share holders is limited.

  • The objectives of the company

This clause clearly states the intensions and objectives of the promoters ie the reasons why the company is formed. This is important for the public esp. those who want to become share holders.

  • Capital close

This clause states that the amount of capital with the company proposes to be registered. The value of each share and the types of shares are all specified. This capital is also referred to as authorized or nominal capital.

  • Liability clause

This clause spells out the liability of shareholders is limited to their capital contributions. Their private properties are not taken to pay and settle the company’s debts.

  • The registered office and address

It shows the registered address and location of the company. This helps the public to get the right contact of the companies’ premises.

  • Declaration clause

It is called the association clause by which the persons subscribing (at least two) to the memorandum declare their desire to be formed into a company. They are referred to as promoters who must sign the document.

Articles of association are a document spelling out how the internal administration and management shall be carried out. It is a contact defining the duties/rights of members. It contains the following;

  • The duties, rights and powers of each type of share holder.
  • The powers of the directors and the rules governing the election of the management committee.
  • The way meetings are conducted
  • The way the profits are to be shared
  • The book keeping and auditing system and requirements
  • The method of keeping company records

ASSIGNMENT : CONTAINERIZATION Assignment MARKS : 10  DURATION : 1 week, 3 days

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