BUSINESS

MANAGEMENT
&
ENTREPRENEURSHIP
Issa J. Edward, MBA
Department of Applied Sciences
The Malawi Institute of Technology (MIT)
Malawi University of Science and Technology
Mobile: (265) 888 451 474 Email:
issaedward27@gmail.com

BUSINESS
MANAGEMENT AND
ENTREPRENEURSHIP –
BMEN 320
SESSION 2
THE BUSINESS AND ITS
NATURE
BUSINESS MANAGEMENT &
ENTREPRENEURSHIP
Learning outcome
• Participants should be able to:
1. Explain the term business.
2. State and describe the various forms of business
ownership
3. Understand the characteristics of the different
legal forms of business available
and their advantages and disadvantages
4. Explain the process of creating a legal entity for a
business
5. Discuss the various objectives why people
operate businesses.
6. Discuss the various market entry options that are
available for those starting new
ventures
BUSINESS MANAGEMENT &
ENTREPRENEURSHIP
Business defined
• Simply stated, a business is a commercial
activity (trade) where exchange
processes are done.
• The key words here is commercial - it’s a
commercial activity of exchange, not
just any other exchange process.
• Unit 1 of the Business Management and
Entrepreneurship Module defines a
business as an activity of making one's living or
making money by producing or
buying and selling products (such as goods and
services).
• This definition compares very well with that of
the Business Dictionary (2016)
which defines a business as an organization or
economic system where goods and
services are exchanged for one another or for
money.
• Look around yourself, what sort of activities
are you, or are other people that you
know, doing to make a living? Those are
businesses.
BUSINESS MANAGEMENT &
ENTREPRENEURSHIP
Various forms of business
ownership
• We see so many businesses all around us,
right from the neighbourhoods we
come from.
• The question is who owns these businesses?
• Businesses can be owned privately by
individuals; they can be owned by the
larger general public and there are businesses
that are owned by the
government (the state)
• Each of theses forms is explained in the
following table:
BUSINESS MANAGEMENT &
ENTREPRENEURSHIP
Various forms of business
ownership
BUSINESS MANAGEMENT &
ENTREPRENEURSHIP
Legal Forms of Business
• Of all the decisions that one makes when
starting a business, probably the
most important one is the type of legal
structure you select for that business.
Why?
• Choosing a form of ownership is a decision
that has far-reaching effects for
both the entrepreneur and the business.
• Although the decision is not irreversible,
changing from one ownership form to
another can be difficult, time consuming,
complicated, and expensive
• In many instances, switching an existing
business from one form of ownership
to another can trigger onerous tax
consequences for the owners.
• Therefore, it is important for entrepreneurs to
get it right the first time
BUSINESS MANAGEMENT &
ENTREPRENEURSHIP
Choosing the Right Legal Form of
Business
• There is no one “best” form of ownership
• Choosing the “right” form of ownership means that
entrepreneurs must understand the
characteristics of each form and how well those
characteristics match their business and
personal circumstances.
• Choose a structure that offers you protection, while
being only as complex as your business will
really need.
• Issues to consider:
• Tax considerations – the net income for the entrepreneur and
the tax bill are important factors
• the extent to which they are willing to assume personal
responsibility for their companies’ financial
obligations
• Start-up and future capital requirements.
• Control - how much control to keep or give in exchange for
help from others to build the business
• Managerial ability
• Business goals.
• Management succession plan
• Cost of formation
BUSINESS MANAGEMENT &
ENTREPRENEURSHIP
Choosing the Right Legal Form of
Business
• Various legal forms or organisations are
available to organise a business some of
which are appropriate only for very specialised
application
• At the broad level the basic legal distinction
between types of business
enterprise is their status as corporate or non-
corporate organizations.
• These are broken further into most common
forms of business as sole
proprietorship, partnership, corporation and
a limited liability company.
• Each of these forms has its own advantages
and disadvantages
The Legal Distinction of
Business
• As we look at the different types and legal statuses
of businesses, there is a further
important distinction to consider –the limited and
unlimited liability.
• This distinguished businesses based on the extent
to which its owners are willing to
assume personal responsibility for their companies’
financial obligations
• Limited liability means that the personal
responsibility of the owners of a business for
its debts or actions is limited in some way – i.e. up
to the mount they have paid or
agreed to pay for their shares. No more than that
• Unlimited liability means that the owners of the
business are liable to the full extent of
all its for all debts or actions taken by the business
and would have to use all their
personal resources to meet those debts.
The Legal Forms of
Business Ownership
Legal Form of Business Organisation
Non-corporate
Sole Trader Partnership
Ordinary /General Partnership
With a contract Without a contract
Limited liability
Partnership
Corporate
Corporation
Regular “C”
Corporation
Subchapter “S”
Corporation

Non-corporate Organisations
• These are usually those which do not have a
separate legal identity from their
owners.
• The owners are the organisation and the
organisation is the owners
• Most of the non-corporate organizations have
unlimited liability.
• Examples of the main forms of non-corporate
organizations include:
1. Sole Trader/ sole proprietorship
2. Partnerships which can be general / ordinary
or limited
Non-corporate Organisations
The Sole Trader
• This type of business is owned and managed
by one person who provides the
financial resources and makes all the business
decisions.
• Since the owner makes all the business
decisions, s/he is responsible for the
success or failure of the business.
• The owner of the business has unlimited
liability – the business is the owner
and the owner is the business
• The sole trader is the most common form of
business ownership in many
countries among small businesses and it exists
across all industries.
• There are no restrictions on the ability of a
person to set up and run a
business as a sole trader
The Sole Trader
Advantages and
Disadvantages
ADVANTAGE DISSADVANT
S AGES
• Easy to form, • No tax breaks
few for company
administrative, benefits
filing • Unlimited
headaches personal liability
• No documents • No perpetuity
to file with state of business –
• One level of Death of an
taxation owner
• The owner is terminates the
free from legal existence
interference by of the
partners, business and this
shareholders, can create a
directors and cloudy
other relationship
officers (total between the
decision making business, its
authority) creditors and
• Transferability employees
 • There is no way
of interest is
to "retain"
relatively easy
earnings like
• Easy shifting of
other business
funds in and out
forms; the
of the
owner has no
business
limited liability
• Easiest of the
protection;
four entities; no
• Limited range
balance
of expertise
sheet
• Limited access
requirements,
to financial
no accounting to
resources
other
• Feeling of
owners, partners
isolation

Non-corporate Organisations
The Partnership
• A partnership is an association of two or more
people who co-own a business for
the purpose of making a profit.
• In a partnership, the co-owners (partners) share
the business’s assets, liabilities, and
profits/loss according to the terms of a previously
established partnership
agreement (if one exists)
• Because of its voluntary nature, a partnership is
set up without many of the legal
procedures involved in creating a corporation.
• A partnership pools managerial talent and capital
of those joining together as
business partners.
• Apart from the legal aspects, however,
partnership formation deserves serious
study.
• A strong partnership requires partners who are
honest, healthy, capable and
compatible
Non-corporate Organisations
The General Partnership
• A Partnership without a legal contract
• The simplest type of partnership where the partners
informally set up a business with no legal
contract. It is often applied to married couples or members of a
family who open a business together.
• The partners are jointly and severally liable for all the debts of
the business.
• This means that each of them
• Have unlimited liability in the same way as sole traders.
• Can be sued for the whole debt and could lose all of his/her
assets or be forced into bankruptcy.
• If one partner leaves the business, the other(s) is responsible
for settling all of the debts
• B Partnership with a contract
• Set up by a written formal deed of partnership which is
witnessed by a solicitor and sets out the
important details such as how the profits and losses will be
shared.
• The agreement will also record the date the partnership
commenced and, if it is to exist for a fixed
period, the date on which it is to end. If it is not for a fixed
period, there should be agreement on what
will happen on the retirement or death of a partner

Limited Liability Partnership

• A limited liability partnership is composed
of at least one general partner
and at least one limited partner.
• In a limited partnership, the general partner is
treated, under the law, the
same as in a general partnership – he/she has
unlimited liability.
• Limited partners are treated as investors in
the business venture, and they
have limited liability for the partnership’s debts
• The limited partner does not have the right to
engage actively in managing
the business.
• In fact, limited partners (sleeping, silent
partners) who take an active part in
managing the business forfeit their limited
liability status and are treated just
like general partners.
Non-corporate Organisations
The Partnership Governance
• The Partnership Act
• Codifies the body of law dealing with partnerships in
the country of jurisdiction
• The Partnership Act spells out the general rights and
obligations of each partners
• In USA for example, they have the Revised Uniform
Partnership Act (RUPA) codifies the body
of law dealing with partnerships in the United States.
• Under the RUPA, the three key elements of any
partnership are common ownership interest
in a business, agreement on how the business’s profits
and losses will be shared, and the
right to participate in managing the operation of the
partnership.
• In Malawi - Partnership Act of 2014 – nature of
partnership, relations of partners to people
dealing with them; relations of partners to one another,
dissolution of partnerships and its
consequences

Non-corporate Organisations
The Partnership Governance
• The Partnership Agreement is a document
that states in writing the terms
under which the partners agree to operate the
partnership and that protects each
partner’s interest in the business.
• The partnership agreement resolves potential
sources of conflict that, if not
addressed in advance, could later result in
partnership battles and the dissolution of
an otherwise successful business.
• Spelling out details—especially sticky ones such as
profit splits, contributions,
workloads, decision-making authority, dispute
resolution, dissolution, and others—
in a written agreement at outset helps to avoid
damaging tension in a partnership
that could lead to a business “divorce.”
• If a partnership agreement contains gaps in its
coverage, the act will fill them
The Partnership
Advantages and
Disadvantages
ADVANTAGE DISSADVANT
S AGES
• Flexible and • No tax breaks
close to for company
stakeholders like benefits
customers, • Liable for debts
suppliers and incurred by each
employees. partner
• No documents • No perpetuity
to file with state of business as
• One level of the he
taxation withdrawal or
• Relatively easy death of a
to create partner may
 dissolve the
firm.
• Earnings
• Active losses
cannot be
can be used to
retained, and
offset other
• Tax-free fringe
income for the
benefits are
owners
limited
•
• Decision
Complementary
making may be
skills - There can
difficult and slow
be
as all the
division of
partners have to
labour and cross
agree – one
fertilization of
difficult partner
ideas between
could create
the partners
problems
• Larger pool of
• Difficult in
capital
disposing of
partnership
interest

Corporate Organisations
The Corporation
• Corporation is a separate legal entity apart from
its owners that receives the right to
exist from the state in which it is incorporated.
• It is a separate entity apart from its owners and
may engage in business, make
contracts, sue and be sued, own property, and pay
taxes.
• Because the life of the corporation is independent
of its owners, the shareholders can
sell their interests in the business without affecting
its continuation. Neither does the
death of the majority shareholder result on
termination of the business.
• The USA Supreme Court has defined the
corporation as “an artificial being, invisible,
intangible, and existing only in contemplation of
the law”.
• Corporations are creations of the states, being
chartered under its laws.
• When a corporation is founded, it accepts the
regulations and restrictions of the state
in which it is incorporated and any other state in
which it chooses to do business.
• Because it is a separate legal entity, a corporation have
limited liability in the business. In other
words, shareholders’ personal assets cannot satisfy
creditors unpaid debts.
• It is important to note however that, the shield of
limited liability may not be impenetrable and
hence the requirement by lenders and other creditors for
personal guarantees in risky start-up
companies.
• The corporate form of ownership also does not protect
its owners from being held personally
liable for fraudulent or illegal act – “courts would pierce
the corporate veil” where fraud or
illegal acts are suspected. For example when the
entrepreneur:
• Uses corporate assets for personal reasons or
commingles them with his or her personal
assets
• Fails to act in a responsible manner and creates an
unwarranted level of financial risk for the
stockholders
• Makes financial misrepresentations, such as operating
with more than one set of books
• Takes actions in the name of the corporation that were
not authorized by the board of
directors

Types of Corporations
• C corporations are the traditional form of
incorporation. All large public ally
traded companies and some small businesses
are C corporations.
• C corporations are separate legal entities and
therefore must pay taxes on their
net income at a corporate rate
• Then, stockholders must pay taxes on the
dividends they receive from these
same profits at their individual tax rates. Thus,
a corporation’s profits are taxed
twice –double taxation applies
• Companies seeking investment from venture
capital or other forms of private
equity (should be established as C corporations.
• A C corporation provides the appropriate
structure for investments by
corporations, an eventual acquisition, and a
future public stock offering.
The C Corporation form of
ownership
The S Corporation form of
ownership
• S corporation a corporation that retains the
legal characteristics of a regular C
corporation but has the advantage of being
taxed as a partnership if it meets
certain criteria.
• Unlike a C corporation, S corporations do not
pay taxes on corporate income.
• Income earned by S corporations is passed
through to the owners, just as it is in
a sole proprietorship and a partnership.
• The S corporation was established specifically
for small, closely held businesses
to alleviate the owners from the double
taxation that occurs with a C
corporation.
• An S corporation is a distinction that is made
only for federal income tax
purposes and is, in terms of all other legal
characteristics, no different from any
other corporation.
Tax Rate Comparison :
C Corporation and S
Corporation
C CORPORATION S CORPORATION
Corporate company net income $ 500,000.00 $ 500,000.00
Maximum corporate tax 35.00% 0.00%
Corporate tax $ 175,000.00 $ -
After-tax income $ 325,000.00 $ 500,000.00
Maximum shareholder tax rate 39.60% 39.60%
Marginal divdend income tax 20.00% 0.00%
Shareholder tax ($325,000 × 20%) $ 65,000.00 ($500,000 × 39.6%) $ 198,000.00
Total tax paid (corporate plus
shareholder tax) $ 240,000.00 $ 198,000.00
Total tax savings by choosing an
S corporation or limited liability
company $ 42,000.00

• Normally two or more people come together to start a

company
• It is a requirement under the law that the following
documents are filed with the Registrar of
Companies to establish the company , who upon approval
issues a Certificate of Incorporation
1. Articles of Association – this is the document which
sets out the rules by which shareholders
and the company will be administered, for example voting
rights, powers of directors.
2. Memorandum of Association – this document sets out
the company name, status, address of
the registered office, objectives of the company, statement
of limited liability and amount of
guarantee
3. Statement of Capital – this gives details of the types of
share (ordinary, preference, etc.), the
amount paid up and unpaid on each share, the number of
shares issued, the nominal value
of shares issued, voters rights and the shareholder’s
details.
4. Prospectus – a document issues by public companies
that describes the history of the firm,
its future prospects and the terms on which it offers its
shares.

FORMING A LIMITED
COMPANY
• The Companies Act, requires that all companies
registered with the Registrar of Companies to
have in place a Board of Directors to manage the affairs
of the company.
• In limited companies, the directors of the board are
chosen and appointed by the owners of the
business (shareholders)
• The powers and duties of the board of the directors are
stipulated in the company’s articles of
association that are lodged with the Registrar of
Companies.
• The powers and duties of the board of directors are also
governed by the Companies Act which
stipulates additional duties in the areas of:
1. A duty to promote the success of the company
2. Duty to take reasonable care, skill and diligence and to
give consideration to matters that
go beyond the Balance Sheet and impact the business
operation on the environment and
community

THE BOARD OF
DIRECTORS
• An organisation may apply for charitable status if its
aims are exclusively for the "public benefit".
• Qualifying categories include:
1. Educational advancement
2. Poverty relief
3. The advancement of religion
4. Purposes beneficial to the community
• Charities do not have owners but trustees who have
responsibility for the running of the charity -
its finance and employment of staff

CHARITABLE STATUS
CHARITABLE STATUS
Advantages and Disadvantages
Advantages
• No tax payments
• Easier to raise money (perceived)
• Some funding is only available to
charities.
• Donors can receive tax relief on their
donation
Disadvantages
• Obtaining charitable status can take a
long time and the organisation is subject
to considerable controls.
• The trustees can be paid only reasonable
expenses, which could restrict the type
and complexity of professional assistance
from those in senior positions that the
organisation can call on
• Charity law also restricts what charitable
organisations can do and how they are
run,
• Being a charity restricts the type of
trading activities allowed
• The Business Objectives are the results that
you hope to achieve as you run and
grow your business.
• As an entrepreneur, you are concerned with
every aspect of your business and
need to have clear goals in mind for your
business for your company if you are to
stay on track
• Having a comprehensive list of business
objectives creates the guidelines that
become the foundation for your business
planning
• Whilst the purpose of most businesses is to
make profit, organizational
objectives can vary a great deal and often
change with time as the internal
and/or external environment changes.
BUSINESS OBJECTIVES
• Here are some of the business objectives.
• Getting and Staying profitable (Profit Maximisation)
• Gaining Market share (Reaching the right customers)
• Quality leadership
• Survival
• Sustainable growth
• Sales Maximisation
• Staying ahead of the competition
• Employee attraction and retention
• Excellent customers service delivery
• Productivity of people and resources
• Serving the Community.

BUSINESS OBJECTIVES
• There are fundamental steps that any
business needs to follow to get started.
• These would differ and depend on the
following:
1. Country jurisdiction – different countries may
stipulate different
procedures to be followed in establishing a new
venture
2. The choice of the business owner- for
example if the owner wants full
control of the venture, he/she may opt for a sole
proprietorship.
3. The nature of the business to be established
can also dictate the
procedures to be followed. For example if you are
to establish an
insurance company, there is a specific piece of
legislation that governs
this nature of business
Turning Business Ideas into
Reality
Starting a new venture
• Here the general steps one can follow:
1. Planning the business: Deciding on the best
way of starting and owning a
business. For example buying an existing
business or starting from scratch.
2. Taking care of the start-up legalities:
Assess the various legal forms of a
business - consider legal issues and advantages
of different types of
business set-ups and other requirements
according the jurisdiction
3. Setting up the business structure: Design an
organizational structure for a
new and/or existing organization
4. Hiring employees amongst other things:
Develop a Human Resource Plan
for a business
Turning Business Ideas into
Reality
Starting a new venture: The
Process
• There are different ways a would-be owner of
a new venture can turn a business
idea into a reality which include:
1. Begin anew business
a) Business start-up – starting from scratch to
establish a new business
altogether
b) Go a franchising which include a formal
franchise or a purchase and trade
mark/brand agreement
2. Purchasing an already existing business
a) Outright purchase of an exiting business
b) A buy-out
c) A buy-in
Starting a New Venture:
Routes to Market
Begin a new Business or Buy an
existing one
Opportunity Area
Begin a New Business
Start-up Franchising
Name /Trade Mark
Agreement
Product Distribution
Agreement Format Franchising
Buy an Existing Business
Outright Purchase Buy-out Buy-in

Starting a New Venture:

Routes to Market
Begin a new Business or Buy an
existing one
• Creating a new business, which stands alone,
and is not tied to other
organizations, except in the normal course of
trading.
• One advantage with this option is the
opportunity to create your own brand
positioning and culture.
• There is no carry over Baggage. You start on a
clean slate
• There are however some risks involved with
this option – walking into
unchartered territory
• No existing customer base
• No established business operating procedures in place
• Difficult to access finance – no track record / trade
credit record
• Success is not guaranteed
• Employees and suppliers not in place

Starting a New Venture:

Routes to Market
A Business Start-Up
• A system of distribution in which semi-independent
business owners (franchisees) pay fees
and royalties to a parent company (franchisor) in
return for the right to become identified
with its trademark, to sell its products or services, and
often to use its business format and
system
• Franchisees do not establish their own autonomous
businesses; instead, they buy a
“success package” from the franchisor, who shows
them how to use it.
• Franchisees, unlike independent business owners,
don’t have the freedom to change the
way they run their businesses—for example, shifting
advertising strategies or adjusting
product lines—but they do have access to a formula
for success that the franchisor has
worked out.
• Fundamentally, when franchisees buy franchises,
they are purchasing a successful business
model.
• The franchisor provides the business model and the
expertise to make it work; the
franchisee brings the investment, spirit, and drive
necessary to implement the model
successfully

Starting a New Venture:

Routes to Market
A Franchising
• Franchising is built on an ongoing relationship
between a franchisor and a franchisee

Starting a New Venture:

Routes to Market
The Franchising Relationship
THE THE
ELEMENT
FRANCHISOR FRANCHISEE
Oversees and
Chooses site with
approves; may
Site selection franchisor’s approval
choose site and
and design and pays for
provides prototype
design
design
Makes general
Hires, manages, and
Employees recommendations
fires employee
and suggestions
Determines product Modifies only with
Products and or service line and franchisor’s approval
services only and sets final
recommends prices prices
Purchasing Establishes quality Must meet quality
standards; provides standards; must
list of purchase only from
approved suppliers; approved suppliers;
 may require
must purchase from
franchisees to
supplier if
purchase from the
required.
franchisor
Develops and Pays for national ad
coordinates national campaign; complies
ad with local
campaign; may advertising
Advertising
require minimum requirements; gets
level of franchisor approval
spending on local on
advertising. local ads
Sets quality
Maintains quality
standards and
standards; trains
enforces them
employees
Quality with inspections;
to implement quality
control & trains franchisees
systems. Operates
support and provides
business on a
support through an
day-to-day basis with
established business
franchiser’s support.
system.

Starting a New Venture:

Routes to Market
Types of Franchising
TYPE DESCRIPTION
TRADE • A system of
NAME franchising in which
a franchisee
 purchases the right
to use the
franchisor’s trade
name without
distributing
particular products
exclusively under the
franchisor's name.
E.g.. Sana Shopping
• A system of
franchising in which
a franchisor licenses
a franchisee to sell
its products under
the franchisor’s
brand
name and trademark
through a selective,
limited distribution
network.
PRODUCT • This system is
DISTRIBUTION commonly used to
market automobiles
(Chevrolet, Lexus,
Ford), gasoline
products
(ExxonMobil, Puma,
Total Energies,
Engen), soft drinks
(Pepsi Cola, Coca-
Cola), appliances,
cosmetics, and other
products.
PURE / • Involves providing
FORMAT the franchisee with a
complete business
format, including a
license for a trade
name, the products
or services to be
sold, the store
layout, the methods
of operation, a
marketing plan, a
quality control
process, a two
way communications
system, and the
necessary business
support services.
• In short, the
franchisee purchases
the right to use all of
the elements of a
fully integrated
business operation
• Business format
franchising is the
most common and
the fastest growing
of the three types of
franchising and
accounts
for nearly 95 percent
of all franchised
outlets.9 It is
 common among
quick service
restaurants, hotels,
business service
firms, car rental
agencies,
educational
institutions, beauty
aid retailers, and
many other types of
businesses.

Starting a New Venture:

Routes to Market
Advantages and Disadvantages
of Franchising
Benefits of Drawbacks of
Franchising Franchising
• Gaining access to a • Franchise Fees and
business system that Ongoing Royalties -
has a proven Start-up costs for
record of success franchises often
• Brand-Name include a variety of
Appeal - a nationally fees
known and • Strict Adherence to
advertised brand Standardized
name Operations - To
• Management protect its
 image, a franchisor
requires that
franchisees maintain
certain
operating standards
• Restrictions on
Purchasing and
Prices
Training and Support
• Limited Product
• Standardized
Line -- franchise
Quality of Goods and
agreement stipulates
Services
that the
• National
franchisee can sell
Advertising Programs
only those products
and Marketing
approved by the
Assistance
franchisor
• Financial Assistance
• Contract Terms and
• Proven Products,
Renewal - contracts
Processes, and
are written by the
Business Formats
franchisor’s
• Centralized Buying
attorneys and are
Power
always are written in
• Site Selection and
favour of the
Territorial Protection
franchisor
• Greater Chance for
• Unsatisfactory
Success
Training Programs
• Market Saturation -
although some
franchisors offer
franchisees
territorial protection,
others do not.
• Less Freedom
• Rather than launch their own businesses, some entrepreneurs
opt for a more direct route to business
ownership: They buy an existing business.
• Each circumstance of buying an existing business is unique,
but the process of evaluating a potential
business acquisition is not
• When considering purchasing a business, the first rule is, “Do
not rush into a deal.” Taking shortcuts when
investigating a potential business acquisition almost always
leads to nasty—and expensive—surprises.
• Prospective buyers must be sure they discover the answers to
the following fundamental questions:
1. Is it the right type of business for sale in a market in which
you want to operate?
2. What experience do you have in this particular business and
the industry in which it operates? How
critical to your ultimate success is experience in the business?
3. What is the company’s potential for success?
4. What changes will you have to make—and how extensive will
they be—to realize the business’s full
potential? ● What price and payment method are reasonable
for you and acceptable to the seller?
5. Is the seller willing to finance part of the purchase price?
6. Will the company generate sufficient cash to pay for itself
and leave you with a suitable rate of return
on your investment?

Starting a New Venture:

Routes to Market
Buying an Existing Business
Starting a New Venture:
Routes to Market
Buying an Existing Business:
Options
DESCRIPTIO
OPTION
N
• It involves
buying a
business from
somebody else
Outright
as a whole –
Purchase
FDH buying
MSB, NBM
buying Inde
Bank
Buy- in • A buy-in can
be an
agreement to
 purchase
shares / stake
in a company
that
also has other
owners.
Existing
shareholders
would invite an
external
investor into
the business
Buy -out • A buyout is
an investment
transaction by
which the
ownership
equity of a
company, or a
majority share
of the stock of
the company is
acquired. The
acquiror
 thereby "buys
out" the
present equity
and pays
money to
his/her
business
partner so
that he/she
can control all
of a business
they
previously
owned.
Involves
existing
internal
shareholders

Starting a New Venture:

Routes to Market
Advantages and Disadvantages of Buying an
Existing Business
Benefits of Drawbacks of
Buying an Buying an
Already Existing Already Existing
Business Business
• High chances of • Higher price than
maintaining profits it would be to
• Complete and start a new one –
already in place business may be
policies and over priced
procedures • Added fees so
• Staff are already that the
trained and transaction is legal
proficient in and protects
performing the both parties.
daily tasks • The staff and
• Superior location customer base
• Installed may come with
equipment with baggage -
known production You could be
capacity inheriting
• Inventory disgruntled
already in place employees or
• Trade credit employees that
established are not suitable
• Easy access to • Employees and
financing customers may
• New owner can not like the
use experience of change in
the old owner ownership for
 many reason
• Paying for the ill
will
• Unsatisfactory
location
• Obsolete of
• High value
inefficient
• Established client
equipment and
base
facilities – the case
of Universal
Industries Limited
• The challenge of
implementing
change