What is a Partnership?
A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business.
It is a type of unincorporated company in which partners, manage the business and are equally liable for its debts.
This relationship is a highly contractual, exclusive bond in which both entities commit not to ally with third parties.
- A partnership is a basic business agreement.
- Each partner must contribute something;
- The partnership must be carried on for the joint benefit of the partners;
- Each partner must share in the profits.
- It is not required by the law that a partnership agreement should be in writing. However, it is always better to rather have it in a written format.
- There must be between 2–20 members and party must contribute something to the partnership. This contribution can be money or labour.
- Each partner is entitled to a share of the profit but it does not have to be an equal share.
- The partners are also involved with the management of the partnership.
Is it necessary to register a partnership?
No, a partnership is not a separate legal entity. Ultimately the rights and obligations of the partnership belong to the partners.
Register with SARS
All partners are required to include their full income from the partnership in their personal tax returns (IT 12) available from the Receiver of Revenue (this only carries the cost of postage – some banks offer assistance with the completion of this form free of charge as a customer service.
What are the pros and cons of a partnership?
- Simple to form
- No formalities required.
- Not a separate legal entity.
- Perpetual existence is not possible. When one of the partners dies the partnership dissolves (comes to an end and has to be reformed). Perpetual existence is therefore not applicable to a partnership.
- The simplicity and informality of the partnership can lead to fraud.
In partnerships it is most important to have a written agreement among partners specifying the conduct of the partnership, including the division of earnings, procedures for dividing up assets if the partnership is dissolved, and steps to be followed when a partner becomes disabled or dies.
While there is nothing stopping you from preparing your own partnership agreement, we recommend you have a legal expert table the contract.
Here are a few important points to consider when drawing up a partnership agreement:
- Name of the partnership
- Purpose of the partnership
- Duration of the partnership
- Responsibilities, performance and remuneration
- Explain in detail each partner’s role.
- What will be the income of each partner?
- Detail how profits or losses will be distributed
- Define each partner’s responsibilities and describe the level of performance that is required from them.
- State clearly if partners are expected to make a full-time commitment to the venture, or whether other business activities will also be allowed.
- Investment in the business
- If a partner loans money to the business, how will the partner be repaid?
- What will each partner be contributing in terms of cash, assets, loans, investments and labour?
- Withdrawal and admission of partners
- Provide guidelines that must be followed if one partner wants to leave the partnership.
- List grounds for a partner to be expelled from the partnership.
- Explain how new partners be admitted to the partnership.
- Can a partner sell their interests in the business to an outsider?
- Which partners will have cheque signing privileges?
- Who will be authorised to draw on the partnership’s accounts?
- How will the books be kept?
- What methods will be used to determine the value of the business in the event of a sale, dissolution, death, disability or withdrawal of a partner?
Decide if partners who leave have to sign a non-compete agreement.
The use of such clauses is included to cover the possibility that if a partner is expelled or leaves to start another business, he or she could potentially gain competitive advantage by abusing private information, trade secrets or customer/client lists, business practices, upcoming products, and copying marketing plans.
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The non-compete clause prevents this from happening.
What guidelines should be followed if one partner wants to retire, dies or leaves the partnership?
What methods will be used to settle disputes?
Decide at the outset and include in the partnership agreement what methods must be disputes can’t be resolved. Methods include negotiation, mediation and arbitration.
- Negotiation – Negotiate directly with the other person. You may hire an attorney to negotiate directly with the other side on your behalf. There are no specific procedures to follow.
- Mediation – A voluntary process in which an impartial person (the mediator) helps with communication and promotes reconciliation between the parties that will allow them to reach a mutually acceptable agreement.
- Arbitration – Typically an out-of-court method for resolving a dispute. The arbitrator controls the process, will listen to both sides and make a decision. Like a trial, only one side will prevail. Unlike a trial, appeal rights are limited.
Legal route and court – only as a last resort if all other methods fail.
For more information
If you need to consult an attorney to assist you consult the Entrepreneur legal directory.
Sequestration is the legal term for personal bankruptcy. It is one way of dealing with debts you cannot pay.
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The sequestration proceedings will free you from overwhelming debts so you can make a fresh start, subject to some restrictions and make sure your assets are shared out fairly among your creditors.
An important matter when it comes to insolvency is that it shouldn’t be confused with bankruptcy. Insolvency refers to one’s financial state.
In South Africa insolvency law is defined as the financial state or condition where a person’s liabilities (or legal entity) have exceeded their assets, and as a result this person cannot meet their obligations on time for debt owed.
Bankruptcy is the term used to refer to the distinct legal concept, in other words the matter of law.
The Law of Partnerships is complex
Francois Scholtz, Assistant General Manager, Business Partners replied to this question. He advises as follows:
“The Law of Partnerships is, as much as other disciplines in Law, a specialised field and is governed by Common Law and by specific sections of the Insolvency Act.
There are various kinds of partnerships and the liability of partners or their insolvent estates, are therefore greatly influenced by the nature of a particular kind of partnership (eg. Anonymous partnership and a partnership En Commandite).
It is therefore unwise to attempt to provide direct answers to your specific questions without taking into account the nature of a particular partnership and the own particular circumstances of an insolvent partner.
For these reasons and because of the variances that may be prevalent in specific circumstances, any article on partnerships will be best served if actual and a complete description of circumstances are used as the basis for a response by an expert or if it is done as a topic on partnerships in general in which the entire spectrum can be dealt with by a specialist on partnerships.”
However, if a partnership is not any of the abovementioned two kinds and is an ordinary partnership, the following general rules apply:
Insolvency of a partner
A partnership gets terminated upon the sequestration of the estate of a partner.
However, if the partnership is unable to meet its monetary commitments due to the sequestration of the estate of a partner, the estate of the partnership may also be sequestrated.
This is due to partners being jointly and severally liable for the debts of a partnership.
However, the estate of the partnership does not necessarily get sequestrated as a result of the insolvency of a partner.
Do the assets of a partnership form part of the sequestrated estate of a partner?
To the extent that a partner has an entitlement to its proportionate share of a partnership, the assets of a partnership will form part of a partner’s insolvent estate.
The insolvent estate will be entitled to its proportionate share of the free residue, if any, of the partnership’s estate on termination of the partnership.
Will Partners be liable for the personal debts of an insolvent partner?
No, unless a partner signed a deed of suretyship for a debt(s) of the insolvent partner.
Is it true that when an individual is sequestrated, all its assets will form part of its insolvent estate?
Yes, but a creditor of the individual may have a preferent/secured entitlement in law to some of the assets (or the proceeds thereof) of the insolvent estate, e.g. a bondholder over moveable/immoveable property bonded.
How does the entity the business is registered as affect insolvency?
If the ownership of the business vest in a Company (registered in terms of the Companies Act) or in a Close Corporation, (registered in terms of the Close Corporations Act), it will be unaffected by the insolvency of a shareholder/member of the Company or Close Corporation.
The insolvency of the shareholder/member will however influence the ownership of the Company/Close Corporation in that such interest will vest in the jurisdiction of the Trustee of the insolvent estate who will deal with such interest for the benefit of the insolvent estate.
Conversely, if the Company/Close Corporation is liquidated, the value of the interest of the shareholder/member in such an entity will have diminished, if not reduced to no value.
The above mentioned is for general information purposes and does not purport to be comprehensive or to provide specific legal advice and does not represent Business Partners’ official view
Free Contract Of Employment Template Download
Download your free payslip and contract of employment here to get you started in the right direction.
In your downloads you will find the following resources below:
- A standard contract of employment (template) that complies with all the relevant laws.
The permanent contract of employment should be read carefully and changes should be made in line with the offer of employment and the company policies and procedures.
When employing staff you should ensure the contract is legal and legally binding. Customise this contract of employment to suit your business and what you can offer your employees.
Please note the template provided is for a permanent placement.
What steps do I need to take to start manufacturing toilet paper?
This comprehensive guide takes you through everything you need to know to start a toilet paper business.
The business of producing toilet paper has been recognised as one of the fastest developing assembling commercial initiatives in Africa.
Toilet paper is used in our homes, work places, schools, hotels, restaurants, shops, maternity homes, hospitals, churches, clubs and many others. It can be used in various other ways such as cleaning up messes and decoration.
The difference between toilet paper and other tissues is that it is created to breakdown in septic tanks and other tissues don’t necessarily do this.
To start and run a business, it is not enough just to have a good, viable idea. You also need to have the right skills, attitude and personality to make the enterprise succeed.
Benefits of starting a toilet paper production business
- It has a simple production procedures
- There are not many product offerings or varieties
- Simple organisational involved
- High interest on the product
- Easy to market
- Product is a primary necessity in society.
Possible challenges of starting a toilet paper production business
- The biggest constraint will be the insufficient amount of planted trees. This will affect you as this is where you will harvest your raw materials from. This can result in a reduction of plantation productivity. According to the Paper Manufacturers Association of South Africa 60% of all plantation trees are planted and grown especially for pulp and paper production.
- You will need to apply for water permits to meet the terms of the regulatory framework managing water usage. This is a long and difficult process and can limit you from achieving profitable operations.
- Transport, labour and licence costs will have a negative impact on your ability to competitively trade. You will need to apply cost control measures to remain competitive.
Did you know?
- In an average public bathroom, it takes 71 separate visits to finish a single roll of toilet paper.
Financing your venture
It’s most likely that you will need finance when setting up a toilet roll production business. The toilet roll production equipment is available in South Africa and ranges for a single machine from R175 000 for the bottom end of the range model to R500 000 for a fully automated machine.
Manufacturing plants are also very large in size which means financing it will be quite expensive. You should use your capital to purchase the equipment you’ll need.
Try and save money by buying economical but high quality equipment. Once you have all your equipment find a premise that will accommodate all of it. Once that is completed then contact stores and potential clients.
You can save money by renting or buying an inexpensive lot for your toilet paper business. You could even start in a smaller building and when you have increased your funds, upgrade your facilities into a bigger space. Make sure to take all of the costs into account when trying to finance your toilet paper business.
You’ll have to include raw material required to make the rolls. These are supplied in jumbo tissue rolls and cost from R6 600 per ton. You will also have to take into account staff.
Zhauns, a supplier of business opportunity machinery supports BEE by offering a variety of empowering programs for street vendors, unemployed and disadvantaged groups through consortiums, local and international joint ventures and has financial links which assist entrepreneurs in need of funding.
A start-up would need two-five people operate a small business of this kind. It takes about three months to set up the business and to properly train staff to operate machinery”. Zhauns offer free training when they install equipment purchased through them.
Planning is always your starting point when starting a new business. There are several techniques you can use for your planning process. You can use ready and existing techniques and plans or you can use innovative techniques which will make your toilet paper business more unique.
Focus on the specifics of what you will need for your toilet paper business such as equipment, employees, property and raw materials. Making errors during the planning phase is normal. After your plan is finalised it should be flexible enough that you can add changes.
In this industry you are not just competing with local manufacturers. When you become a toilet paper business owner you have to figure out how you’re going to compete with different international manufacturers.
Speak to owners of similar businesses
The best source of information you can find about an area of business, is other toilet paper business owners. They will tell you in practical terms whether your ideas are feasible or not.
To locate similar businesses which can give you advice on any aspect of their toilet paper business, contact your local Chamber of Commerce. Shereen Crowie of Curviro Trading says: “It’s a commodity with no age restriction and no seasonal production demands.”
For support and guidance
If you are going to be a toilet paper business owner you need to have business skills, even more so than technical skills about your product or service. This means you have to understand finance.
You need to know how much your idea is going to cost you, whether it will make enough money to pay back these costs and make enough in addition to satisfy your requirements.
The DTI (Department of Trade and Industry) recognises that support in the form of advice from specialist organisations is vital and the offer support groups to SME businesses.
One such arm is Khula Enterprise Finance which is a wholesale finance institution that has well-developed ties in the public and private sectors.
Through these channels – which include commercial banks, retail financial institutions, specialist funds and joint ventures they play an effective role in order to bridge finance gaps that are not addressed by commercial financial institutions in the small business sector.
Did you know?
- People use on average 8.6 sheets per trip, which is a total of 57 sheets per day. That’s an annual total of 20,805 sheets.
It is recommended to get training when joining the toilet paper business industry. There are many essential practical skills which you will need when starting a toilet paper business.
There are courses offered by universities which will help improve your skills and understanding of the technology involved. You can alternatively get training from current experts in this field.
You can apply for internships at factories and get first-hand experience. If this is your plan of action make sure to take very detailed notes about all the process involved.
Draw up a business plan
Business plans are essential for businesses from when they start out to years later when your businesses has evolved and improved.
It becomes a guide for you and your employees to track whether your business has gone off course from the core of quality production. Experts can be hired to help you draw up a toilet paper business plan for a fee.
Business plans can be used to organise everything from your marketing strategy to the strengths and weaknesses of your business.
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It will help your toilet paper business keep clear objectives as well as making your priorities recognisable. Milestones recorded in your toilet paper business plan will help you follow your progress.
Choose a good location in an industrial area for your toilet paper business. It’s recommended that you get a realtor, since they are the experts in their field.
They will advise you on which buildings are better for your toilet paper business and which ones would be unsuitable.
Make enough time to view each property before purchasing or renting it. Your toilet paper business can’t be in a residential area.
Types of Machinery
You will need to buy or rent the necessary equipment with the finances you have. Some of the machinery that you need to get going with your toilet paper business is:
- Core making cutting machine – This produces the brown cardboard core that the tissue is wrapped around.
- Jumbo reel winding machine– This winds the tissue paper from the jumbo reels to the cardboard core. It will automatically stop at a programmed size.
- Embossment attachments or embossing machines – Embossments are the prints on the surface of the tissue and the tissue roll can either be plain or embossed.
- Band saw cutting machine – this cuts the paper into the right side.
- Other machinery requirements:
- Generator for power outages
- Auxiliary equipment
- Transportation – its optional but can be essential.
This type of business will require trained employees. It would be a definite advantage if you hired experienced operators or people experienced in similar industries.
This will allow you to hit the ground running instead of slowly training your staff from scratch.
Hiring inexperienced people can also cause a decline in the quality of your production as well as a decline in the level of your toilet paper businesses productivity.
Once production has started you will need to come up with various ways of distributing your product.
Since your brand is new, you will most likely have to do a demanding marketing drive so that customers know who you are.
Customers won’t buy your brand if they don’t know who you are. Advertising consultants can help your toilet paper business with effective strategies which will help increase sales.
Which works better buying machinery first or getting orders before buying equipment?
Look at your market before spending the money. It is good business practice to establish if there is a market for your product before buying expensive equipment. For this reason, it is vital to do research and to prepare a business plan.
Renting manufacturing equipment for this purpose may be a solution. Once the toilet paper business is up and running you can then consider buying your own machines.
Buying outright can result in a huge drain on cash in the first year of your toilet paper business.
Did you know?
- In South Africa a family of four uses approximately one toilet roll every 1.5 days
Example of innovative thinking
Chandaria Industries operates out of Kenya and Tanzania. They sell their products in 15 African countries.
What sets them apart from their competitors is they make their recycled toilet paper from used paper.
What innovative thinking does for them, their communities and their country:
- They are making money from recycling
- They are transforming waste into a necessity
- They are now a source of national wealth
- They provide employment for many thousands of people
Just the used paper recycling activities creates nearly 20 000 jobs. By doing this they have saved over 30 million trees since they started in 1964. They still have more room to grow, saying that they don’t get as much used paper as they need.
Toilet paper will always be a necessity in people’s lives. Where your toilet paper business can grow to:
- Custom toilet paper – creating toilet paper with personalised images or custom images
- Various sizes – You could expand your toilet paper business into various other toilet paper sizes and thicknesses
- Various tissue paper opportunities – You can expand your business into the tissue paper manufacturing business
Paper Manufacturers Association of South Africa (Pamsa) executive director, Jane Molony says that the pulp and paper industry’s is continuing to grow and make profits because of their energy-saving initiatives.
Molony also says that the value of the pulp and paper industry (excluding forests and recycling) in 2014 was around R27.8 billion.
Tissue paper achieved a yearly turnover of R2.5 billion in 2014 which is a yearly growth of 2.7% since 2009.
This industry has large growth potential and is a great business opportunity. Toilet paper has become a basic need all across the world. It can’t be recycled so there is always need for more.
Every single person on the planet uses it on a daily basis. Why shouldn’t you be the one making it and selling it to them?
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What should I know before registering a holding company and how do I go about doing it?
Holding company pros and cons.
What is a Holding Company?
A holding company is one that owns at least 50% of the companies companies’ stock. It is a company that doesn’t trade but only has one purpose which is to own shares in other companies.
Under what circumstances would one need to register a Holding Company?
A holding company is a firm that owns other companies’ outstanding stock. It usually refers to a company which does not produce goods or services itself.
Its only purpose is owning shares of other companies.
From a financial point of view, it is usually possible to obtain control of another company with less investment than would be required in a merger or consolidation.
However, the decision on how to split companies depends on the industries in which you operate the shareholding structures, risk profiles and many other issues that will be specific to your situation. This is why professional help is highly recommended.
What are the Pros and Cons of a Holding Company?
- The shares of stock in the subsidiary company are held as assets on the books of the parent company and can be used as collateral for additional debt financing.
- Holding companies and their subsidiaries are considered separate legal entities, so that the assets of the parent company and the individual subsidiaries are protected against creditors’ claims against one of the subsidiaries.
- Each subsidiary retains its own management team, and the subsidiaries become responsible to the parent company on a profit and loss basis.
- The law sees a company as separate from its shareholders and directors. This means that in a CC, the assets and debts of the business belong to the company and the assets and debts of the shareholders and directors have nothing to do with the Company.
- Companies have to obey all the rules of the Companies Act, which is a long and complicated law.
- A company has to keep detailed records. A professional organisation is needed to help explain which records must be kept.
- It is difficult to terminate a company. A lawyer’s help is needed.
What legal entity must one register for a Holding Company?
The best route is to register as a (Pty) Ltd. This is a limited liability entity and the registration process of a (Pty) Ltd is very cumbersome and professional help is almost always sought.
A Close Corporation can also hold shares in a company and can become the holding corporation in a group of companies.
How do you go about registering a Holding Company?
To register a holding company you need to consult an attorney in order to lodge proper compiled documentation at CIPRO in Pretoria. The Shelf Co Warehouse registers most Companies and Close Corporations in South Africa.
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