Describe some advanced aspects of the business units (size classification, company and company's management, franchise, joint ventures and cooperatives, formation and dissolution)

Tanzania classifies businesses according to the Tanzania Small and Medium Enterprise (SME) Development Policy of 2003. This classification uses two main indicators: the number of employees and capital investment in machinery.

Note: When an enterprise falls under more than one category, the level of investment becomes the deciding factor.

A company is a corporate association of persons formed to carry out specific functions to generate profit. It is a "corporate body" created under the law and exists separately from its members. In the eyes of the law, a company is an artificial person that can enter into contracts, own property, incur liabilities, sue, and be sued.

Types of Companies

Companies are classified based on several factors:

Based on nature of capital:

• Companies limited by shares – Members' liability is limited to the number of fully paid-up shares.
• Companies limited by guarantee – Owned by guarantors who agree to pay a nominal amount in case of winding up. Profits are reinvested (e.g., TPSF).
• Unlimited companies – Members have unlimited liability for company debts.

Based on ownership:

• Private companies – Minimum 2, maximum 50 members; shares cannot be freely transferred.
• Public limited companies – Minimum 7 members, no maximum; shares can be freely transferred.

Based on control or holding:

• Holding companies – Own more than 50% of another company's shares.
• Subsidiary companies – More than 50% of their shares are owned by a holding company.
• Associate companies – Other companies have 20–50% share capital influence.

Other classifications:

• Listed companies – Securities listed on stock exchanges.
• Government companies – More than 50% share capital held by government.
• Foreign companies – Incorporated in one country but operating in another.
• Dormant companies – Inactive companies formed for future projects.

Features of a Company

• Separate legal entity – Business assets are separate from owners' personal assets.
• Perpetual succession – The company continues regardless of changes in membership.
• Limited liability – Members' liability is limited to contributed capital.
• Common seal – Official stamp for company documents.
• Risk sharing – Risks are distributed among all shareholders.

Formation of a Company

The formation process involves:

1. Promoters – Founders who develop the company's plan.
2. Application to registrar – Submission of required documents.
3. Key documents:
   • Memorandum of Association – Outlines company's name, objectives, capital, and liability.
   • Articles of Association – Internal rules for management, directors' powers, meetings, and shares.

Upon approval, the registrar issues the Certificate of Incorporation, legally establishing the company.

Company's Management

Company management involves key stakeholders working together:

• Shareholders – Owners who elect directors and seek returns on investment.
• Board of directors – Highest organ providing strategic direction and oversight.
• Workers – Execute daily operations to achieve company objectives.

Management functions include:

• Planning – Setting courses of action to achieve goals.
• Organising – Pooling resources needed for implementation.
• Staffing – Recruiting and allocating employees to positions.
• Coordinating – Unifying different departments toward common goals.
• Controlling – Ensuring activities align with objectives.
• Leading – Inspiring and guiding workers.

Winding Up of a Company

Winding up means closing down the company. It occurs through legal procedures due to circumstances such as shareholder conflicts, poor management, or bankruptcy.

A franchise is a business arrangement where the owner of a business system (franchisor) grants an individual or group (franchisee) the right to operate using the franchisor's brand, system, and support for a fee. Examples in Tanzania include KFC and Subway.

Advantages of Franchising

• Business operations assistance – Training, equipment, and marketing support.
• Instant customer base – Brand recognition brings ready customers.
• Higher profits – Established brands attract more buyers.
• Easier financing – Lenders prefer established brands.
• Reduced risk – Tested business model.
• Training provided – Compensates for lack of experience.

Disadvantages of Franchising

• Limited creativity – Must follow franchisor's guidelines.
• High initial costs – Compliance and setup expenses can be substantial.
• Potential conflicts – Disagreements with franchisor may arise.
• Risk from other franchises – One franchise's failure can affect the entire chain.
• Lack of financial privacy – Franchisor oversees financial operations.

A joint venture is a business arrangement where two or more companies form a single legal entity to pursue a common goal for a specific period, sharing risks and rewards according to agreement.

Advantages of Joint Ventures

• Access to advanced technology – Partners share technical expertise.
• No loss of identity – Each company maintains its own identity.
• Economies of scale – Combined resources create competitive advantages.
• Risk minimisation – Risks are shared among partners.

Disadvantages of Joint Ventures

• Taxation challenges – Complex tax arrangements, especially cross-border.
• Political risk – Higher risk when partners are from different countries.
• Unequal involvement – Partners may contribute unevenly.
• Clash of cultures – Different organisational cultures may cause friction.

Cooperative organisations are voluntarily formed by individuals with common interests to pool resources and promote welfare. In Tanzania, they operate under the Co-operative Societies Act of 2013. Examples include SACCOS, Kilimo Fursa, and AMCOS.

Features of Cooperatives

• Voluntary membership – Open to anyone sharing common interests.
• Democratic control – "One man, one vote" principle.
• Limited liability – Members' liability restricted to share contribution.
• Service motive – Primary goal is member welfare, not profit.
• Surplus distribution – Profits shared among members.
• Education and training – Develops members' skills.
• Solidarity – United by common interests.

Formation of Cooperatives

1. Make voluntary decision – Individuals decide to form a cooperative.
2. Hold general establishment meeting – Chaired by cooperative officer.
3. Hold meeting to discuss board recommendations – Approve constitution and business plan.
4. Apply for registration – Submit to assistant registrar at regional level.
5. Hold general meeting after registration – Within two months of receiving certificate.

Types of Cooperatives

By membership registration:

• Primary cooperatives – Local individuals (minimum 5 members).
• Secondary cooperatives – Operate at district/regional level.
• National cooperatives – Operate within Tanzania.
• International cooperatives – Operate among countries.

By services provided:

• Marketing cooperatives – Market members' products (e.g., AMCOS).
• SACCOS – Savings and credit services.
• Consumer cooperatives – Protect consumer welfare.
• Transport cooperatives – Transport industry welfare.
• Handcraft cooperatives – Support handcraft dealers.

Advantages of Cooperatives

• Easy formation – Assisted by cooperative officers.
• Freedom of entry and exit – Low membership prices.
• Promotes democracy – Equal voting rights.
• Fair surplus distribution – Benefits all members.
• Government assistance – Low-interest loans and subsidies.
• Eliminates middlemen – Direct producer-consumer links.
• Provides credit – Lower interest rates than informal lenders.

Disadvantages of Cooperatives

• Limited financial resources – Low membership dues.
• Reliance on government funds – Delayed subsidies affect planning.
• Lack of administrative skills – Elected committees may lack expertise.
• Misuse of funds – Corruption among committee members.
• Possibility of conflicts – Internal politics and disputes.

In Tanzania, understanding business units is directly applicable when starting a small business. For example, if you want to open a shop in Dar es Salaam with TSh 10 million capital and employ 3 people, you would classify it as a micro enterprise under Tanzania's SME policy. If you later expand to employ 20 people and invest TSh 150 million in machinery, you would reclassify as a small enterprise, which would affect your access to government SME support programmes and financing options from banks such as NMB or CRDB.