Ownership Research.
Although I did Business Studies at GCSE and A-level, and I know what each ownership is and means, before doing any research I think that being a Private Limited Company would be the most appropriate for our design studio. Although I think that I should still revise the different ownerships so I am more confident with my choice in ownership of Sublime.
Sole Trader
A sole trader is
a one-person business, commonly found in trades where only small amounts of
finance are required to set up and where there are very few advantages to the
existence of larger organisations (e.g. hairdressing, newsagents, market
traders).
Sole traders often
employ waged employees, but they alone have to provide all the finance
(often savings and bank loans) and bear all the risks of the business
venture. In return, they have full control of the business and enjoy all the
profits.
A sole trader faces unlimited
liability for his/her debts and it is referred to as an unincorporated
business - this means that there is no legal difference between the business
and the owner.
Partnership
To overcome many of the
problems of a sole trader, a partnership may be formed. A partnership is an
association of individuals and generally there will be between 2 and 20
partners.
Each partner is
responsible for the debts of the partnership and therefore you would need to
choose your partners carefully and draw up an agreement on the responsibilities
and rights of each partner (known as a Deed of Partnership or The
Articles of Partnership). The most common examples of a partnership are
doctor's surgeries, veterinarians, accountants, solicitors and dentists.
As stated earlier, most
partners in a partnership face unlimited liability for their debts. The
only exception is in a Limited Partnership. This is where a partnership
may wish to raise additional finance, but does not wish to take on any new
active partners.
To overcome this
problem, the partnership may take on as many Sleeping (or Silent) Partners as
they wish - these people will provide finance for the business to use, but will
not have any input into how the business is run. In other words, they have
purely put the money into the business as an investment. These Sleeping
Partners face limited liability for the debts of the partnership. A
partnership, just like a sole trader, is an unincorporated business.
Private Limited Company
This is a type of
joint-stock company (that is, it is an incorporated business - where the
business has a separate legal identity from the owners). Often private
limited companies are small, family run businesses which are owned by
shareholders.
Each shareholder in a
private limited company MUST be a part of the business and under no
circumstances can any shares be sold to members of the general public. Each
share entitles the owner to 1 vote at the company's Annual General Meeting
(A.G.M.) and also to a share of the company's profit at the end of the
financial year (a dividend).
Each shareholder has limited
liability for the company's debts and can, therefore, only lose the value
of their investment in the company. A company is run by a Board of Directors
(who are elected by the shareholders) and this is headed by a Chairman.
Before a company can be
formed, a number of legal documents must be completed - most important are the Memorandum
of association and the Articles of Association. These cover details such
as :
- the
objectives of the business
- its
headquarters and registered office
- the amount
of capital to be raised from the sale of shares
- details
concerning meetings within the business
- the
arrangements for auditing the accounts of the business.
When these are
completed, they are sent to the Registrar of Companies, who will then
issue the business with a Certificate of Incorporation which allows the
business to trade as a Private Limited Company. The company's name must finish
with the word Limited and it must raise less than £50,000 of share
capital.
It can be very difficult
for a shareholder in a private limited company to sell their shares, since a
buyer must be found within the framework of the company.
Public Limited Company (P.L.C.)
This is the other, much
larger, type of joint-stock company and, just like a private limited company, a
PLC is an incorporated business, is run by the Board of Directors on
behalf of the shareholders and has an A.G.M. at which shareholders vote on
certain key issues relating to the company.
The main difference
between a PLC and a private limited company is that a PLC can sell its shares
on the Stock Exchange to members of the general public and can, therefore,
raise significantly more finance than a private limited company.
If a private limited
company wishes to become a PLC, then it must change its Memorandum and Articles
of Association and re-submit them to the Registrar of Companies.
If the company is
considered to have acted legally and for the best interests of its
shareholders, then it will be issued with a new Certificate of Incorporation
and also with a Certificate of Trading, which will allow it to sell its shares
on the Stock Exchange. The price of the shares will then fluctuate according to
investors' perceptions of the PLC.
It is often the case
with a PLC that the owners of the company (shareholders) will wish the PLC to
make as much profit as possible, so that the shareholders will receive a very
handsome dividend per share.
However, the Board of
Directors and the management will often wish to devote some of the PLC' s
resources to growth and diversification (such as the introduction of new
products) and this will clash with the shareholders' desire for maximum
profits. This is known as the divorce of ownership and control.
The PLC has to
publish its annual accounts (known as disclosure of accounts) and therefore
is extremely vulnerable to investors' and bankers' perceptions about its
progress and success. Following on from this, a PLC is also at risk from a
takeover from an outside body, if they manage to accumulate over 50% of the
shares in the PLC.
Public Sector Organisations
The public sector refers
to all the businesses and organisations which are accountable to central or
local government. They are funded directly by the government and they tend
to supply public services rather than produce products for a profit.
The
public sector provides 3 types of good / service.
- A public
good is one which would not be provided by private sector businesses
because it would not be profitable to do so (such as the emergency
services and the armed services).
- A merit
good is one which the government feel that everyone should have,
whether or not they could afford them in the private sector (such as
education and healthcare).
- Essential
services (such as street lighting, refuse collection,
street cleaning, parks, libraries, swimming pools, etc.).
A public corporation is
the term used to describe a nationalised industry which is providing a
good or a service to the general public. Until the successive Conservative
governments of Thatcher and Major (1979-1997), there were many public
corporations in the UK providing a huge range of services to consumers.
However, the Conservatives sold many of these public corporations to the
private sector - this process is known as privatisation.
Central government pays
for the public goods and merit goods through taxation (e.g. Income Tax),
whereas local governments pay for the services they provide through Council Tax
(formerly Community Charge and, before that, through Rates).
Franchising
Franchising has led to a
rapid growth in the presence of many high-street stores in the UK over the past
10 years (e.g. McDonalds, Tie Rack, Perfect Pizza, and The Body Shop). A
business franchise involves the franchisor (the owner of the business)
selling a business format to a franchisee (the purchaser of the business
name) in return for a fixed sum of money and a percentage royalty on sales
revenue.
The franchisee
will be based locally and is likely to be making his initial business venture.
He buys the business format, which has been tried and tested in other areas,
and it is therefore a far less risky venture than setting up his own business.
The franchisee
has a licence to trade under the franchisor's name and also to use the logos,
trademarks, etc. the licence that the franchisee buys is usually restricted to
a specific geographical area and for a limited period of time.
This process of selling
the rights to use a company's name, logo, etc. can result in the parent company
experiencing rapid expansion in a country, with little of the investment that
would have been required had the company bought the outlets itself. The
franchisee is provided with a ready-made product, financial and management help
and advice, lower start-up costs than for a business of his own, and help with
the store layout.
However, the royalty
must be paid to the franchisor even if a loss is made and the franchisee can
have strict restrictions placed on their actions and promotions within the
store, not leaving the franchisee much room for initiative and flair.
Looking through this research on different ownerships, I think that a Private Limited Company would be most appropriate for Sublime. I think this because we will have financial stability and if anything happens with the business, the only thing the shareholders will lose are their investments into the business. As none of our personal assets will be liable if the business goes under. Also if anything happens to any of the shareholders, for example if they get ill, retire or die, the business will still go on. It also allows us to have a directer which means that decisions can be made quickly and easily, with little fuss, allowing for a more successful business management platform. Being a private limited company rather than a public limited company means that shares of Sublime won't be available on the stock exchange, so no one other than friends or family can buy shares in Sublime.
