Sole Trader Partnership Franchise TYPES OF OWNERSHIP Private Limited Company Ltd Co-operative Public Limited Company (plc) Public Ownership
Unlimited Liability The owners of the business are responsible for any debt. They may lose their personal possessions to pay any debts the business might run up. Limited Liability The owners are only responsible for the debt equal to the value of their shares. (They will only lose the amount they invested in the business) LIABILITY
SOLE TRADER • Business owned by one owner • Also known as a proprietor • Can employ people but they will not be involved in control of business • Small businesses • Has unlimited liability
Examples of sole traders: • Small shops • Plumbers • Electricians • Cleaners
Advantages of setting up as a sole trader • Easy to set up – no complicated forms • Make decisions quickly – no agreement needed • Less capital needed • Taxed differently – National Insurance contributions are lower • All profits kept. • Can offer personal attention • Don’t have to make any information about the company public • They are their own boss.
Disadvantages of setting up as a sole trader • Unlimited liability • Difficult to raise money – seen as a risk • Don’t have economies of scale (buying in bulk) • No one to take over for ill-health or holidays
Activity: • List all the sole trader businesses that are in your area (Torfaen) ……
PARTNERSHIP • Between 2 – 20 partners • Partners = joint owners of the business • May do decision making themselves or employ manager • Unlimited liability • Profits shared = to capital invested (unless stated otherwise in Deed of Partnership)
Examples of partnership businesses: • Doctors • Dentists • Accountants • Solicitors
Partnership Act of 1890 Lays of rules if Deed of Partnership is not drawn up.
Setting up a partnership Deed of Partnership. Should include: • Names of all the partners • Capital invested by each partner • How profits & losses will be shared • Duties of each partner • Procedures for adding new partners • Procedures for partners leaving partnership
Sleeping Partners • May want to invest in the business but not be involved in the running of it. • Can register with Registrar of Companies as a limited partner • Have limited liability • Must have one partner who has unlimited liability
Advantages of a Partnership • Easy to set up • Capital needed = small • Easier to raise extra capital • Profits go to partners = motivation • Smaller = good working relationships • No need to make public and information • Partners contribute with range of skills • Share problems and decisions
Disadvantages of a Partnership • Unlimited liability • Partners have disagreements; • Control of business • Sharing of profits • Withdrawal from the partnership • Inviting new partners into the business • If partner dies or becomes bankrupt = partnership is dissolved
Activity: • List all the partnership businesses that are in your area (Torfaen) ……
PRIVATE LIMITED COMPANYLTD • Made up of people who know each other. • Buy shares in the company = part owners • Shares cannot be bought by the public • Owners control who buys the shares • Minimum 2 people – no maximum • Expany by selling more shares = capital • Normally medium sized businesses
Requirements: • Hold AGM (Annual General Meeting) • Independently audited copy of company accounts Registrar of Companies • Shareholders need permission to sell their shares
LIABILITY • Limited liability • Company has its own legal identity, separate from the shareholders. • Shareholders run company themselves or appoint a manager
Examples of LTD businesses: • Eddie Stobart Ltd • Raleigh • Cineworld
Setting up a LTD company • Comply with the Companies Act • Register with Registrar of Companies Documents required: • Memorandum of Association • Articles of Association
Memorandum or Association • Company’s name • Address of its registered office • States shareholders have limited liability • Amount of share capital to be raised • Purpose of the company (main activity)
Articles of Association • Names of directors and their role • How profits will be distributed • Internal rules for running the business – rules about meetings & voting rights of shareholders • Procedure to be followed at AGM
MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION SENT TO REGISTRAR OF COMPANIES REGISTRAR ISSUES CERTIFICATE OF INCORPORATION
Advantages: • Limited liability • Can raise extra capital by selling more shares – easier to expand • Can employ managers to run business if don’t want to do it themselves • Can continue trading if shareholder dies (unlike partnership) • Has its own legal status – separate from the shareholder • Can sue and be sued • Can own property
Disadvantages: • Accounts of the company cannot be kept private • Audited each year • Copy sent to Registrar of Companies • Available for public to see • More difficult and expensive to set up - more administration • Cannot sell shares on stock exchange • Limited by Articles of Association As to type of business it can undertake
Activity: • List all the private limited company (LTD) businesses that are in your area (Torfaen) ……
PUBLIC LIMITED COMPANYPLC • Only 2 people needed to set up – no upper limit • People who can buy shares: • Public • Businesses • Financial institutions • Most shares in a plc owned by organisations rather than individuals • Shares bought the Stock Exchange • Share prices printed in national newspapers daily • Can expand by selling more shares • Limited liability • Company has its own legal status • Normally start as LTD then become PLC
Setting up a PLC • More rules and regulations • Similar to a LTD • Draw up a Memorandum of Association & Articles of Association – send to Registrar of Companies to apply for Certificate of Incorporation = company has registered. • Before COI is issued must raise £50,000 • Must be approved by Stock Exchange Council • Once COI received the company issues a prospectus = advertisement inviting public to buy shares in the co. • Once shares issued the ROC will draw up Certificate of Trading.
MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION – SENT – REGISTRAR OF COMPANIES REGISTRAR ISSUES CERTIFICATE OF INCORPORATION COMPANY ISSUES PROSPECTUS SHARES ARE ISSUED ROC DRAWS UP CERTIFICATE OF TRADING COMPANY BEGINS TRADING
Advantages: • Limited Liability • Easy to raise capital – issue more shares • Banks more willing to lend money to a large well-established company – less risk • Easier to grow and expand • Shareholders will appoint specialists to manage and run the company for them
Disadvantages: • Expensive • a lot administrative work (paper work) • Raise at least £50,000 • Issue more information about itself – expensive to produce • Has to prepare Annual Accounts – printed and sent to all shareholders • Also make them available for general public and competitors to see.
Activity: • List all the public limited company (PLC) businesses that are in your area (Torfaen) ……
FRANCHISE Where a small business owner buys the rights to sell the goods and services of a large, well-established company. Franchisee = small business buying the rights. Franchisor = large business selling the rights
Examples of types of businesses: • Body Shop • British School of Motoring (BSM) • KFC • McDonalds • Burger King
Setting up a Franchise Franchisor sets out the rules for the running of the business - ensure quality and standards are maintained. In return, the franchisor will: • Give a well-known name to the new business • Provide advice on running of business • Provide training to start the business • Organise the advertising campaigns • Supply the materials used fro the goods or services • Proved equipment, eg; shop fittings so that all look the same and same standards
Small business has to pay for the privilege of a stake in the large owner’s business. It has to pay: • Start-up fee – for licence from franchisor to run business • Royalty – in form of a percentage of annual profits to the franchisor
Advantages: • The franchisor chooses the franchisees carefully – knows what characteristic that make a successful franchisee • The franchisor decides how much money the franchisee must invest in the business • The franchisor provides support – management advice & training – help franchisee solve problems.
Disadvantages: • Franchisee’s do not have freedom of running their own business; • Bound by rules e.g. Can’t vary product or price • Franchisee cannot sell the business without franchisors permission • Franchisor can end franchise without consulting franchisee • Franchisee pays percentage of profits in royalties • Franchisee will never own the business outright
Activity: • List all the Franchise businesses that are in your area (Torfaen) ……
CO-OPERATIVES • Worker co-operatives are businesses owned by all the workers in the business. • Each worker has shares based on how much he or she has invested in the business • All workers are involved in making the decisions • Each worker has one vote • Votes are not related to number of shares they own • Unless it is a limited company = one vote per share • All share in the profits • All must contribute to the running of the business • No limit to the number of members
Types of businesses • Fruit growers • Play groups
Advantages: • Fewer disagreements because workers are the owners • All have interest in making business successful, improving morale and productivity • Increases in profits are share equally among all the workers
Disadvantages: • New workers have to buy shares and become part owners • New employees may find it difficult to raise money to buy shares when they first start work • Successful worker co-operatives are often pressured to sell the business – lose all the freedoms they have • To expand – find new workers willing to invest in business • All workers are paid the same. In other businesses the managers are paid more. • Difficult to recruit best managers due to pay limitations
Activity: • List all the co-operative businesses that are in your area (Torfaen) ……
PUBLIC OWNERSHIP Some enterprises in the UK are owned or controlled by the state such as government departments and organisations funded by the government. They include: • Government departments • Local authorities • Health trusts • Public corporations • Charities and voluntary organisations
Government departments Deals with different matters at national level. These include: • NHS • Social security benefits • Defence • Police • Prison service • Environmental issues and concerns • Major road building programmes • Collection of taxes
Local Authorities Provide services for the local community. These vary, depending upon the area, so that the services in a rural community are different from those offered in a city.
Health Trusts Receive money from the government to deliver health care without making a profit