Private Limited Companies - Ltd

Advantages:

· The business can still stay small – many ltd businesses only have three or four shareholders. The minimum is one director and one shareholder and there is no upper limit on the number of shareholders.

· The owners usually work in the business are interested in its success.

· The shareholders are often directors and are responsible for running the business.

· It is quite easy to set up a private limited company. In some cases the owners may only have invested £100 or £200 to start up.

· Shares can only be transferred of all shareholders agree, they cannot be sold to the public. This means the owners have direct control over the business.

· As the owners have limited liability they will never lose more that they have invested.

· Banks are more willing to lend money to a limited company.

· The accounts are still private between the owners, their accountants and the Inland Revenue.

Disadvantages:

· Shares cannot be sold to the general public to raise additional capital.

· Limited companies have to comply with more regulations that sole traders or partnerships. A limited company is not allowed to trade under the name of an existing company if this will cause confusion for customers and suppliers.

· If the company ceases trading it must officially be ‘wound up’.

Public Limited Company – PLC

Advantages:

· Much more capital (money) is available as there are more people to buy the shares – this makes expansion easier.

· Some public companies can be quite small – there needs to be a minimum of two directors and two shareholders.

· Large public companies can often operate more cheaply than small companies as they can operate economies of scale. This means they could mass produce goods or buy in bulk to save money.

· If the company is successful then the shares will increase in value which will increase the overall value of the company.

Disadvantages:

· A public company must be registered with the Registrar of Companies nad has external regulations to comply with.

· An annual general meeting (AGM) must be held each year nad all shareholders must be invited.

· Specific accounts must be prepared each year and audited, the public can have access to these accounts.

· Shareholders invest their money into and in return for this investment they are entitled to part of the profits – this is called a dividend.

· Shareholders may have little interest in the long term success of the business and may only be interested in a quick return on their investment.

· The original owners may lose control over the company.

18. Other forms of ownership: mutuals, NPOs, charities.

Mutuals

Some companies, like certain life insurance companies, are mutuals. When you buy insurance with the company you become a member. Profits are theoretically owned by the members, so there are no shareholders.

In Britain, another kind of mutual is building societies, which lend money to people who want to buy a house. But a lot of building societies have demutualized: they have become public limited companies with shareholders. This process is demutualization.

Non–Profit Organizations

Organizations with 'social' aims such as helping those who are sick or poor, or encouraging artistic activity, are non–profit organizations (BrE) or not–for–profit organizations (AmE). They are also called charities, and form the voluntary sector, as they rely heavily on volunteers (unpaid workers). They are usually managed by paid professionals, and they put a lot of effort into fund–raising, getting people to donate money to the organization in the form of donations.

Franchising

- Some people are happier working on their own, while others like to belong to some kind of organization.

A franchise is a contractual agreement in which one party (the franchiser) sells the right to market goods or services under its name to another party (the franchisee). McDonald's is an example of retail franchise.

The franchisee is usually given exclusive selling rights in a particular area.

Advantages

1) franchises are the perfect way to learn about a new business;

2) real entrepreneurs can make poor franchisees;

3) franchises require less work than other businesses;

4) franchises are good for older people;

5) previous experience is essential.

Disadvantages from a Franchisor’s point of view:

1. Considerable capital allocation is required to build the franchise infrastructure and pilot operation. At the beginning of the franchise program, the franchisor is required to have the appropriate resources to recruit, train, and support franchisees.

1. At the beginning of the franchise program there is a broader risk that the trade name can be spoiled by misfits until such time the franchisor is capable of selecting the right candidate for the business.

1. There is a risk that franchisees exercise undue pressure over the franchisor in order to implement new policies and procedures.

1. The franchisor has to disclose confidential information to franchisees and this may constitute a risk to the business.

Disadvantages from a Franchisee’s pint of view:

1. The requirement to pay the franchise fees and royalty to the franchisor, which in some cases can be exaggerated.

1. The transfer of all goodwill built in the local market to the franchisor upon expiration or termination of the franchise contract.

1. The necessity of abiding by the franchisor’s operating systems, standards, policies and procedures.

Reduced corporate profit margin due to payment of royalties and levies.

Date: 2016-01-05; view: 935