BUSINESS OWNERSHIP

Sole Trader Partnership Franchise TYPES OF OWNERSHIP Private Limited Company Ltd Co-operative Public Limited Company (plc) Public Ownership

LIABILITY Limited Liability Unlimited 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) 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.

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) Eg. Doctor’s surgery may employ a practice manager to manager the day-to day running of the surgery.

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 COMPANY LTD 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 COMPANY PLC 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. Most small businesses fail because the owners do not realise the amount of capital needed to start up and run a business

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 Franchisee may not receive compensation for the loss of business if franchisor ends business

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 If business doesn’t need more staff they will find it difficult to expand

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.

The range of services offered:

Health Trusts Receive money from the government to deliver health care without making a profit

Public Corporations Are government owned businesses, such as the BBC and the Royal Mail service. These businesses are expected to operate profitably, just like private organisations.

Charities and voluntary organisations Many staff are work voluntarily (don’t get paid) Also called not-for-profit organisations because they focus on using their income to provide a service to those in need.

How charities raise their money

Activity: List all the public sector businesses that are in your area (Torfaen) ……