Sources of finance
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Sources of finance

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brief description of the main sources

brief description of the main sources

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    Sources of finance Sources of finance Presentation Transcript

    • Types of Business
    • DEFINITION OF A BUSINESS
      • A business is an organisation which produces or sells goods and services usually to make a profit
      • BUT
      • What sort of businesses are there????
    • HOW WE CLASSIFY BUSINESSES
      • businesses are usually classified according to who owns them.
      • i.e. a sole trader has only one owner whereas a partnership has two or more owners
    • SOLE TRADER
      • The simplest form of business
      • Only one owner
      • Has un limited liability – if the business goes bankrupt and owes money then the owner is liable (or responsible) for all of the debt
      • Examples – corner shops, barbers, window cleaners but can be larger businesses
    • Re-cap
      • A business is an organisation which produces or sells goods and services usually to make a profit
      • businesses are usually classified according to who owns them.
      • A sole traders is the simplest from of business, has one owner and un limited liability
      • The main advantage off a sole trader is that the owner gets to keep all the profit and is his/her own boss
      • The main disadvantage off a sole trader is that the owner cannot share the burden of running the business with someone else and they have unlimited liability
    • PARTNERSHIPS
      • A partnership exists when there are between 2 and 20 partners in a business. Partners are the joint owners of a business
      • Partners in an ordinary business also face unlimited liability - if the business goes bankrupt and owes money then the owners are liable (or responsible) for all of the debt
      • A deed of partnership is often drawn up outlining the legal position of each partner
      • Tax – less than £50,000 sales and no VAT is paid
      • Examples – doctors, solicitors, dentists, accountants
    • Deed of partnership
      • In many partnerships, partners do unequal amounts of work or invest different amounts of money in the business
      • Many partnerships therefore, get a solicitor to draw up a deed of partnership
      • This includes details on; how much money each has invested in the business; how the profit should be shared; and what happens if one of the partners wants to withdraw from the business
    • Advantages of a partnership
      • Easy to set up and run (as with a sole trader)
      • Share ideas – can have different areas of expertise
      • Can raise more money or capital
      • Tax advantages – no VAT if sales are less than £50,000
    • Disadvantages of a partnership
      • Unlimited liability (same as sole trader)
      • Disagreements between partners
      • long hours (same as sole trader)
      • Lack of a deed of partnership (some partnerships are set up without a deed leading to big arguments)
    • Re-cap
      • A partnership consists of 2- 20 partners or owners of business
      • Partnerships are usually set up when a business wants to grow bigger or when people want to share responsibility or their skills
      • Partnerships are sometimes set up with a deed of partnership and also face unlimited liability
      • The main advantages of a partnership are that the owners get to share ideas and the responsibility of running the business and can raise more capital
      • The main disadvantages of a partnerships are that the partners may disagree with one another and the business still faces unlimited liability
    • Private limited companies (1)
      • A private limited company is a different form of business organisation compared to sole traders and partnerships, in that it exists in its own right – legally it is separate from its owners (the shareholders)
      • Private limited company also face limited liability - if the business goes bankrupt and owes money then the owners are only liable for the amount of money they have invested in the company i.e. the value of their shares
      • Private limited companies issue shares- usually to the family and friends but not the general public
    • Private limited companies (2)
      • If the company becomes insolvent, the assets of the business will be used to pay the debts.
      • The company must be registered at The Registrar of Companies, and two documents, the Memorandum of Association and the Articles of Association sent there
      • Examples of limited companies are any companies with Ltd. at the end of their name e.g. Morris Travel Ltd., Old Oak Insurance Brokers Ltd.
    • The memorandum of association
      • Gives details about:
      • Name of the company
      • Address of its office
      • Type and amount of share capital
      • The acknowledgement that shareholders will have limited liability
      • Description of what the company does
    • The articles of association
      • Gives details about:
      • Voting rights of the shareholders
      • Duties of the directors
      • How profits will be shared out
      • Arrangements for the annual general meeting (AGM)
    • Registrar of companies
      • Before the business can start trading the registrar of companies has to issue the certificate of incorporation
      • Every year limited company has to send audited accounts to the registrar of companies – by the accounts that have been checked by registered accountants
      • These can be seen at Companies House
    • Shareholders and control
      • A shareholder effectively controls or owns a small part/ share of the company
      • Every year at the AGM shareholders get the chance to elect directors of the company
      • Directors in turn appoint managers to run the company
      • Manager can also be a director and are known as executive directors
      • Often in small companies directors and managers and shareholders are the same people
      • Non-executive directors are directors are not managers of the company
    • Advantages of a private limited company
      • Share ideas – can have different areas of expertise
      • Can raise more money or capital through the issue of shares
    • Disadvantages of a private limited company
      • Disagreements between directors
      • Have to register the company at the registrar of companies (companies house)
      • Produce annual audited accounts, which the public (and competitors) have access to
    • Re-cap
      • Businesses become private limited companies to raise more capital and to face limited liability
      • Limited liability means that owners are only liable for money they invested in the business
      • Shareholders are owners of the company
      • The memorandum of association gives general details about the company and its business
      • The articles of association gives details of the voting rights of shareholders, directors responsibilities etc.
    • Public limited companies (1)
      • A public limited company is also a limited company i.e. it faces limited liability and exists as a body recognised in its own right (the same as an Ltd)
      • But
      • Public limited companies issue shares to the public which are traded on the Stock Exchange
      • Plcs must have at least £50,000 of share capital although it is likely that this will be £millions
    • Public limited companies (2)
      • The number of shareholders will be far greater in a Plc
      • As with an LTD shareholders control the company and get to vote for Directors at the AGM, however managers will tend to have more power and influence in a Plc.
      • As with an Ltd. , a Plc must be registered at The Registrar of Companies, and two documents, the Memorandum of Association and the Articles of Association sent there
      • Usually a Plc issues a prospectus for potential shareholders – this is expensive to do
      • Examples of Plcs include Manchester United Plc, Marks and Spencer Plc, Tesco Plc etc.
    • The memorandum of association
      • Gives details about:
      • Name of the company
      • Address of its office
      • Type and amount of share capital
      • The acknowledgement that shareholders will have limited liability
      • Description of what the company does
    • The articles of association
      • Gives details about:
      • Voting rights of the shareholders
      • Duties of the directors
      • How profits will be shared out
      • Arrangements for the annual general meeting (AGM)
    • Registrar of companies
      • Before the business can start trading the registrar of companies has to issue the certificate of incorporation
      • Every year limited company has to send audited accounts to the registrar of companies – by the accounts that have been checked by registered accountants
      • These can be seen at Companies House and are published in the Plc’s Annual Report
      • The cost of this information is much greater for a Plc than and Ltd.
    • Shareholders and control
      • A shareholder effectively controls or owns a small part/ share of the company
      • Every year at the AGM shareholders get the chance to elect directors of the company
      • Directors in turn appoint managers to run the company
      • Manager can also be a director and are known as executive directors
      • Often in small companies directors and managers and shareholders are the same people
      • Non-executive directors are directors are not managers of the company
    • Advantages of a public limited company
      • Share ideas – can have different areas of expertise
      • Can raise more money or capital through the issue of shares because investors are attracted by the possibility of shares rising in value and of dividends (% of the Company’s profit – same for Ltds, but likely to be smaller!)
      • Limited liability
    • Disadvantages of a public limited company
      • Disagreements between directors
      • Have to register the company at the registrar of companies and produce annual audited accounts in a Company report which is very expensive
      • Cost of following Stock Exchange rules
      • Short term investment is common in Plcs
    • Re-cap
      • Businesses become public limited companies to raise more capital and to face limited liability just like an Ltd.
      • In a PLC, shares are issued to the general public and traded on the stock exchange – more money or capital tends to be raised by selling shares to the public
      • A PLC also has to register at the registrar of companies and has to complete a memorandum of association and articles of association
      • A PLC has the added expense of having to issue a company report on an annual basis