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Business Ownership

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Business Ownership

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Business Ownership

  1. 1. Business Ownership BTEC Business
  2. 2. Investing in a Business <ul><li>Sole traders must raise all the finance to set up and run the business themselves </li></ul><ul><li>Partners can all contribute to the financing of a firm </li></ul><ul><li>Private limited companies can sell shares to family, friends and associates </li></ul><ul><li>Public limited companies can raise finance by selling shares on the stock market </li></ul>
  3. 3. Limited Liability – What does it mean? <ul><li>It all comes down to the responsibility for the debts of the business: </li></ul><ul><li>A sole trader or partnership can be held responsible for all the debts of the firm </li></ul><ul><li>The owners of limited companies can only be held responsible up to the value of their investment in the business </li></ul>
  4. 4. Other Sources of Finance <ul><li>Loans </li></ul><ul><li>Overdrafts </li></ul><ul><li>Profits that are fed back into the business </li></ul><ul><li>Shares </li></ul><ul><li>Grants and donations </li></ul>
  5. 5. Ownership and Control <ul><li>Owners often want to keep control of their businesses </li></ul><ul><li>This leads many small firms to stay as sole traders, even though this limits their funds </li></ul><ul><li>Taking on new partners or shareholders cuts the amount of control that owners have </li></ul><ul><li>If you hold the majority of shares (over 50%) you can keep some control, but not all </li></ul>
  6. 6. Legal Responsibility <ul><li>Sole traders have no legal formalities to go through, apart from registering for VAT if their turnover reaches a certain amount </li></ul><ul><li>Partnerships also have no legal formalities but may choose to sign a Deed of Partnership </li></ul><ul><li>Companies have to go through a series of legal formalities </li></ul>
  7. 7. Forming a Limited Company <ul><li>Limited companies must produce two documents </li></ul><ul><li>Memorandum of Association and Articles of Association </li></ul><ul><li>If these are acceptable, the Registrar of Companies awards a Certificate of Incorporation </li></ul><ul><li>The company can then trade </li></ul>
  8. 8. Other Legal Requirements <ul><li>A limited company must also send a copy of its annual accounts to the Registrar </li></ul><ul><li>It must also hold an Annual General Meeting and invite its shareholders to attend </li></ul><ul><li>Becoming a Public Limited Company involves far more time and cost </li></ul><ul><li>It must have a minimum of £50,000 share capital </li></ul>
  9. 9. Where the Profits go <ul><li>Limited companies use part of their profits to pay a dividend to shareholders </li></ul><ul><li>They can choose not to pay a dividend but always have to pay interest on any borrowing the company has made </li></ul><ul><li>Profits can be ‘retained’ and ploughed back into the company </li></ul>
  10. 10. Profits and Losses <ul><li>Any profits made (once tax has been paid) can be kept by the owners of the business </li></ul><ul><li>This makes Sole Trader (and partnership) businesses very attractive </li></ul><ul><li>But remember … whatever funds have been put into the business will be lost if it goes bust! </li></ul>
  11. 11. Business Ownership The Private Sector
  12. 12. Business Ownership <ul><li>Sole Trader: </li></ul><ul><ul><li>Owned, financed and controlled by one individual but can employ other staff </li></ul></ul><ul><li>Common in local building firms, small shops, restaurants, butchers, etc. </li></ul>
  13. 13. Business Ownership <ul><li>Sole Traders: Advantages </li></ul><ul><li>Easy to set up </li></ul><ul><li>Personal incentive – </li></ul><ul><ul><li>keep all the profits </li></ul></ul><ul><ul><li>make key decisions </li></ul></ul><ul><ul><li>high degree of control </li></ul></ul><ul><li>Flexibility </li></ul><ul><li>Ability to offer personal service </li></ul>
  14. 14. Business Ownership <ul><li>Sole Traders: Disadvantages </li></ul><ul><li>Unlimited Liability </li></ul><ul><li>Limited access to capital </li></ul><ul><li>Potential for long hours </li></ul><ul><li>Pressure of being solely responsible </li></ul><ul><li>Lack of continuity – business ceases once owner dies </li></ul>
  15. 15. Business Ownership <ul><li>Partnerships: </li></ul><ul><li>Owned, financed and controlled by upwards of 2 partners </li></ul><ul><li>Terms of Partnership agreed through contract </li></ul><ul><li>Bound by the terms of the Partnership Act 1890 </li></ul><ul><li>Common in professions – lawyers, accountants, architects, surveyors, estate agents, vets, etc. </li></ul>
  16. 16. Business Ownership <ul><li>Partnerships: Advantages </li></ul><ul><li>Greater access to capital </li></ul><ul><li>Shared responsibility </li></ul><ul><li>Greater opportunity for specialisation </li></ul><ul><li>Easy to set up </li></ul>
  17. 17. Business Ownership <ul><li>Partnerships: Disadvantages </li></ul><ul><li>Unlimited Liability (However since 2001, Partnerships can apply to be Limited Partnerships) </li></ul><ul><li>All partners liable for the debts of the others </li></ul><ul><li>Partnership dissolved on death of one partner </li></ul><ul><li>Potential for conflict </li></ul><ul><li>Decisions of one partner binding on the rest </li></ul><ul><li>Limited access to capital </li></ul>
  18. 18. Business Ownership <ul><li>Limited Companies: </li></ul><ul><ul><li>Private Limited Company (Ltd) Owned by between 2 and 50 shareholders </li></ul></ul><ul><ul><li>Public Limited Company (PLC) Owned by minimum of 2 but no maximum number of shareholders </li></ul></ul><ul><ul><li>Has a separate legal identity – the company can sue and be sued </li></ul></ul><ul><ul><li>More complex to set up </li></ul></ul><ul><ul><li>Minimum share capital of £50,000 </li></ul></ul>
  19. 19. Business Ownership <ul><li>Limited Companies : </li></ul><ul><li>Must Register with Registrar of Companies at Companies House </li></ul><ul><li>Memorandum of Association </li></ul><ul><ul><li>Details of the nature, purpose and structure of the company </li></ul></ul><ul><li>Articles of Association </li></ul><ul><ul><li>Details of the internal rules of the company </li></ul></ul><ul><li>Certificate of Incorporation – allows the company to trade </li></ul><ul><li>Shareholders have limited liability – can only lose what they agreed to put into the company – no personal liability </li></ul><ul><li>PLCs – shares traded on Stock Exchange </li></ul><ul><li>LTDs – shares only bought and sold with agreement of </li></ul><ul><li>existing shareholders </li></ul>
  20. 20. Business Ownership <ul><li>Limited Companies – Issues </li></ul><ul><li>Divorce between ownership and control </li></ul><ul><li>Potential for diseconomies of scale – communication, decision making, etc. </li></ul><ul><li>Must publish accounts </li></ul><ul><li>PLCs – shareholders may be large institutions – pension funds, insurance companies, etc. </li></ul><ul><li>PLCs - Share value subject to volatility – affects company value </li></ul><ul><li>PLCs – can be large, complex, possess market power </li></ul>
  21. 21. Business Ownership <ul><li>Co-operatives: </li></ul><ul><li>Ownership, finance and control in hands of ‘members’ </li></ul><ul><li>Exists for the benefit of ‘members’ </li></ul><ul><ul><li>Consumer co-ops – members buy goods in bulk, sell to members, divide profits between members </li></ul></ul><ul><ul><li>Worker co-operatives – workers buy the business and run it – decisions and profits shared by members </li></ul></ul><ul><ul><li>Producer co-operatives – producers organise distribution and sale of products themselves </li></ul></ul>
  22. 22. Business Ownership <ul><li>Franchises: </li></ul><ul><li>Method of business ownership backed by established ‘brand’ name </li></ul><ul><li>Owner gets to run a business with less ‘risk’ </li></ul><ul><li>Owner buys the right to use the established company’s name, format products, logos, display units, methods, etc. </li></ul><ul><li>Speedy way for business to expand </li></ul><ul><li>Become very popular </li></ul><ul><li>Owner – (Franchisee) responsible for debts, pays a royalty to owners of the brand, keeps any remaining profit </li></ul><ul><li>Franchisee – pays a fee for the purchase of the franchise </li></ul><ul><li>Common franchises – Body Shop, McDonalds, Costa Coffee, Subway </li></ul>

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