As local people are involved in the business, the co-operative would have closer links with the local community.
Consumer co-operative
Co-operative societies have more than 8 million members and a turnover of £7.5 billion a year. However, they still have many smaller shops that find it difficult to compete with big supermarkets. These local stores are kept partly for idealistic reasons, as some of their older or less well—off customers find it impossible to visit out of town stores.
Marketing co-operative
There are also the marketing co-operatives. Marketing has always been a problem for small businesses. It is where separate businesses join together so they can market all their products.
Advantage
Each worker in the business has an equal share in the business. Also each person has an equal share of the profits. All decisions are made jointly by the owner and in the collective interest of everyone. Jobs can be rotated so people can extend their skills and the least popular jobs can be shared. Workers are not forced to be owners, so each worker can make an independent decision.
Disadvantage
Co-operatives must make a profit or they will fail, that is the same for all ownerships. Poor management, planning and financial controls have closes some co-operatives.
Co-operative are often formed by the workers of a big company that closes down an unprofitable business. If the company, with all its resources cannot make a profit, the chances of the doing so are small. An example is the Minehead Shop co-operative which had survived for only 14 years.
Another disadvantage is that it is often difficult for co-operatives to raise finance or to attract business, since some people have no faith in this type of organisation. Some of the most popular co-operatives are catering, computers and cleaning.
Financial organisations such as banks are often wary of lending money to co-operatives because there is no recognised leader. Decision making can also take a long time if everyone is involved. Members working in the business often lack financial and business skills.
Franchise
A franchiser is a firm which allows another person to use its tried and tested product, and to trade under its name, for a fee. A franchisee is a person who pays an initial fee and payments for the privilege of trading under another firm’s name. A Franchise is an agreement between two businesses which allows one to use the other businesses name and reputation. An example of a franchise is Pizza Hut. There are more than 300 pizza Hut restaurants around the UK. Pizza Hut is owned and controlled by Whitbread and with Tricon Global Restaurants, but many of the outlets are often franchise operations. This means that there is a manager in charge who operates the business with the agreement of Pizza Hut. Therefore Pizza Hut has used franchising as a way to enable their reputation to grow faster and more cheaply rather than buying all the restaurants itself.
Advantage
Franchises have a greater chance of success compared to most small businesses as the product has been tried and tested and are reliable in the market. As the name of the business will be well known, it has a higher success rate than other small businesses. Franchisees also benefit from being able to use a brand name which is advertised around the UK. When starting a franchise there are fewer decision to make in relation to operating the business and problems can be discussed with the franchisor. Franchisers provide continuous support. So if there are any problems, the franchisee can get good advice quickly and easily. There is also a better chance of solving problems as they may already have been met and overcome in other franchises. The franchisee will also find it easier to raise money from banks as they are taking less of a risk with a franchise operation that with an untested small business. Most of the profits made from the business is retained by the owner. The franchisor provides initial training and ongoing advice and support to franchisees.
Disadvantage
There are also some disadvantages of a franchise. The obvious disadvantage will be that some of the profits must be paid to the franchisor because the franchisee is using the firm’s name. The owner does not have the freedom to make all the decisions, particularly in relation to the product range or sale prices which may be controlled by the franchisor. When selling products in the shop, only the franchisor’s products or services can be sold. All The terms of the franchise agreement are drawn up by the franchisor. They are likely to restrict the sale of the business and may include performance terms. So this means that if target sales are not met, the agreement between the franchisor and the franchisee may be terminated. Business success will not be guaranteed as success is still dependant on the skill of the franchisee and also the dependability of the franchisor. If these qualities are lacking, the business may fail. The franchisee will not be able to sell the business without the franchiser’s agreement.
Public Sector
Organisations and businesses from the public to the private sector and also allowing the private sector to provide public services. Public sectors are services provided by the government and the local council. The people who run the council are nominated by the public to serve as their councillors. They are not paid for the work they do but they can claim expenses for their voluntary work.
Public corporations
The public sector is a very large employer in the UK, but it used to be even bigger. This was because the state used to own a large number of public corporations. There are few public corporations. The main organisations still owned by the state are:
- The Bank of England
- The BBC
- British Nuclear Fuels
- Royal Mail
Many services are taken over by government departments and local authorities have also been privatised because this is considered more efficient.
Disadvantage
Many of the public sector services were labour intensive which is expensive to provide because so many wages and salaries have to be paid. Most of them were also monopolies as there was either no or very little competition.
Local Authorities
Councils receive money from the government through revenue support grant and also charge householders council tax and charge business tax to all businesses. Other income comes from loans, council house rents and the sale of council services such as leisure centre charges. They spend the money on providing a range of services as shown in the diagram below.
Private Limited Company
A private limited company a firm whose financial liabilities are limited to the amount of money put up by shareholders. To conform with the European Union Law, one person alone can now form a private limited company. Its shares cannot be sold to the public. In a private limited company the shareholders own are usually family members of the persons who set up the business. Some of the shares may also be owned by family friends, business associates and employees.
Part of the company’s profits may be kept back, or retained, to pay for improvements to the business, and some is distributed to shareholders in the form of dividends.
Advantage
The founders of the business are usually the main shareholders and directors of the form. The chairperson of the board of directors takes a leading part in deciding the company’s policy. He or she is often also the managing director who carries out the policy day by day. Therefore the people who started the business actually own the company and control it.
A private limited company financial liability is limited to the nominal capital they invested. Unlike a sole trader, who has unlimited liability for their debt, but a private limited company has limited liability. Limited liability is limiting the financial liability of shareholders to the money they have invested.
So all the shareholders have the protection of limited liability and can lose only the amount they have invested no matter how much money is owed. Banks are more willing to lend money to limited companies, both for start up capital and for expansion.
Also the company has a separate legal identity from the owners. This means that it:
- Owns property, hires and pays staff, not the owners.
- Continues after the death of the owners.
- Can be sold by its owners, simply by selling the shares
- Can take legal action in its own name, and have legal action taken against it. So if you broke your leg because you fell on a slippery floor on the company’s premises, you would sue the company not the owners.
All the profits after tax belong to the shareholders. This is usually distributed according to the proportion of shares held but it is usually to keep some back as reserves for financing future developing.
Disadvantage
Starting a private limited company is very expensive compared to a sole trader. A company needs to be registered with the Companies Registration Office. To do this, the company needs to employ a solicitor, or a firm which specialises in this work, which will cost around £150. The company pays corporation tax on its profits to the Inland Revenue. The company also pays the directors and staff a salary on which they pay income tax as employees.
The company’s accounts must be audited, so this means it has to employ an auditor as well as an accountant. There are also other legal formalities: for example, a company must hold an annual general meeting and send details of the company’s financial affairs to the Companies Registration Office every year.
Public Limited Company (PLC)
A public limited company is a limited company whose shares can be bought and sold by the public and other firms. A public limited company is different from a private limited company as its shares can be bought and sold by the public. To become a PLC a firm must have a minimum of £50,000 share capital. Most PLC’S have a much bigger share capital totalling millions of pounds. All the shareholders have limited liability over the business. So if the business is going into debt the money invested into the business by its shareholders us used to keep the business running.
Advantage
The amount of capital for expansion and development is increased rapidly because there are thousands of shareholders. So if the company is successful the value of the shares increases. Therefore this increases the overall value of the company. Additional finance can be raised in several ways. The company can borrow from a range of financial institution, issue additional shares or ask for special loans, called debentures. A PLC has limited liability. So all the shareholders have the protection of limited liability and can lose only the amount they have invested no matter how much money is owed. Limited liability is limiting the financial liability of shareholders to the money they have invested.
Disadvantage
A public limited company is registered with the Registrar of Companies and must comply with many external regulations. The shareholders expect to receive a dividend in return for their investment and will also want the shares to increase in value. If the company is in difficulties and share values fall, then many shareholders may sell their shares, which will lower the price further. This can make the company vulnerable to a take over bid.
The shareholders often have different aims from the directors. The shareholders want quick results so that the share value increases, whereas the directors may be looking at the long term prospects of the company. Most of the share holders in a PLC are institutional investors who hold large blocks of shares and can easily outvote smaller shareholders. The original owners of the company will lose much of their control over the company, even if they retain some shares.
Tesco is a Public Limited Company. Below I will write about the advantages and disadvantages of Tesco being a Public Limited Company.
Advantage
As the company Tesco is very large, it needs a lot of managers to take control over it. The managers need to look after all the stores over the world so it doesn’t go bankrupt, and also the mangers set targets for each store so it performs well. Tesco have four different types of stores in the UK. They are:
Tesco
Tesco is the main type of shop as it has 277 large and 81 compact Superstores around the UK, as well as 224 other supermarkets. Many trade 24 hours a day and all have a sharp customer focus. It offers a large food range, and many have great non food ranges as well. Superstores tend to be large and on the edge of town, with free parking and facilities that include cafes and petrol stations.
Tesco Extra
Tesco Extra is a larger version of Tesco as it sells a wide range of food and non food products. It focuses on breadth rather than depth in non food, all under one roof. It is very successful in the UK and other countries. Tesco plan to expand worldwide to 120 of these hypermarket style operations, which concentrate, on a bigger non food offering than superstores.
Tesco Express
Tesco Express is a convenience store serving local neighbourhoods. It meets customer demand for longer trading hours and greater convenience. Express stores are usually found at petrol stations and are aimed at local customers who want a convenient place they can trust when doing their shopping or replace home essential. Each Tesco Express is a single unit of up to 3000 sq ft, stocking around 2800 lines, including fresh and frozen food, a bakery and wines and spirits. The stores are very busy and it’s a very fast moving, on a busy environment.
Tesco Metro
Tesco Metro is a compact store located in busy areas. Metro is like a smaller version of Tesco as it brings grocery shopping back to the high street. It’s a modern day version of the convenience store which is brought up to date as it offers customers a wide range of products. There are an estimated 45 Metro stores, with more developments planned.
If Tesco need more money to expand by building a new store or refurbishing an existing store, they can get more money by selling their shares to the public. Therefore it is easier for a PLC to raise easy money by selling shares and is also there is less risk compared to a sole trader.
Another benefit of Tesco being a PLC is that its owners are its shareholders. So the amount of capital for expansion and development is increased rapidly because there are thousands of shareholders. So if the company is successful the value of the shares increases. Therefore this increases the overall value of the company. Tesco’s shareholders have limited liability so if the business is in debt they’re only liable up to the value of their shares. So it is easier for a PLC to raise capital as a PLC has less of a risk compared to a sole trader.
As Tesco is a PLC its owners are its shareholders, and they have limited liability so they won’t have to pay any more money and still carry out all the business activities if the business were in debt. However a Sole trader is personally liable for all of the company’s debt.
As Tesco is a PLC, they can find it easy to borrow money from banks as they limited liability.
Disadvantage
Tesco is a PLC, so this means that there are many managers and board of directors. If someone had an idea to improve Tesco’s sales they would need to discuss this board of directors, as they have to decide if the idea is going to take place before anything can happen. Therefore a lot of decisions would be made before anything can happen. So decision making is a disadvantage in a PLC such as Tesco as it would take long time to decide on.
PLC’s do not have a strong communication links between their shareholders and employees because they have a large organisation. So this means that information has to travel through a certain amount of people before getting to the owner. So if there was a complaint from a Tesco store. The complaint should be reported to the owner. In order to get the report to the owner, the complaint would go from the employee, the manger of the store, the directors and finally to the owner.
Another disadvantage for Tesco being a PLC is that it can take a long time to set up. Also shares can continuously being bought, so in the end the business could end up being taken over as shares can easily be bought on the internet. Therefore PLC’s such as Tesco should keep a record on how much shares are sold so the business is not completely taken over.
A PLC can be very risky as the business needs to spend lots of money before they actually receive income. So to protect the business they can use insurance companies.
Public limited companies such as Tesco need to obey to certain rules such as keeping their accounts in a certain way and it needs to be audited and sent to the register of companies. Also the accounts must be published annually.
Does the ownership suit the business?
The owners of Tesco have made an excellent decision in making Tesco a public limited company (PLC), because they can make raise quick and easy capital by selling more shares to the public. This gives Tesco a chance to expand the business and most importantly to achieve their aim of getting more customers to their store. It also gives Tesco a chance to expand on their non-food products which can lead to more sales. Tesco have located their stores in the middle of large populated areas, where their customers are. A busy area is perfect for a PLC such as Tesco as this will attract more customers to the store and also people may be interested in buying their shares. Therefore Tesco will be achieving their aims of gaining more customers as they have located their store in the ideal environment. A PLC suits Tesco as they can employ professionals to run each department through their recruitment agency. Another benefit of Tesco being a PLC is because it suits Tesco’s activity of being a retail sales store as they can gain capital easily to buy large stores to display goods for customers to buy.
Justification of ownership for Tesco
The reason for Tesco being a public limited company (PLC) is because it is the easiest form of ownership in regards to their business and also the most suitable. Tesco cannot be a sole trader because it will be difficult for one person to run Tesco as because of the shier size of company and a sole trader will not have enough money to start up the business. They can’t be suitable for a partnership ownership as there would be too many implications in decision making and also the liability for each partner is a large amount which isn’t advisable as it could ruin the business by lack of funds or lack of co-operation of the partners. Finally Tesco couldn’t become a public sector run business as public sectors aim not to make profits and the direct contrast is that Tesco aim to make very large profits so there interests and aims conflict to much for them to be run as public sector.
They could consider being run by a co-operative ownership as there are already many co-operative super markets however Tesco would just be on a larger scale however I believe the reason Tesco didn’t choose to run there business like this is because the 3 types of co-operatives don’t make much profit as Tesco potentially could as working co-op’s there would be disagreement over many decisions this is to risky, also retail and wholesale co-ops don’t get much profit as they put the money back into the business to buy products and they won’t be able to offer the full range of services that Tesco do. Market co-op might be a good ownership for Tesco as they would make profits and it can be used for different purposes e.g. expansion however the bad point to this is separate business join so there could be disagreements over decisions in regard to the business and also they market new products in the business and if some fail and do not sell they make losses and the reputation goes down which is not very advisable for such a large business. So in conclusion Tesco being a PLC is a very wise choice as they have limited liability there funds are mostly generated by the public in return also act as customers to Tesco and through this they have many opportunities to expand and so the shareholders are very beneficial to the company. Tesco can expand and continue to make money and have limited liability and at the same time have a many customers and attractions to their company by being a PLC so through all the ownerships this is the best suited for Tesco as it will let them achieve high profits in a simpler more efficient way.
Nokia is a Private Limited Company. Below I will write about the advantages and disadvantages of Nokia being a Private Limited Company.
Advantage
A private limited company such as Nokia’s financial liabilities are limited to the amount of money put up by shareholders. So if the business does not succeed, the shareholders would only lose the money in which they had invested in the company. If the business had large debts, the people who this money was owed to could not sue the directors to get their money back. So the company’s assets would have to be sold to raise the money to pay off the debts.
Also as Nokia is a private limited company, this means that they can only sell their shares privately to other people. Therefore Nokia can restrict the amount of shares sold so the business can not be taken over by its stakeholders.
If they have good valuable shares they will achieve more shareholders. At the end of the year they have to produce an account showing the financial year and as Nokia is exceeding in terms of performance and profit, others may be interested in Nokia and want to invest there money into the business not only does Nokia have other shareholders and sources of money this way there business gains a better reputation.
Below is the document which Nokia show to their shareholders.
Another advantage of Nokia being a PLC is that the owners only have limited liability as the shareholders have to pay back the rest however they only pay the amount they put into the business. This is a safer way of managing debts or financial problems Nokia come into instead of one person having the cost it is shared around and if they want to they can sell shares to cover costs.
Disadvantage
As Nokia is a private limited company, there will be many disadvantages. Nokia will has to comply with rules set down by the Companies Act, so proper audited accounts and annual returns have to be registered with the Companies House. If this is not done, legal action will be taken against Nokia and the company will be fined and the directors may be prosecuted. Being a LTD is very expensive because Nokia need to engage accountants to audit and prepare accounts.
Starting up a private limited company is very expensive so this could mean the owner will not have a lot of money to spend on the business once set up. Therefore the owner will need a lot of money while running the business.
A PLC business such as Tesco will be able to sell their shares on the stock market. However private limited companies such as Nokia are forbidden to sell their shares on the stock market. This would mean that it would be very hard to find someone to sell the business to.
Does the ownership suit the business?
Nokia has chosen the right type of ownership by being a private limited company. As Nokia is LTD Company, this means the business does not have to pay as much tax compare to a partnership or a sole trader. Another benefit of Nokia being a LTD company is because if the business was to fail, the Nokia owner wouldn’t have to sell up or loose as much money compared to a sole trader.
Justification for Nokia being a PLC
Nokia is a very large business that has many sectors and many placements of their business and so it needs to be split up and managed bit by bit by certain people so it being a sole trader would be impossible as they wouldn’t be able to handle the responsibility of the company and also the liability for them would be far to great.
Nokia could go into partnership but yet again like Tesco they are faced with the problem that there are too many decisions that have to be made by partners and this will result in disagreement over things and it will result in failure of the business or decrease in profits due to lack of co-operation and other factors like partners leaving the company.
If Nokia went into the ownership of Public sector they would have their profit margin reduced enormously as they are funded by government and so they won’t have the option of expanding when they want to and introducing new products. Also the biggest factor would be that Public sectors don’t aim to make much profit and just like Tesco, Nokia has the same aim as they want the money to invest and expand so this ownership isn’t suitable.
If Nokia wanted to become a Co-operative business they would be faced with the problem of them not having much control over their business as the people that worked in it would own it and run it, the other major problem is that business market their products and this could ruin Nokia as there products may not be marketed and researched properly and extensively enough for them to be sold. If for instance they became a retail and wholesaler there isn’t much profit to be made their either. What Nokia would need is a ownership that is suitable to their business and lets them control the business but also make profit for them and have possible shareholders for a source of finance and so that is why Public Limited Company is very efficient for Nokia to run their business as it suits their needs well and is efficient for them. They could become a Private Limited Company if they wanted however the major downfall to this is that the owner is liable personally for the business and so it is risky a if the business if the business gets into trouble and the owner is left liable it would be very hard for them to try and re gain control of the situation and start up again.