Should Spice (UK) Ltd Become a Public Ltd Company?

Business Studies: Course Work

Introduction

Spice (Special Programme of Initiative Challenge and Excitement) is a franchise operation with tens franchises island-wide. The franchise offers activities and adventures to it members, who approximately number over twelve thousand. The company generates revenues from an annual subscription fee from the members of their spice branch (Manchester) as well as from a percentage of the profit (royalty) from its nine franchisees. This is a lucrative business making high profit and is much sustainable.

It was founded as a sole ownership by Mr. Dave Smith twenty-two years ago in Manchester. With initial success, it was developed into a partnership. As a result of continuous success its operations expanded into a Franchise operation with a Private Limited ownership. Currently, the company has envisaged there is a room for further expansion but it is impossible to it in its current state. The main issue confronted by Spice Ltd is whether it should diversify their business operations by exploring into a number of related business areas or change the ownership structure into a public limited company. In particular, they have realised that, if it is to change into a Public limited company, then it could acquire extra capital enabling it to expand its business into diversifications.

The purpose of this assignment is to evaluate and see whether Spice (UK) should become a public limited company. The assignment will also explore pros and cons about the ways in which direction this business should grow.

As a Sole Owner

This is a preview of the whole essay

As a Sole Owner

I think that Dave started of as a sole proprietorship because it was the easiest, simplest and most in-expensive type of business structure for him to establish. The legal documentation is lower than any other kind of business. Once he had established the sole proprietorship, he and his business were legally considered one and the same. This means: he owns and operates 100 percent of his business, report all business income and losses directly on his own federal tax return, and is personally responsible for all business debts and obligations. He could operate his sole proprietorship literally forever as long as he was the "sole" owner of the business.

Some of the possible problems he might have encountered may have encountered are (i) Limited liability. Dave is personally liable for any obligations of the business. This means creditors and lawsuit claimants can sue him personally, going after not just his business assets, but your other personal property as well.

Advantages of Sole Proprietorships

The advantages include:

Complete Control. You have 100 percent ownership of, control over and responsibility for your business.

Simplicity of Operation. Record keeping is streamlined and required legal documentation reduced.

Cost-effectiveness. Sole proprietorships are inexpensive to start-up and maintain.

No Double Taxation. Because the business is not treated as a separate taxable entity, all business income is reported on the owner's individual tax return and is therefore only taxed once. Finally, if you have a business loss, you may be able to use it to offset income that you receive from other sources.

Tax-free Savings. Available tax sheltered retirement programs, such as Keogh plans, can allow a sole proprietor to salt away a substantial amount of income free of current taxes. You can't really do any better by setting up a corporation.

Disadvantages Of Sole (And Co-) Proprietorships

These include:

Liability. The owner is personally liable for any obligations of the business. This means creditors and lawsuit claimants can sue your personally, going after not just your business assets, but your other personal property as well. Likewise, personal creditors can also go after your business assets.

Limited Ownership. A sole proprietorship by definition is limited to one person or a married couple. If the owner wants to admit another owner, the sole proprietorship would have to end and a new business arrangement, such as a partnership, would have to be created.

Higher Taxes. In some circumstances, other forms of business structures may offer substantial tax advantages, depending on the level of profitability of your business. As a sole proprietor, the income of your business is taxed to you in the year that the business receives it, whether or not you remove the money from the business. By contrast, as a shareholder in a corporation, you don't pay tax on money earned by the corporation until you receive payments as compensation for services or as dividends. The corporation pays its own taxes on overall business income.

Additionally, compared to a sole proprietorship, a corporation can offer certain tax advantages if you're able to leave a measure of income in the business as "retained earnings." For example, suppose you wanted to build up a reserve to buy new equipment or inventory. In either case, you might want to leave $50,000 of profits or assets in the business at the end of a year. If you operated as a sole proprietor, those "retained" profits would be taxed at your marginal tax rate. But if you incorporated, the rate would most likely be lower.

Medical Write-offs. As a sole proprietor, you can deduct only 40 percent of your family's health insurance premiums on Form 1040. If you form a corporation, however, and hire yourself as an employee, the corporation can pay for 100 percent of your family's health insurance premiums and uncovered medical expenses, and then take these amounts as a business deduction.

Steps to Form a Sole Proprietorship
So if you've decided you just have to have a sole proprietorship, all you have to do is take the following steps. Most are the same that are needed to form any kind of business:

Decide on a business and business name, address and phone number.

If you are doing business under a trade name rather than your own, publish then file your DBA or fictitious name certificate with the appropriate local or state public office.

If required by state and local laws, obtain a business license, which allows you to conduct business. You may also need a business sales tax license and relevant permit(s), so investigate this at the same time.

If you will have employees, obtain an Employer Identification Number (EIN) from the IRS.

That's it. As mentioned in the beginning, you and your business are now joined at the hip, legally one and the same. From now on you must report all business income and losses directly on your federal tax return, and assume responsibility for all business debts and obligations. You are the sole proprietor and can operate your business as such indefinitely. Just remember that if you want to bring in another owner or start paying your spouse, you will need to adjust the structure.