- No benefit form economies of scale, e.g. bulk buying, cheaper borrowing.
- Threat of takeover, because another company can buy up a large number of shares because they are traded publicly (can be sold to anyone). If they buy enough, they can then persuade other shareholders to join with them to vote in a new management team.
Public limited company
A public limited company includes any business with limited liability and a wide spread of shareholders. Owners and managers are hired by and receive salaries from the legal incorporated entity that constitutes the business. They are only liable for the business up to the amount they have invested in the company, and are not liable for the debts incurred by the company unless signing a personal guarantee. The shares of a PLC may be offered for sale to the general public.
Advantages of being a Public limited company:
- Raise large amount of capital from share issue.
- Benefit from economies of scale, e.g. bulk buying, cheaper borrowing.
- Produce goods at lower unit cost.
- Profit and tax advantages.
- The opportunity to more easily make acquisitions.
Disadvantages of being a Pubic limited company:
- Become too large resulting in poor labour relations.
- Conflict of interest between shareholders and the Board of Directors.
- Possibility of takeover or merger because shares can be bought by anyone.
- Owners might lose control of the business.
- Greater need to conform to legal procedures.
Franchise
A franchise is an agreement or license between two parties which gives a person or group of people (the franchisee) the rights to market a product or service using the trademark of another business (the franchisor). The franchisee has the rights to market the product or service using the operating methods of the franchisor. The franchisee has the obligation to pay the franchisor certain fees and royalties in exchange for these rights. The franchisor has the obligation to provide these rights and generally support the franchisee.
Advantages of being a Franchise:
- Freedom of owning a business and unlimited profits and income potential.
- Relationships with suppliers have already been established.
- The franchisor gives you support - usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
- Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
Disadvantages of being a Franchise:
- Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.
- The franchisor might go out of business.
- Other franchisees could give the brand a bad reputation.
- All profits are shared with the franchisor.
Charity limited by guarantee
A Company Limited by Guarantee (CLG) is a private company that does not have or . It has members, called guarantors that undertake to contribute should the company need it. It cannot distribute its profits and these are generally reinvested back into the company. Because of this CLGs may . A means that an organisation becomes incorporated as a legal entity in its own right. This means agreements and contracts can be taken out in the name of the company rather than the name of individual trustee(s).
Advantages of being a Charity limited by guarantee:
- Do not normally have to pay income/corporation tax (in the case of some types of income), capital gains tax, or stamp duty, and gifts to charities are free of inheritance tax.
- Can get special VAT treatment in some circumstances.
- Are often able to raise funds from the public, grant-making trusts and local government more easily than non-charitable bodies.
- Can formally represent and help to meet the needs of the community.
- Plus increased public support as the organization is more likely to be viewed as legitimate and worthy.
Disadvantages of being a Charity limited by guarantee:
- Setting up costs can be quite expensive.
- Members cannot benefit from any profits made.
- No return is permitted to members (they cannot be ’investors’ and cannot partake in profits or dividends).
- The need to create a separate trading subsidiary, if there is to be any non-charitable work, with additional costs involved.
- Charity law imposes high standards of regulation and bureaucracy.
- Trading, political and campaigning activities are restricted.
The Ownership of Tesco
I will now explain Tesco’s history.
In the year 1919 a man called Jack Cohen founded Tesco. He began by selling groceries from a market stall in the East End of London. The first day in his business he made a profit of £1 and made £4 worth of sales.
In 1924 Jack Cohen sold his first home made brand product which was Tesco’s Tea, this was before the company has chosen the name we know it as today. The name Tesco comes from T E S of T E Stockwell who was Jacks business partner in the firm of Tea suppliers and the CO of Cohen Jacks last name.
5 years later Jack Cohen opened his first ever Tesco store in Burnt Oak, Edgeware, North London.
In 1932 was the year that Tesco’s stores limited became a Private Limited Company.
2 years later Jack Cohen brought a plot of land on Angel Road, Edmonton, North London. He used the land to build his new headquarters and warehouse. This food warehouse was the first modern warehouse in the country and helped to introduce new ideas of central stock control.
Later in 1956 the first self-service supermarket opened in a converted cinema in Maldon.
Tesco has changed massively since 1956. It currently has over 3,729 stores located all over the world. It also has a website (ww.tesco.co.uk) and thousands of staff totalling 440,000 people. This is a big change from a small market stall in the east end on London.
I will now explain why Tesco is a Public Limited Company.
Tesco is a Public Limited Company as this will help draw shareholders to the business as they would have limited liability. This means that if Tesco went bankrupt they would only lose what they had invested in the business unlike a sole trader were all their belongings could be lost if they went bankrupt.
Tesco being a Public Limited Company would also help to bring more money into the business for investment. The extra cash is gained by having more shareholders in the business. This extra money is very useful to Tesco as it will help them with purchasing products from suppliers. If Tesco were not a Public Limited Company and were a sole trader instead they would not have as much financial backing and would not able to be as big as a supermarket as they are currently now.
Also if Tesco was not a Public Limited Company that would have to borrow money from the bank. The money that they would borrow would have to be paid back with heavy interest. This would mean that Tesco would not be able to spend the money as freely as they can with the money from their shareholders. Also Tesco might not be able to borrow money because of the current credit crunch as the top banks are reluctant to give money out to anybody as Britain and many other countries in the world are struggling during the recent financial crisis.
There is another advantage to Tesco being a plc and that is their have the board of directors. They all have individual areas of expertise and can offer a wide range of skill and knowledge. Tesco has the ability to raise larger sums of money through expanding the number of shares in order to take over other businesses.
Since Tesco is a Public Limited Company they will have credibility from the public, they will have good prestige and respect from several people and loads of people will want to invest in Tesco.
Tesco being a Public Limited Company means that they have purchasing power and can put on pressure on their suppliers. Being able to do this will mean that they are able to drive down many prices so that they can easily sell merchandises and receive a large amount of profit. For example Tesco could go to a bakery and ask for 10 loaves of bread and receive them for £5 whereas a sole trader would visit and would have to pay a lot more than the Public Limited Company and would have to raise their prices so they could make a profit.
I will now explain why it would be difficult for Tesco to now become a Sole Trader or Partnership.
Tesco could certainly not be a Sole Trader or Partnership because they would not have as many shareholders as they would have unlimited liability. People would not want to be shareholders in the business as it would be a risk, if they fail. Unlimited liability means if the business fails all the owners personal possessions will be included to pay the companies debts this will also happen to pay the companies debts to.
A Partnership or Sole Trader would not be able to take over Tesco or buy Tesco out as Tesco is worth millions and billions and an individual or partnership would not be able to take over as they would not be able to have enough money it. They will need to pay for costs (expenses) and maintenances which an individual or partnership can never do, they need wealthy shareholders who can invest millions.
Also the other shareholders at Tesco would have to decide if somebody wanted to own a large share of the business as they could potentially have more power in the business than other shareholders on the board of directors. A decision like this would involve the directors to look at the financial benefits that are happening.
Tesco is also too huge to be run by a sole trader or partnership as it has stores all over the world and would be very hard to keep track of all charge’s that are happening.
Furthermore Tesco would not be as competitive as it may not be able to negotiate as good deals with suppliers, for example an individual may not have the expertises to negotiate with suppliers, which may lead to having to buy high-priced products, but with many powerful shareholders they can overwhelm suppliers and force them into selling products for a much cheaper price, this if why Tesco is a PLC.
The credit terms with suppliers would not be as good because the more Tesco brought products from suppliers the more money the suppliers will charge, so Tesco will need to negotiate with suppliers on a regular basis, or else they will have to find different suppliers who charges low amounts.
I will now explain how Tesco could be run as a
Private Limited Company
Tesco could be run as a private limited company because funding will be available as there would be more than 2 shareholders who are willing to invest their money into the business. The board of directors must be committed to the business because if the business is doing well, they are most likely to be doing well. This will stop other investors placing takeovers bids in order for them to own the business which in this case is Tesco, without having to have to pay the market value of the business but instead paying much less as the shares would have most likely dropped because of the loss the business may be making. The take over bid may increase its value as there most certainly will be more than one bidder and so they will bid until eventually everyone has backed down apart from one bidder.
As a private limited company, the business would be isolated from fluctuations in share prices on the Stock Exchange in response to changes in the economy. But a private limited company may not be able to raise as much share capital as if it was a PLC
Ownership of Chester Zoo
I will now explain Chester Zoos history.
In 1931 George Mottershead founded Chester Zoo. He wanted to build a zoo of his own because when he was a child, he visited a zoo called Belle Vue Zoo in Manchester; reports suggest that he was very upset seeing large animals in small cages, so he fuelled his developing interest in creating a zoo of his own which is now called Chester Zoo.
3 years later his venture became the , and with considerable skill and enthusiasm, he kept the Zoo going through the Second World War.
Rapid expansion followed after the war. 'Always Building' was a slogan of the time. He received the OBE, an honorary degree of MSc, and served a term as President of the International Union of Zoo Directors.
During 1937-1960 Chester Zoo magazines were available for sale at £4.99 each in the Zoo library at Cedar House.
Later in 1978 George Mottershead ages 78 died having realised his dream of a 'zoo without bars'.
Chester Zoo at the present is the most wildlife attraction in Britain counting more than 1.3 million visitors in 2007. In the same year described it as one of the best fifteen zoos in the world
What Ownership does Chester Zoo have?
Chester Zoo is a registered Charity Limited by Guaranteed. Charity Limited by Guarantee means type of organisation normally formed for nonprofit purposes, in which each member pf the company agrees to be liable for a specific sum in the event of Liquidation. It is often believed that it cannot distribute its profits to its members but this is not actually true. A company limited by guarantee that distributes its profits to members would not be eligible for charitable status.
The zoo is owned by the North of England Zoological Society. This group would have limited liability i.e. the people involved would not lose any money (personal possessions) if the Zoo went out of business. These people would have limited liability.
Chester Zoo’s mission statement is “The role of the zoo is to support and promote conservation by breeding threatened species, by excellent animal welfare, high quality public service, recreation, education and science” This mission statement supports Chester Zoo being a Charity Limited by Guaranteed.
Chester Zoo is a nonprofit organisation because its main aim is to teach people about conservation at the zoo (the protection of plants and animals that are in danger in their natural environment “the wild”). Another aim at Chester Zoo is to educate people, by making them aware of the role of the Zoo and informing people about what they can do to help. As well as education another aim at Chester Zoo is scientific investigation, this is finding cures for diseases affecting animals and the causes of environmental problems. Finally Chester Zoos other aim is enlightened leisure, this is to provide tourists with attractions that offers an educational worthwhile day out.
Why does it have this from of ownership?
Chester Zoo is a charity because the money made can be re – invested back into the zoo and does not have to go to shareholders. The money re-invested back into the zoo can be used to pay the staff at the zoo and food/shelter etc for the animals. Also the money can be used for vital medical equipments for ill animals. This is why being a charity is better than being an Ltd or PLC because you don’t have to pay the money to anyone.
Another reason why Chester Zoo has this form of ownership is that profit at Chester Zoo is not the main concern, the zoos main concern in conservation such as breeding program for endangered animals because they care about the welfare of animals. If Chester Zoo was a business they would need to make a sustainable profit, if they didn’t, many of their shareholders will sell their shares off, leaving the zoo with huge financial problem let alone the wages for staff at the zoo and food/medication for the animals.
Also Chester Zoo being a Charity means that they don’t have to pay tax to the government such as income tax (on gifts given), corporation tax, stamp duty, VAT, rates, capital gains tax and inheritance tax plus increased public support as the organisation is more likely to be viewed as legitimate and worthy. Furthermore Chester Zoo being a charity can sign up to the gift aid plan.
Members of the public might visit Chester Zoo as a charity because they want to support it. In the UK today there are probably over 500,000 voluntary organizations – fewer than 200,000 of these are registered charities.
Charities can be organized in a number of different ways – they can be an unincorporated association, a trust or a company limited by guarantee. Each of these has a different governance structure – for example, a charity that is formed as a registered company will be governed by a board of directors, a charity that is set up as a trust will be governed by a board of trustees. Every charity has to have a governing document that sets out the charity's objects and how it is to be administered.
To register as a charity, an organization must have purposes that are defined under law as charitable. These include the relief of financial hardship, the advancement of education, the advancement of religion and other purposes that benefit the community.
Once registered, charities have to obey a number of rules, which include regulations covering trustees, accounts, finances and management. Those that are registered as companies have to comply with company law too. A registered charity is not allowed to have political objectives or take part in political lobbying other than in a generally educational sense.
What might happen if it was a business (LTD or PLC)?
If Chester Zoo was a business (Ltd or PLC) they would lose numerous customers. Also if they were a business they would have to give money raised out to shareholders so there will be less to spend on the animals. All of the money made by the zoo through entry fees, second spend etc will have to be given out in percentages to the shareholders in the business. So the zoo will not have much money to spend on the animals, this may lead to diseases to the animals and later on deaths.
The reason why I stated in the paragraph above that if Chester Zoo was a business (Ltd or PLC) they would lose numerous customers is that they really would. This is because if Chester Zoo was a Public Limited Company (plc) the general public will first if all would not give money to the zoo (donations) because the public would think that a plc like Chester Zoo would make millions and wouldn’t help any charities so why should they help. But if Chester Zoo was a Charity limited by Guarantee which they currently are, this would be a good thing for them because people always like to help charities and also they know that charities don’t get any funding by the government so there is a more likely chance that people would give money to charities more than plc’s, Ltd etc.
Also limited amounts of capital can be raised. Shares cannot be sold to the public if money was needed quickly because if Chester Zoo were a business and were to make good profits than the current shareholders won’t want to sell their shares, this may lead to disruptions and would-be shareholders who would like to invest in the zoo will stop hoping. And when investors are needed for Chester Zoo there won’t be any available.
Furthermore if Chester Zoo were to be a business shareholders will first have to all agree for a share to be sold otherwise it cannot happen, for example if most of the shareholders at Chester Zoo didn’t want one shareholder to be at the zoo, everyone else will have to agree, if they don’t the shareholder will still stay.
If Chester Zoo had in excess of 100 shareholders it would be very easy for the business to lose control, communication might be sent wrong which may lead to mayhem. As well as easy to lose control of the business, Chester Zoo can be taken over by bids from members of the public; members already at the zoo might not like the fact that an ordinary man or women will become a shareholder in such a massive business.
In addition to that people (investors) might not be interested in buying shares as the zoo would be more interested in the welfare of the animals rather that the welfare of the shareholders. For example Chester Zoos Mission Statement is “The role of the Zoo is to support and promote conservation by breeding threatened species, by excellent animal welfare, high quality public service, recreation, education and science” This statement doesn’t say anything about the welfare of shareholders. This may prevent investors from investing into the business as they may assume that they are not part of the Chester Zoo family.
