Classify the business according to its ownership, and explain the benefits and constraints of this type of ownership.

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Gurpreet Birdi

Unit 1: Business at Work

E1: classify the business according to its ownership, and explain the benefits and constraints of this type of ownership

The company I have chosen is ‘J Sainsbury PLC’. J Sainsbury is a leading UK and US food retailer with interests in financial services and property. The group comprises Sainsbury’s supermarket and Sainsbury’s bank in UK and Shaw’s supermarkets in US

Background of J Sainsbury

Sainsbury sells quality food for their customers. They have invested in a range of products during the year. They have also improved and developed over 3,200 products. Sainsbury also have there own label brands that are best in the UK.

Currently Sainsbury’s is working to develop offers not only on food but in clothing too. Sainsbury’s provides clothing’s from Adam’s children’s wear, Jeff & Co and trial of home enhancements. Sainsbury’s are also working on developing their health and beauty department. They have also been in a trial with Boots health and beauty and pharmacy shops in six out of town stores. Now they are extending by further three stores.

Sainsbury’s first store was opened in Drury Lane, London in 1869 by John James and Mary Ann Sainsbury. The business was built on offering customers the highest quality at the keenest price. In 1869 Sainsbury’s ranged 5 products and employed just 2 people. Sainsbury’s now have over 450 stores across the UK, the larger of which range over 23,000 products. Sainsbury’s employ in the region of 142,000 people.

Their goal is to be the UK’s first choice for food shopping. To achieve this, they need to provide their customers with outstanding quality, great service and value for money. The Service Promises of making the customer’s shopping experience easy, enjoyable and inspiring is central to their success. If the customers join them, they will provide them with ample training to help them deliver on their promise.

Sainsbury’s is a PLC. Sainsbury is basically located around the world, especially in the United States and United Kingdom.

  • Limited liability;
  • Shares freely transferable on the Stock Exchange, easier to borrow money from the banks and
  • Easier to raise large amounts of capital and expand.

Problems to Sainsbury's of being a PLC include:

  • Annual accounts must be published;
  • Can become very large and impersonal – people may not feel that they belong to one organization and
  • Their formation requires legal documents and may be very costly.

Constraints of Sainsbury as a PLC:

  • When a private company becomes public, the original shareholders may lose control of the company.
  • There are many legal formalities that must be complied with before the company can be set up.
  • During the business period the company will require a solicitor to register and this makes it more expensive than setting up a sole trader or partnership.
  • The company law closely controls activities and the running of the company is subject to legal constraints.
  • Accounts are public and this means a lack of privacy.
  • The company is accountable to its shareholders and its creditors.
  • Divorce of ownership from control can lead to a conflict of interest, as the aims of the shareholders, directors and management may not be the same e.g. directors may want to grow the business over the long-term, shareholders may be expecting a quick, high return on their money.

Benefits of Sainsbury’s as a PLC:

  • Each shareholder enjoys limited liability so they are not risking personal bankruptcy.
  • Large amounts of capital can be raised in relatively short periods because of the company’s size and the security it offers.
  • The companies have a separate departments and using specialist equipments.
  • Banks are more willing to lend to companies with a large share capital.
  • They are able to gain economies of scale e.g. they can buy in bulk and use labour more efficiently.
  • Use of profit.

Sainsbury’s Supermarket Limited

The Limited Partnerships Act 1907 allows a business to become a limited partnership, although this is rare. This is because this is where some partners provide capital but take no part in the management of the business. Such a partner will have limited liability. Limited liability is when the partner can only lose the original amount of money invested. However, anyone cannot be made to sell personal procession to meet any other business debts. This type of partner is called a sleeping

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partner. Even with a limited partnership there must always be at least one partner with unlimited liability. The Act also allows this type of partnership to have more than 20 partners.

There are many examples of limited companies in the UK e.g. Garrick Engineering-small business, British Airways-thousands of shareholders. One feature is that they all have a separate legal identity from their owners. This means that they can own assets, form contracts, employ people, sue and be used in their own right. Another feature is that the owners all have limited liability. If a limited company has debts, the owners can only lose the money they have invested in the firm. They cannot be forced to use their own money, like sole traders and partners, to pay business debts.

The capital of a limited company is divided into shares. Each member or shareholder owns a number of these shares. They are the joint owners of the company and can vote and take a share of the profit. Those with more shares will have more control and can take more profit.

Limited companies run by directors who are appointed by the shareholders. The board of directors headed by a chairperson, is accountable to shareholders and should run the company as the shareholder wish. If the company’s performance does not to live up to shareholders’ expectations, directors can be ‘voted out’ at an Annual General Meeting (AGM).

Whereas sole traders and partnerships pay income tax on profits, companies pay corporation tax.

Forming a Limited Company

In Britain, certain legal requirements must be met before a company is allowed to begin trading and these are laid down in the various Companies Acts. Two documents must be drawn up, the ‘Memorandum of Association’ and the ‘Articles of Association’.

The ‘Memorandum of Association’ gives important information about the company including:

  • The name with ‘Limited’ (Ltd) or ‘Public Limited’ (PLC) as the last word according to its status;
  • Its business address;
  • The objects of the company, for example to manufacture baked beans;
  • Details of the company’s capital, for example, £250,000 divided into 250,000 Ordinary Shares of £1 each and
  • That the shareholders liability is limited.

A Memorandum of Association is an external to the business.

The ‘Articles of Association’ are the internal rules of the company that give details of such matters as the number of directors, the voting rights of the shareholders and how profits are to be shared. The ‘Memorandum of Association’ must be sent to the

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Register of Companies in London. When satisfied that the prospective company has met the legal requirements, he or she will issue a Certificate of Incorporation that allows it to begin trading.

The ‘Article of Association’ also contains:

  • Procedures for calling shareholders meetings (e.g. annual general meeting (AGM) (EGM) extradinary general meeting) and
  • Details of how the accounts will be kept and recorded.

E2: describe and explain the objectives of the business

Corporate objectives are objectives that the business tries to achieve. The corporate aims are usually set out as a mission statement. Corporate strategy is the organisations plan of action that will lead to the achievement of the corporate objectives. Strategy cannot be considered before the firm’s goals are clearly established.

Sainsbury’s mission is to be the customer’s first choice for food, delivering products of outstanding quality and great service at a competitive cost through working ‘faster, simpler and together’.

Sainsbury’s mission

J Sainsbury’s objectives

Sainsbury’s objective is to meet its customers’ need effectively and therefore, provide shareholders with good, sustainable financial returns. Sainsbury’s aim is to ensure all colleagues to develop their abilities so that they could be rewarded for their contribution to the success of the business. Sainsbury’s policy is to work with all of its suppliers fairly, recognise the mutual benefit of satisfying customers’ needs. Sainsbury’s also aims to fulfil its responsibilities towards the communities and environments in which they operate.

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Sainsbury’s Supermarket objectives and how they are met

Delivery great service:

This is a key objective for Sainsbury’s transformation programme. This is because during the year Sainsbury’s have made great pace in retaining their colleagues to serve their customers better. One of their mystery shopper measures how the business implanted in the company. This is when they find out about customer satisfaction index that demonstrates the progress that Sainsbury’s making.

Replacing legacy systems with ‘best in class’:

They are replacing legacy systems with best in class IT solutions to help Sainsbury’s to gain competitive advantage. The Accenture relationship will continue to go well with the systems that have already put into practice. This will gain them substantial business benefits. During the year Sainsbury’s have reprioritised their programme with new opportunities and have upgraded the original sequence of work. Sainsbury’s had started IT replatforming project. This project will retain the scope and this is also one of their targets.

Saving cost:

Sainsbury’s have achieved cost savings of £160 million in the year by delivering a total of £250 million since Sainsbury’s has began their programme. These savings will be reinvested in enhancing the customer offers, building sales and in improving our operating margins.

Modernise Sainsbury’s supply chain:

Sainsbury’s has played a major role on a major programme to modernise their supply chain by developing a network of new depots around the country. They made good progress in three depots i.e. Emerald Park, Haydock and Langlands Park.

Automated fulfilment centre:

Sainsbury’s first automated fulfilment centre was in Hams Hall in Birmingham. This centre apparently will open later this year. Three additional fulfilment centres are under construction at Stoke, Rye Park (Hoddesdon) and Waltham Point. These will be operated by then end of year 2003.

Double running costs:

Sainsbury’s has gained double running costs of £6 million in 2002/03. This happened during the financial year of transition between the old and new warehouses. The new depots will serve the bulk of new Sainsbury’s stores within the period of the plan.

Upgrade Sainsbury’s estate:

Sainsbury’s committed to upgrade their warehouse estate through the reinvigoration of their stores. During the year Sainsbury’s has reinvigorated 117 stores. They have stepped up with their new store opening programmes which have opened 10 supermarkets and 15 locals during the year by adding 422,00 sq ft of new space.

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Reward card:

Through their customer data warehouse, Sainsbury’s analyse data from their Reward Card. This helps them understand their customer needs and shopping mission so they can provide them with a better service. Sainsbury’s programme of reinvigorating stores has evolved them to develop new formats so that they can trial them.

Four trial ‘mixed mission’ stores:

Sainbury’s have four trial ‘mixed mission’ stores. In March Sainsbury’s has opened their first ‘main plus’ average superstore (with 16,000 new lines and 20% of floor spaced focused on non-foods). Sainsbury’s been developing a new ‘broad appeal’ ...

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