The setting up of a limited company can be expensive and complex, with having to register with the Registrar of Companies and the submitting of documents as Memorandum of Association and Articles of Association. The Memorandum of Association covers details such as the Name clause, the Objects Clause, the Situation and Liability clauses, and the Capital and Association clauses. The Articles of Association describes the internal workings of the company and is signed by all of those who have already signed the Memorandum, so therefore it must not conflict with what was stated in the memorandum. It includes how the directors are elected, their rights and duties, how meetings and arranged and conducted, and, finally, how the profits are divided.
An easier option for the first time businessperson would be to set up a partnership. A partnership can be made up of any number of people. A deed of partnership has to be drawn up to show the exact number of partners, the amount of capital given by each of them to the business, how the profits and losses are shared out, the type of partnership, and whether any of the partners are receiving a salary from the partnership itself.
Partnerships are very easy to form, and have a number of advantages going for them. Partners can divide the control of the business, with each partner taking a separate responsibility of a section of the company. Responsibility of how well the business does is also shared out, making it less of a financial strain to cover loses. This dual responsibility of management allows for more time off and holidays to.
What has to taken into consideration though is that partnerships can still find it very difficult to expand as they are because of the fact that they are operating as small-scale businesses. History bares witness to this fact if we take as example companies such as Asda, W.H Smiths, and Marks and Spencer. All of these started as small-scale partnerships which turned into Ltds or PLCs in order to expand. If expansion and profit are the aims of the business, it would be a more sensible decision to make the company a PLC instead of a partnership or an Ltd.
The role of the stake holder:
The role of the stakeholder in a PLC or Ltd company is all-important. A stakeholder is anyone from the consumer up to the shareholder who each have different expectations from the company. The consumer is expecting to be satisfied with the product, and not let down by it. When a consumer buys a product in from a company, they are effectively entering into a contract with them, and like all contracts, it must obey the law.
A PLC must sell its shares to the public, first through a prospectus, then second hand shares are sold on via the stock exchange. However, the private company must sell privately, as they cannot sell to the public on the stock exchange. There are three different types of shares available for sale in a PLC or a Ltd. The first would be ordinary shares, which, as mentioned above, allow the shareholders to vote at company meetings. The dividend rate on these shares is depending on how much profit the company is making. It is, therefore, a variable rate. Those who hold ordinary shares are the last to be paid out of the profits. The risk here is that they may not receive anything at all if profits are down. The same happens if the company closes, they are the last to receive any returning capital. Although these shares are quite risky investments, there are still chances for large returns when the company is doing good business.
Following these are preference shares. These differ from ordinary shares because the holders do not normally have votes at meetings. Instead, the holders of preference shares are given a priority in repayment of capital, and payment of dividend. The preference dividend is a fixed dividend, and is more likely to be paid because it is not a variable. Unlike ordinary shareholders however, they do not receive high returns because, as mentioned, their dividend is a fixed amount. Preference shares can also be cumulative. That is, if profits are not large enough in one year to allow a pay out, the amount that they are due to get is carried over to the next year and can be paid out when profits are large enough a payment of the full dividend.
After these two types of shares, come debentures, which are also called loan stock. Debentures are considered long-term loans to the company, therefore the holders are known as creditors of the company, not owners. These loans can be held against the assets of the company, so if the company cannot pay up, the creditor is then able to sell the asset to the recover the amount of the loan. The creditor gets a fixed rate of interest on the loan to the company, which must repay whether it is making profits or not, The loan repayment takes lace on a date prearranged by the company and the creditor, whilst the interest is considered a normal business expense, and not paid out of any company profit. If the company ends, however, it is the creditors who are repaid before the shareholders. Creditors also have no say whatsoever in the affairs of the business, or in how it is run.
Strategic planning:
There are the considerations of objective setting and strategic planning. This is basically long range planning. In order for a product to be a success, research has to been into a number of areas. Most importantly is demand. The definition of demand is “ The quantity bought at a certain price over a period of time.” In order for a product to sell, it has to be marketed in the correct areas, at the correct group of people. If, however, there are many companies selling the same or similar products, a new company enters into an established price war were the profits for them will be either on the line, or they will be making losses from the word go. This why planning in essential in any business. Environment, the market, competition and customers all have to be examined if the company wishes to make a profit.
The setting up of objectives plays an important part in the process of planning. An example of this would be deciding how much the company would like to sell of its product over the first year of business. If, say, the company bought its materials in a bulk price, wish is normally cheaper, then proceeded to manufacture the product at the lowest possible cost, and then sell at a cheap price, the result, depending upon the market could lead to very good profits. If the company wanted a ten percent return on its profits within the first year of trading, not only would it have to just keep its costs down to a bare minimum, but it would also have to research to see if there is enough demand for the product itself. Therefore, therefore, if petrol prices at the moment are high, then also the demand for a petrol saving device would also be high. As there are no other such devices on the market at the moment, the sensible thing would be to market the device at a mid range to high price to maximise the profit potential, because when competion does come on the market, they will sell their products at a lower price, and you will be in a position where you will be able to guarantee the safety of the company as you start to lower your own prices as well.
With the initial profit gained, a lot of companies look into other areas of investment and research in order to stay ahead of the competition. For example, a car company may invest more in safety and comfort, as well as getting more mileage for the gallon on their cars.
It is important to recognise that the environment and market and constantly changing, and new demands are being made for cheaper and better products, and with good planning, it is possible to spot a potential hole on the market for a product.
Research objectives:
The following is a list of research objectives that would help inform those who are interested in starting up a business for themselves.
Assess the competition, if any, and their prices and the availability of their products.
Research into the matter of how much people would be willing to pay, as this would help form information on how much to charge.
Determine the fixed and variable costs of running the business, including staff, manufacturing and materials.
Investigate the cost of advertising in radio, papers and magazines and local television.
Research legislation for employment contracts and consumer law.
Determine the demand of the product, because if it can be shown that there is a high demand, then it is more likely that the business will be able to secure backing.
Research into how much it will cost to supply the product locally and nationally.
Taking all the above into consideration, determine how much it would cost to start the business.
Conclusion:
In conclusion that it is possible to start the business small, and expand due to demand. There is an opportunity to dominate the market for a few months at least before competition comes, and when it does, they would be going up against an already establish company with a solid consumer base.
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