Partnerships
Partnerships can be anything between two and twenty partners. They are very common in professional services such as accountants, solicitors and doctors. The advantages of being in a partnership are that the partners can pool all their money and expertise together, money is easier to borrow and also more partners means that more capital is available than a sole trader. Losses are also shared between the partners and there are few regulations. There are also many disadvantages to being a part of a partnership. For a start, partners have unlimited liability, so they are personally responsible for any debts. Limited liability is available in a partnership, but that only applies when a partner invests money into the business but does not take part in management decisions. However, at least one partner must have limited liability. Another is that all the partners have to be consulted when making business decisions, so that can make the process a lot slower, partners can have arguments and disagree over things and the profits also have to be shared between all the partners.
Private Limited Companies (LTD’s)
Private companies are usually smaller than public companies and are usually family businesses, such as a small family leisure business. There must be at least two shareholders but no maximum number, and the shares cannot be exchanged on the Stock Exchange, often only with the permission of the board of directors. The shareholders choose the board, who in turn choose a managing director to run the business day by day. Private companies have limited liability so they do not lose everything, only what they put in to the business. The major disadvantages are that the profits have to be shared out, decisions take longer to make and they cost more to set up.
Public Limited Companies (PLC’s)
Public Limited Companies are much larger than Private companies and can also be known as ‘PLC’s’. They are called public companies because they are owned by shareholders as the shares can be traded on the Stock Exchange. By selling the shares, the company can raise large amounts of capital very quickly. Deciding to sell shares on the Stock Exchange can be quite risky as it is quite expensive to ‘float’ in the first place and the Exchange can have many good and bad days. If new shares become available on a bad day, when many people want to sell, the company can find itself in difficulties. The shareholders have limited liability, so they can only lose whatever they have invested into the company. Another advantage is that when a shareholder decides to discontinue his investment they can sell their shares on to someone else while the company still has the money permanently. A public company may have thousands of shareholders and it is these shareholders who elect a board of directors to look after their interests. The board can then appoint specialists in a certain field for their expertise if they wish. A major disadvantage of PLC is that control of the business can be lost by the original shareholders if lots of shares are bought by one individual or consortium as part of a take-over bid. Other disadvantages are that many criteria and legal requirements must be met in order to set up and accounts and financial records must be made public. A PLC must also hold an AGM (Annual General Meeting) every year where they must explain poor results and unpopular decisions to the shareholders.
Co-operatives
Co-operatives have become popular in the UK recently. They used to be found only in agriculture and retailing but recently the biggest growth has been in service occupations and small-scale manufacturing. A Co-operative is basically where people work together to share profits and make decisions. These are the three most common forms of Co- operatives found in business: -
- Retail Co-operatives
- Producer Co-operatives
- Marketing Co-operatives
Franchises
Franchises are where good ideas or a brand name are licensed out to independent companies. They buy an agreed amount of stock and agree to pay a certain percentage of the profits to the license holder. In return they receive help in setting up the company and are issued with the equipment. They can also benefit from national advertising campaigns and a ready-made image. Franchises are common in the fast food industry and McDonalds is the most famous of these. Under this type of franchise, McDonalds lease the site and restaurant building out and the franchisee buys the right to operate under the McDonalds name for twenty years. To ensure consistency throughout the world, all McDonalds franchises must use the same layouts, brandings, menus and administration systems.
Not-for-profit or Charity Organisations
Charities or Not-for-profit organisations are set up to raise funds to help other people or to support a cause. They can range from a small organisation that does not make a profit like a local sports club, to a very large registered national charity. Their income comes from donations and from charity auctions, charity shops etc. This is not classed as a profit because there is no owner to take the profit and all the money is ploughed back into their members for the future. This applies to such organisations like building societies and trade unions.
The appropriate type of business ownership
It is very important that a business chooses the right type of ownership and it may be necessary to change in order to keep the business expanding or to keep it going. The type of ownership depends on its objectives and its size. Large businesses are usually public companies as they can raise money very quickly through the stock exchange. Smaller companies tend to take the form of a sole trader, partnership or private company. Otherwise, companies will take an alternative form of business according to its objectives, such as a co-operative, charity or voluntary organisation.
Changes in Business Ownership
As businesses change their type of ownership, this can have implications for a number of reasons. Businesses may have to change their ownership to a limited company to protect their own personal property as if they are a company which has unlimited liability they could lose some of their property if they are sued or have debts. In public companies they have access to different sources of finance as they can raise more capital by selling shares, but in sole traders or partnerships, they can only rely on the funds of the owner/partners. Control is also an important aspect in choosing which type of business to run. In a sole trader you can make all the decisions yourself, but in a partnership you have to consult the other partners. In public or private company, the board of directors has to agree on something and then explain their decisions to the shareholders. In a sole trader you can also take all of the profits, as well as the losses, but this is usually ploughed back into the company, and the same happens in a partnership, but the profits have to be shared. In companies, there are no owners to take the profits, the shareholders just make money by selling their shares at the right time. There are also more legal requirements in a company. Should a problem arise, they have the resources to pay specialist legal teams to sort it out. In smaller companies, there is less paperwork and they do not have the time or money to employ specialists and should there be a problem, the owner is held personally responsible.
My Company
The company that I am going to investigate is ChevronTexaco, a company set up in 2001 as a result of a merger between Chevron and Texaco, two major oil companies, to create one of the worlds largest energy companies. The company refines crude oil into all kinds of fuels and chemicals such as aviation fuel, lubricants, chemicals, marine fuels and more commonly, motor fuels. They have their headquarters in Texas and held their AGM on May 22nd 2003. The company is a Public Limited Company, so that means the general public can buy shares in the company. Directors are elected by the shareholders and a board is appointed to look after the interests of the shareholders and to oversee operations within the company, such as its business affairs and its policy. Applicants to the board need to have the appropriate skills and experience before they are appointed. This is the current ChevronTexaco share price taken from the New York Stock Exchange on Tuesday 1st October.
