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Any sole trader may wish to trade into a different business that they can achieve their aim of gaining profit successfully. They may want to become any limited company:
Sole traders tend to go for Private limited companies for various reasons; this business is known to be the most beneficial. By changing to a private limited company the business would be able to raise large amounts of capital. Here there is limited liability compared to the previous business showing that the share holders will only lose the money which they had invested.
- As sole traders can only raise a limited amount of capital, after having this ownership they will be able to raise larger amounts of capital.
- Limited liability is achieved by the shareholders, because only the money that is invested is lost.
- The person who is part of this business has more chances of being taken seriously than a sole trader status.
- There is limited liability for the shareholders, showing that they are less responsible for the debts.
- Capitals can be raised easily by selling shares on the London Stock Exchange; this is helpful because it can lead to the expansion of the business.
- The continuation of the business does not depend on the people who had first founded the business; later generation may continue it on.
- This can raise higher amounts of capital than what a sole trader can; this is because the more partners there are the easier they can raise it.
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A Partnership is 2 – 20 partners who work together to create a successful business to achieve their aim. This would be considered as better than a sole trader business. It is worth losing only one advantage, which is to have all the profits to one person, because it is successful business anyway and everyone who participates deserves their share.
Examples of different Partnership business owners would be
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Doctors - They may want to work with co-workers, or family members to create a successful hospital or clinic.
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Dentist – They may want to work with friends to create business to make more patients come to their clinic.
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Architect (s) – They may open a company in which they work with partner/partners who may them to create business which most publics companies need.
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Estate agents: They would work in partnerships most of all, to make decisions together in which they can easily create a good deal with a customer who want to buy property.
The advantages of Partnerships are:
- If one person is ill another person can cover for them unlike in a sole trader business the owner would have to come in at all circumstances
- It is easy to set up because the partners only need to write a Partnership Agreement and create the laws of a Partnership Act.
- If any extra capital is needed then another partner can join and help, some partners may not want to be an active partner running the business, but would not mind contributing money, they can be known as “silent/sleeping partners”
The disadvantages of Partnerships are:
- The shares which are given out between each partner may vary because of how much they might have contributed to the business.
- Each partner is responsible for their own share in the business, meaning they are also responsible for their debts.
- As there are individuals who are working together there could be conflicts between what decision should be made.
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Partnerships may want to turn might want to turn into the businesses of Public Limited Company and a Private limited company, depending on what contains the most advantages, the advantages are explained below.
Public limited company: Plc
- The people who are involved in the business each have limited liability, meaning they only lose the amount of money have invested.
- The companies can easily raise a large amount of money to pay for newer equipment, new workers, and new technology therefore more ideas.
- Places like banks and financial areas would be willing to help by letting the company borrow money if they need to known as extra support.
- There is the benefit from the economies of sale, meaning the more products that can be sold in reasonable prices for the customers the more they would want to buy the companies products.
Private Limited Company: Ltd
- There is lower corporation tax depending on the amount of money that has been invested into the business.
- There would be more benefit because the company would be able to gain extra capital by selling some parts of the company.
- The most important advantage of all of these companies is the fact that the business has limited liability, if any problems occur and money is lost, shareholders only lose the amount they had invested rather than selling their own personal objects. Whereas for a partnership, the partners are each liable for their share of debt.
- People would want to invest their money in business because there is low risk of them losing their possessions.
- If one of the partners die or leave the business then there would be no effect on the business because there are other partners as well.
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A Private Limited Company is a registered company that has limited liability, meaning that the shareholders only lose the amount they invested and not their own personal possessions. The amount of shareholders it can hold is from two to fifty people. Shares cannot be transferred without the agreement of other members and shares cannot be sold in the public or on the stock exchange. They have a legal entity meaning that they can be sent to court if they do something wrong.
Examples of Private Limited Companies are:
- Tesco Ltd
- Pizza Hut Ltd
- Apple corporation
- Nokia mobile
The Advantages:
- There is limited liability so the only money that is lost is the money invested.
- Private limited companies need to give less money, they have lower tax rate, and the taxes are only given depending on how much profit they have.
- Decisions can be made more quickly because there is less paperwork involved compared to public limited companies
- In case of a death of a shareholder, the business can continue because others will take over.
- Shares can be given to investors in order to gain money and raise capital.
The Disadvantages:
- These companies have to go through legal process before they can begin to trade; because they need to achieve the ‘certificate of incorporation’ this process takes a lot of time, costly, and if deadlines are not met the company may be fined.
- Private limited companies have to give financial information to be inspected by the general public (a part of the process of incorporation), competitors would be able to see this and probably used it as an advantage
- These companies cannot sell their shares to the general public; they can only sell them to other businesses.
- Existing shareholders may not be able to pay capital if the business is thought to be expanded. This is because of them not being able to raise capital by selling their shares to the general public also finding new shareholders is quite difficult.
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A private limited company may decide to turn to a public limited company but they need a share capital so they can begin there business straight away once they have converted. Private limited company holders may want to change to a public limited company then it would be easier for them to raise capital by selling their shares on the stock exchange.
The Public limited company is another company with limited liability, but they can sell there shares to the public. To make their company legal and in order to prove that they are registered, despite the certificate, they need to abbreviate ‘Plc’ next to there name wherever mentioned.
Examples of Public Limited Companies:
- Marks and Spencer (Supermarket)
- Shell petrol (petrol station)
- HSBC (banks)
- Nokia (mobile company)
Advantages of Public limited companies:
- A vast amount of money is earned by this company by selling their shares on the stock exchange.
- Public limited companies have the freedom in which they spend their capital to develop their business to a good standard, by establishing and expanding the business public would have an interest in them and profits would rise.
- By doing advertisement a plc would be able to attract more companies towards their business. They may even become very popular.
- Larger plc’s can borrow money from banks and if the business is successful they will be able to repay it.
Disadvantages of a Public Limited Company:
- It can be very expensive, that is why other business ownership owners/shareholders need at least £50,000 so they can use it when they are ready to convert.
- General public may request for a copy of the company’s accounts, made in the form of an annual report to shareholders also, it is published on the company’s website. This is not good because competitors would be able to compare their shares and take an advantage of this.
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- Businesses plan to expand when they have the chance, but sometimes the business could become so big that it becomes difficult to manage.
- If other companies have bought shares there is a risk of them taking over the company, so shareholders need to be wise about this matter.
Generally small businesses want to be as successful as public limited companies e.g. Tesco but despite that most of UK’s companies are private limited companies and seem easier and much more beneficial than sole trader or partnership. Sometimes shareholders of a Plc want to think bigger, this may lead to the next step which is being a franchise. This type of business may have chosen so that the business can become globally famous and most businesses like this are successful e.g. Mcdonalds
Franchises are different from other business organisations they are a type of marketing arrangement. Nowadays franchise has become very popular. Franchise begins where a well established business (franchisor) invents an idea which is then offered to be sold to other businesses (franchisee).
Examples of Franchises
- Mcdonalds
- KFC
- Subway
- Coca cola
Advantages of a Franchise
- There is no competition from other franchise companies also taking the idea from the franchisor, all ideas are own.
- If a business tries it out there is a less chance of it not being successful as long as the idea it self is good.
- There is no need for previous experience because there is already training and advice available from the franchisor.
- Being a franchise owner can also lead to a person being able their own boss, own ideas are used along with the management of when they will work on their business.
Disadvantages of a Franchise
- All prices are given by the franchisor their price may be higher the franchisee can afford.
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- There is a large amount of capital that must be needed to begin the franchise business.
- The idea is after all from the franchisor so the franchisee must give royalty payment from all profits gained and the general fee ‘sales revenue’ is also required.
- There is not full control over how the business will run by the owner, the idea and resources given are from the franchisor so the idea is mainly theirs.
- Sometimes there is not enough profit to repay the initial payment that is needed to be given to the franchisor.
- Any losses that are made have to be paid by the franchisee possibly from their own possessions.
As Franchises are large businesses and are mostly successful the franchisor may not want to change into any other ownership. On the other hand if a franchisee find being part of the business a problem they may decide to change to a co-operative; where the owners can work together as a group and with other individuals to make a successful business.
Co-operative is a business owned and controlled by a group of individuals who make a business for their own benefit. The people who use the business also own it, they provide all the goods and services they need themselves. The members of the business invest in their own money to make it successful. It sounds similar to other businesses, but actually the money they are making is being used for their own individual purpose.
Examples of a Co-operative
- Co-operative taxi business
- Book Shops
- Dairy farming
- IT Companies
Advantages of Co-operative
- They can not only benefit themselves but others who need jobs in local areas. That way they get more ideas and support for the business.
- The management of the shares owned by the members can be made easier if more people join.
- The help and support of all members can hopefully make the business a success.
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Disadvantages of Co-operative
- There may be conflict between members, ideas and decisions do not always meet.
- On a regular basis members have to meet each other to make decisions otherwise there is a risk of no success, there needs to be an agreement between all the members.
- To reach the business aims there is complex management needed, aims are hard to achieve in all business and here there are individuals.
- A record is necessary to record their decisions and what each member are assigned to do.
Co-operative is mainly for the people who are willing to take a challenge and understand how to work together with others and make their business a success. Working together can sometimes be difficult because others may disagree with the ideas made along with other businesses such as partnership. The best business a person might choose is to become a franchise.
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