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Paul Sparks - Online English Lesson Plans, Lesson Material and Ideas for "Culture of English Speaking Countries Lessons", Xiangtan Normal University...




British Business

British Business Organisations: UK organisations are divided up into two types: PUBLIC SECTOR and PRIVATE SECTOR.

The Public Sector: Public Sector organisations are financed by the state, for example hospitals, libraries and schools, as well as national defense and the police. they do not operate in order to make a profit.

The Private Sector: Private Sector organisations are owned by individuals or groups of individuals. These firms can be large or small, owned by one person or by thousands. By producing and selling their goods or services, they attempt to make profits for their owners.

Businesses which operate in the private sector have a number of objectives or goals. The owners will want their business to survive in a competitive market. They also want to make a profit - if losses are made in the short term, they may continue to trade in the hope that in the long term the business will improve. Another objective might be to gain a larger market share, they might therefore have to reduce prices in the short term and suffer temporary losses.

Because private sector businesses are set up to make a profit, this encourages people to invest in existing businesses, by buying shares, or to encourage them to set up their own business.

There are four main types of organisation in the private sector:

  • Sole Traders

  • Partnerships

  • Private Limited Companies (Ltd)

  • Public Limited Companies (PLC)

Sole Traders: These are the most common type of organisation in the UK. They are owned and controlled by only one person. That person provides all the capital (money), and may work alone, or might employ others. Formation of a sole trader business is quite easy. Sole traders normally provide specialist services, such as plumbers, carpenters or hairdressers.

Advantages of Sole Traders:

  • Because the business is small, the money needed to set up the business is often small.

  • It is easy for the owner to keep full control of the business.

  • It is easy to set up as a sole trader, there are few formalities.

  • The owner is the boss, so can make quick decisions without the need to speak to others first.

  • Profits do not have to be shared with others.

Disadvantages of Sole Traders:

  • "Unlimited liability" - if the owner gets into debt they risk losing their personal assets to pay bills.

  • If the owner is ill or dies it is difficult for the business to continue to trade.

  • Typically there are long hours and few holidays.

  • Shortage of money can make it difficult to expand.

Partnerships: This type of business is also easy to set up, however there are some documents to obtain. The partners should write a "Deed of Partnership" which sets out essential details. it will contain details of the number of partners, the type of partnership, the amount of capital given by each partner and how profits or losses are to be shared. If there is no deed of partnership the partners will all receive an equal share if the partnership ends. Partners may work in the business and be paid a salary as well as a share of the profits, or they may only invest in the business, and have no involvement in the day to day running of the business, this type of partner is called a "Sleeping Partner." In a partnership there should be between 2 and 20 partners.

Advantages of Partnerships:

  • Partners can divide control of the business and specialise in certain areas.

  • Responsibility can be shared, so allowing time off and more holidays.

  • Expansion is easier than sole traders as there is more capital to invest.

  • The business can continue if one partner leaves or dies (although the death of a partner will end the partnership - a new partnership will need to be set up for the business to continue.)

Disadvantages of Partnerships:

  • Partnerships also have unlimited liability.

  • Disputes or arguments may take place between partners about the business.

Limited Companies: There are two types of limited company, Private Limited Companies, known as "Ltd" and Public Limited Companies, known as (PLC). Public Limited Companies (PLC's) can sell shares to members of the public on the stock exchange, unlike ordinary limited companies (Ltd) which can not.

Both PLC and Ltd companies must use the abbreviations "PLC" and "Ltd" in their name to show traders and customers that the liability is limited, unlike partnerships or sole traders. Therefore traders or customers can not recover debts from the personal funds of the company shareholders.

Features of Limited Companies: Both types of limited companies can be formed by a minimum of two shareholders, there is no maximum number of shareholders. A limited company is a "Separate Legal Entity" from a legal point of view, this means it can take legal action against others in its own name, not the name of the shareholders. The business can continue if one or more shareholders dies. Shareholders normally have little say in the running of the business, it is normally the company directors who run the business. Decisions are made by the Board of Directors. Private limited companies must have their accounts available for inspection at any time.

A PLC has the same advantages as Ltd's, such as greater chance of continuation when a shareholder dies and separate legal identity. The main advantage of a PLC over a Ltd is that it is able to raise capital from the public. The other advantages and disadvantages of a PLC are:

Advantages of PLC's:

  • Benefit from bulk buying (get things cheaper).

  • A PLC can borrow money easier because of its large size.

  • A PLC can easily specialise in various different areas.

Disadvantages of PLC's:

  • The business may be too large, and be inefficient.

  • Ownership can change quickly - takeover bids can be achieved by other companies buying shares.

  • Annual accounts have to be open to public inspection.

  • Shareholders may want short term profits, whilst the directors want to invest profits for long term growth.

  • Formation of a PLC is complicated and expensive.

Setting up a Limited Company: There are a number of steps to take in order to set up a limited company. If a business wants to become a limited company it must become registered with the "Registrar of Companies". There are a number of documents that must be delivered to the registrar, including:

  • Memorandum of Association

  • Articles of Association

Memorandum of Association: This document contain details of the external relationship of the organisation, it will include the following:

  • The Name of the business, to ensure that the name is different from any other businesses.

  • The main purpose of the company (what it makes or sells).

  • The details of the companies Registered Office.

  • Details about the limited liability of the members.

  • Details about the amount of capital invested.

  • The signature of at least two of the shareholders.

Articles of Association: This document lists the internal details for the company. It must be signed by the same people who signed the Memorandum of Association. The following details must be included:

  • How directors are elected.

  • The directors duties.

  • How meeting are to be arranged and conducted.

  • How profits are divided up.

Other documents which must be submitted include the "Statutory Declaration" which declares that the requirements of law have been met. If the registrar is happy that the documents have been submitted then they will issue a "Certificate of Incorporation". The company is now a separate legal entity. At this point a Ltd can begin to trade, but a PLC must arrange its funding from the public first. It will issue a "Prospectus" giving details about the company plans. Once funding is arranged the registrar will issue a "trading Certificate" and the PLC can then begin to trade. 

Step 1 : Register with Registrar of Companies, submit relevant documents. 

Step 2: The business will receive a "Certificate of Incorporation."

Step 2: Issue a Prospectus (brochure).

Step 3: Obtain Capital through a "Share Issue".

Step 4: Receive a "Trading Certificate".

Step 5: Begin Trading as a PLC.

Other types of Business Organisation: The main types of business organisation are Sole Traders, Partnerships and Limited Companies, however there are some other forms of business, such as Co-operatives and Franchises.

Co-operatives: The first type of co-operative is a "Worker Co-operative", this is formed by workers buying out the company they work for, normally when the business gets into financial difficulty. By co-operating the members can share experience and skills and get a share of the profits. Worker co-operatives normally elect managers and may employ external people such as accountants. 

The second type of co-operative is a "Retail Co-operative". This is where shops have wider aims than to only make a profit. Anyone can join the co-operative by buying shares from it - not from the stock exchange. The biggest retail co=operative is the "Co-op" a chain of supermarkets in the UK. There is one vote per member, regardless of the number of shares held. Members share the profits. Retail co-operatives can benefit from bulk buying.

Franchising: This type of business was launched in the UK in 1977. Franchising involves a company allowing someone else to use its logo and trade mark and sell its products. The "Franchisees" are the people who pay for the use of a companies products, the "Franchiser" will provide the products, decorate the shop in the company style and provide the marketing for the business. Popular businesses for franchising in the UK are fast food restaurants, such as "KFC".

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