Business forms typically depend upon some of the following factors:

  • Business Objectives
  • Stakeholders
  • Shares & Shareholders
  • Organisational structure

Business Form Mapping

The private sector is any business that is owned by partners, owners or shareholders.

Incorporated: Private Limited Companies and Public Limited Companies

Unincorporated: Sole Trader and Partnership

Business Research: Public Limited Companies

A plc tends to be a fairly established business, as it costs £50,000 to set up (at least) and therefore it is usually a reformed private limited company. Like a private limited company, plcs are owned by shareholders. However, there is a fundamental difference - as the shares of a public company are traded on the stock exchange and can be bought by anyone. This enables the raising of stock capital.

There are also more high level requirements placed on the business, as more documents must be published - including public accounts.

This means that anyone can own part of the business if they purchase shares. However, the effective owner of the business is the majority shareholder - if there is one.

Decisions will be made by the executive employees (such as the CEO) and the board (made up of major shareholders). This only covers major decisions, as more minor decisions will still be covered by lower levels of management.

Hostile takeovers are a higher risk for public limited companies as anybody is capable of purchasing shares. The setup cost is high, and shareholders will all expect a cut of the profits.

The shareholders all have limited liability.

A plc is usually a lot bigger than a standard ltd company.

Shareholders have ultimate control over the business - however the majority shareholder, if one exists, has complete control. (Anyone with more than 50% of shares.)

Here are some Plcs:

  • Admiral Group Plc
  • Aviva Plc
  • BP Plc
  • British American Tobacco plc
  • National Grid
  • Pheonix Group Holdings plc
  • Shell plc
  • Tesco plc

Business Research: Private Limited Companies

Private limited companies can be really small all the way up to a large business. It is the simplest way to form a limited liability company and it has fairly low costs and requirements.

It only costs £25 to register the company and needs shares to be assigned (if that method is used - persons of signifcant control can also be assigned). A ltd company is typically owned by one (or few) people who set it up. Shares are typically only owned by people directly involved with the company - and share capital is not usually a main source of finance.

Within a private limited company, the decision making is usually more central than with the typically larger plc. This is because in a private limited company, management is typically much smaller, possibly consisting of a single person. Therefore, a ltd is going to run more like a dictatorship, as one person could definitely have complete control over everything.

Advantages:

  • owners have limited liability
  • individuals have the opportunity to become their own boss
  • new shareholders must be invited, preventing hostile takeover and divergence of interests.
  • shares can still be sold to raise money

Disadvantages:

  • there is frequently a lot of paperwork
  • sometimes financial information may end up being public
  • setup can be time consuming
  • the business may require professional help to manage finances

Control is very central, as the owner of the business may choose to keep the whole organisation under their sole control, or delegate it as they choose.

Corporation tax needs to be paid based on profits - meaning that the company may struggle to keep a positive balance.

The business is incorporated, and liability is limited - so the owners are protected from having their personal assets lost if something goes wrong with the business.

Private limited companies tend to be smaller businesses, however there is no limit to the size of a ltd company - so some of them are very big.

Examples:

  • Contract West Limited
  • The Mill at Harvington Limited
  • Arrowtrack Limited
  • B Car Service Limited
  • Jacana Produce Limited
  • INEOS
  • Home Bargains
  • Thames Water
  • Radius Payment Solutions Ltd
  • Bet365

Businesses considering changing their form, may need to consider some points covered here.

Business Research: Partnership

A partnership is usually a smaller business, owned by a group of partners who usually all have specialisations in an area.

We frequently see partnerships operating as a firms such as solicitors, lawyers, dentists etc. The business is professional, but geared up to run at a relatively small scale.

Advantages:

  • deed of partnership can specify what profits each partner gets
  • they are quick and easy to setup
  • the owners have shared decision making
  • debt responsibility is split between owners

Disadvantages:

  • they can involve very long hours
  • conflict among owners can occur
  • there is the risk of unlimited liability
  • one partner may let the rest down if they don’t uphold the standards of the business

All partners have shared control.

Finance is provided by the partners, and profit is split between them. The “deed of partnership” denotes the specifics of this.

The business has unlimited liability - putting the partners at high risk.

Typically, partnerships are small and do not grow much.

Examples:

  • JBW law
  • High Street dental practice
  • Merstow Green Medical Practice

Business Research: Sole Trader

A sole trader is a common form of business where the owner of the business is the same legal entity as the business. They have unlimited liability, and fairly little legal protection.

A sole trader is owned by a single person who runs the business.

All of the decision making is made by the singular owner.

Advantages

  • absolute control to the owner
  • still a legal business, can hire employees etc
  • lower turnover may remove VAT requirements

Disadvantages

  • unlimited liability
  • personal assets at risk

Shareholders in plc and ltd companies can appoint a Board of Directors to make the decisions when it comes to running the business. The board appoints management staff of the business.

Every year, an annual general meeting (AGM) happens for any business. During this time, all shareholders may attend and vote to appoint the board of directors. Shareholder’s influence over the vote is dictated by the percentage of shares that they own in the company.

The board typically aims to get a return on the shareholder’s investments into the business.

In many smaller ltd companies, the same people will be shareholders, board members and senior managers in the organisation.


Unincorporated vs Incorporated

Unincorporated

  • the owner is the business - no legal differences
  • owner has unlimited liability for business actions (including debt)
  • most unincorporated businesses operate as sole traders

Incorporated

  • legal difference between the business and the owners
  • owners/shareholders have limited liability
  • most incorporated businesses operate as private limited companies

Setting up a plc

Setting up a ltd


Limited companies have significantly more paperwork than unlimited companies. Accounts will be made public and avaliable for anyone who wants to access them, in a plc. Ltds will not have to have their accounts published.

Investors look for a return on their investment when they buy shares in a business. They would earn money back from dividends - or shares of the company profits.

Dividends can be paid annually or as interim dividends.

There are also Public Sector businesses.

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