a) Construct a table to show the various legal statuses of businesses (such as PLC, LTD, Registered Charity etc) that your business may adopt. Identify the relative strengths and weaknesses of these legal statuses (Identify the differences between the various business sectors that contribute to the economy)
To Identify the differences between the various business sectors that contribute to the economy, Companies are entities like any collective human group, bound legally to the respective governments. So, they can be called ‘Legal Entities ‘ alternatively. Depending on this legality or legal status, companies can be of various types. In this section, a table has been constructed to show the comparisons of such various companies, in terms of their legal statuses.
Comparison of legal statuses
|Scopes of differences||Private Limited Company (Ltd)||Public Limited Company (PLC)||Registered Charities|
|Definition||Limited companies are privately held firms (Ries, 2014). These PLCs offer more liquidity while embodying selective shareholders and may generate revenue through the sale fundamentally (Chen 2019).||A PLC is an organisation of participants which has an independent legal entity and a limited liability among its members.||A charity is an organization that operates envisioning purely philanthropic goals for the public interest as specified by law.|
|Company size||The minimal number of members necessary to establish a private enterprise is 2. PLC can employ up to 50 people.||At least 7 members are needed for a Public Company. There is no maximum limit of personnel in PLC.||A board of at least five, but no more than twelve trustees is usually highly recommendable by the voluntary Charity Governance Code (Blank and Dorf, 2012).|
|Share transferability||The transferability of a private company shares through its Articles of Association is completely restricted (Blank and Dorf, 2012).||The transferability of the shares of a public corporation is not restricted.||Charities are publicly shared ventures of government (Ries, 2014).|
|Issuing prospectus||The invitation to the public for subscribing to their stocks is restricted, i.e., a private company cannot publish Prospectus.||A public company is free for the public to apply for shares, i.e. a public enterprise may publish a prospectus calling for shareholders.||A charity cannot also call for applications to the public for creating dividends.|
|Board of executives||A private enterprise may have 2 executives to run the company’s activities and the private company’s managers do not need to grant any approval for their decisions. Private company owners do not have to sign any undertaking to enjoy the qualifying shares.||At least 3 directors must be on the executive board of a public enterprise (Blank and Dorf, 2012). The public company executives must possess a record with the Registrar’s approval to function as the company’s director (Ries, 2014). They must sign a contract for the acquisition of the public company’s qualifying shares.||Equalities, controlled by democratic norms, are the basis of registered charities. Regarding functional management, each member of the trustee board has equal rights. Every representative has solitary voting right regardless of the number of shares held by him or her. No member can practice individualism in a charity organisation, because the thumb rule is ‘one person one vote.’|
Relative strengths and weaknesses
|Private Limited Company (Ltd)||Public Limited Company (PLC)||Registered Charities|
|Strengths||A private limited company is a traditional and established business model, thereby ensuring certain marginal profit (Blank and Dorf, 2012).
The establishment of private limited enterprises leads to personal asset protection, exposure to more resources, financial support, and increased tax reduction.
Although there are numerous benefits, occurrences like the death of a shareholder do not disrupt the corporate entity(Ries, 2014).
|A public limited company is a kind of enterprise that works apart from its owners as a legal entity (Ries, 2014). It consists of shareholders and is managed by them.
Public limited business shares are publicly listed and exchanged on the stock market (Blank and Dorf, 2012).
If the company fails, people who invest in the company would be also in danger.
|A charity organization is a social business, not a joint-stock public venture.
The general authority and the management committee govern a charity democratically.
There is a constraint of capital in a charitable organization. The state exercises control over organizations to keep records, submit audited returns and inspections by the government.
|Weaknesses||A method and fees are involved in forming a private limited company that are not relevant to an unregistered business such as a company (Daniels, 2020). Private limited companies, on the other hand, have a wide range of authorities and privileges once formed, allowing the creation of opening a bank account or obtaining an online payment simple.
Following formation, a private limited company must comply with a number of regulations.
|A public limited company’s policy and institutional obligations are more stringent than those of a private limited corporation to financially support (Korchak, 2016).
Controlled firms, either public or private, have more information about themselves available in the public domain through Companies House than other sorts of businesses. For public firms, however, the needed level of information is significantly greater.
|Charity law sets significant regulatory and bureaucratic requirements
Professions such as trading, politics, and advertising are prohibited.
A charity’s mission must be solely benevolent. Some companies may achieve their goals through a variety of activities, others charitable and some not.
Charity trading is subject to stringent regulations.
Administrators are not permitted to accept economic benefits from the charity they administer unless the country’s constitution of the organization or the Charity Commission expressly permits it.
b) Considering your business idea, identify and evaluate the strengths and weaknesses of THREE sources of finance available to your business start-up (Identify and evaluate the strengths and weaknesses of various finance generating alternatives a new business may look to).
To Identify the differences between the various business sectors that contribute to the economy, Considering the legal statuses, a privately owned business seems appropriate at the post-pandemic time. Firstly, because, a government-funded unsecured personal loan (Government Digital Service, 2017) of £25,000 will be only enough to start a small-sized private limited company. Secondly, a private enterprise offers almost the same prospect compared to a plc or charity, if managed properly.
Compared to these governments grant subsidies, there are few other ways to source funding for a start-up. A relative discussion of three such sources, including government grants, is presented below.
Government backed start up loans
A Start Up Loan is a government-backed loan modification for those who want to begin or expand a business in the United Kingdom. In comes to monetary assistance, selected candidates will receive a year of free mentorship and access to special business opportunities (Reddy, Locke, et al., 2013). Because the loan is unpaid, no properties or beneficiaries are needed to ensure an approach.
Advantages- Business grants provide companies with a range of advantages, although they differ in accordance with the scheme. They are so lucrative because any money a company gets does not have to be returned (Ali and Gull, 2019) or reimbursed in instalments in this situation. Moreover, the owners also do not have to contribute shares, so that without losing control of the company they may get finance. Moreover, customers can gain the security that the initiative has been endorsed publicly by the administrator of the scheme and can be used as a promotional instrument by anybody from a federal agency, business hub, industry-specific partner or even a major corporate organization.
Disadvantages- However, the drawbacks of Business Grants are to be carefully considered. For example, every scheme of business grants works differently (Ali and Gull, 2019), so, the owners need to study all eligibility criteria for each scheme completely. It is fairly time-consuming. In addition, several business subsidies schemes can be designed to support various company components, so that owners have to make sure that their firms are in line with that program. Moreover, one of the greatest drawbacks of applying for a business grant is that it is widespread that candidates might compete with competitor companies.
Advantages- Venture capital may be a key source of funding to develop fast for start-ups with substantial growth opportunities. The capital investment enables owners to rapidly establish and develop the enterprise (Rexer and Sheehan, 1994) and earn market share and brands before rivals can push them up for sale. Since capital investment is not a loan, it is classified as equity, rather than debt, in the firm. It is not a debt. The enterprise thus need not worry for money to repay. Furthermore, with an expansion of its equity, venture capital might become largely scaled in terms of growth.
Disadvantages- Acquisition of capital investment means the exchange of a portion of ownership for money within the enterprise (Ramsinghani, 2014). So the business’s owner is no longer the sole entity responsible or able to decide on the course of the company. This may be an unwieldy business for some entrepreneurs, especially if there is a dispute with the shareholder in venture capital. These shareholders can also pursue a rapid departure from the market, opposed to the original owner who might continue by either merging with a large corporation or proposing a public offer.
Advantages- An angel investor could be a more appropriate source of start-up financing for many small firms than a venture capital company. Angel investors are skilled in the business sector (Graham, Buffett and Zweig, 2013) and often can provide any company enterprise with a lot of that experience. In contrast to bank financing and other types, angel investment finance is a considerably cheaper source of seed money.
Disadvantages- While angel investors may give the essential assistance, some may insist on having excessive entrepreneurs control over the owners. When an angel investor has little business experience, the drawbacks of too much engagement are compounded (Graham, Buffett and Zweig, 2013). Angel investors are significantly tougher to investigate and approach compared to venture capitalists.
Ali, TM & Gull, S 2019, ‘Government Funding to the NGOs’, International Journal of Research in Business and Social Science (2147- 4478), vol. 5, no. 6, pp. 51–61.
Graham, B, Buffett, WE & Zweig, J 2013, The intelligent investor: a book of practical counsel., Harper Collins, New York.
Government Digital Service 2017, Apply for a Start-Up Loan for your business, GOV.UK.
Ramsinghani, M 2014, The business of venture capital: insights from leading practitioners on the art of raising a fund, deal structuring, value creation, and exit strategies, Wiley, Hoboken, New Jersey.
Rexer, C & Sheehan, TJ 1994, ‘ORGANIZING THE FIRM: CHOOSING THE RIGHT BUSINESS ENTITY’, Journal of Applied Corporate Finance, vol. 7, no. 1, pp. 59–65.
Ries, E 2014, The lean startup: how today’s entrepreneurs use continuous innovation to create radically successful businesses, Crown Business, New York.
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