Business Structures: Ltd., PLC, and Sole Trader

Private Limited Companies

• Private Limited Companies (Ltd.) are separate legal entities distinct from their owners.
• Typically owned by a small group of people with limited liability.
• They require a Memorandum of Association which outlines the company structure, objectives, and initial shareholders.
• They also require Articles of Association outlining rules for company management, operations, governance, and more.
• Private limited companies have moderate ability to raise capital through the sale of shares to private investors.

Public Limited Companies

• Public Limited Companies (PLC or INC) are separate legal entities with a minimum of 7 shareholders and no maximum limit.
• Shares can be publicly traded on stock exchanges, allowing for significant capital raising.
• They have greater access to bank and lending institution financing due to their public status.

Sole Trader

• Features:
  • Owner is responsible for all debts, losses, and liabilities.
  • Owner has complete control over the business.
  • Income is taxed as personal income.
  • Finances come from the owner's personal savings.
• Advantages:
  • Complete control over the business.
  • Simplicity and ease of setup.
  • Tax benefits with profits taxed as personal income.
• Disadvantages:
  • No legal entity separation, the owner is personally liable for all debts.
  • Owner bears all the workload and responsibility.
  • Limited capital raising potential.

Partnerships

• Two or more people share responsibility, profits, and liabilities.
• General partnership liability is unlimited, while limited partners' liability is limited to their investment.
• Partnerships are often more advantageous for raising capital compared to sole traders.
• Decisions are made collectively, with varying levels of authority as outlined in the partnership agreement.
• Income is taxed as personal income for each partner.

Limited Partnerships

• Limited partnerships consist of no more than 20 individuals.
• There must be at least one general partner with unlimited liability for all debts and obligations.
• Limited partners are not involved in day-to-day operations and have liability limited to their capital contribution.
• A partnership agreement is needed to establish the partnership, including profit sharing and roles and responsibilities.

Joint Ventures (JV)

• Strategic partnerships between two or more companies to collaborate on specific projects, ventures, or businesses.
• Partners share both risks and profits.
• Each partner typically contributes capital or resources.

Reasons for Joint Ventures:

• Risk Sharing: Pooling resources to mitigate potential negative impacts.
• Cost Sharing: Makes large-scale initiatives more feasible.
• Technological Advances: Collaborating on new technologies.
• Capital Access: Increased access to capital, resources, and partners.
• Market Expansion: Expanding into new markets or reaching a broader customer base.

Types of Joint Ventures:

• Licensing: A company allows a licensee in a foreign market to produce their products or use their manufacturing processes for a fee or royaltity.

Advantages of Cooperatives

• Democratic Control: Each member has an equal voting power, regardless of individual investment size.
• Shared Profits: Profits are distributed among members, promoting loyalty and commitment.
• Social Objectives: Often prioritize community goals and sustainability.

Disadvantages of Cooperatives

• Limited Finance Access: Raising capital can be challenging without external investments.
• Slow Decision-Making: Democratic processes can lead to slow decision-making, especially in larger cooperatives.
• Profit Sharing: May reduce individual incentives to increase personal performance.

Regulations

• Public Limited Companies:
  • Minimum 7 shareholders and no maximum.
  • Shares can be sold on the stock exchange.
  • Name must include "PLC" or "INC".
  • High capital raising ability.
  • Greater likelihood of bank financing.
• Advantages:
  • More investors.
  • Unlimited capital raising potential.
  • Limited liability.
  • Increased credibility.
  • Shares are transferable.
• Disadvantages:
  • Potential for conflicts.
  • Less control for shareholders.
  • Higher costs.

Franchises

• A franchisee operates a business using the franchisor's branding, products, and operational model.
• Franchises are often easier to finance due to the established brand.

Types of Franchises

• Business Format Franchises: Franchisor provides a complete business system for franchisees, including brand, trademark, and operations.
• Product Franchises: Manufacturers control how retailers distribute their products, granting them the right to use the company's name and branding.
• Manufacturing Franchises: (This category appears incomplete in the original text)

Ability to Raise Finance

• Franchises have better access to finance due to established branding, proven models, and support from the franchisor.

Appropriateness of Legal Structure

• Franchises offer reduced risk for entrepreneurs due to an established brand and operational support.
• Franchisees have limited freedom to innovate or make independent decisions.

Challenges of Changing Legal Structure

• Shifting from a franchise to an independent business can be challenging because of strict contractual obligations.

Advantages of Franchises

• Lower Risk: Operating an established business model reduces the risk of failure.
• Brand Recognition: Instant access to a recognized brand and customer base.
• Support from Franchisor: Franchisees receive marketing, training, and operational support.

Disadvantages of Franchises

• Limited Control: Franchisees must follow franchisor's rules, limiting their autonomy.
• Franchise Fees: Initial fees and ongoing royalties can reduce profits.
• Reputation Dependency: If the brand suffers, individual franchises can be negatively impacted.

Co-operatives

• Owned and operated by a group of individuals for their mutual benefit.
• Profits and decision making are shared.

Ability to Raise Finance

• Co-operatives can raise capital through member contributions, loans, or grants, but access to traditional finance can be difficult.

Appropriateness of Legal Structure

• Ideal for small groups with shared interests.
• Governed democratically, with each member having equal voting power, regardless of investment size.
• Well-suited for organizations focused on mutual benefit over profit maximization.

Challenges of Changing Legal Structure

• Shifting from a co-operative to another structure can be challenging due to the democratic ownership model.
• Members may resist changes that diminish their control or benefits.

Introduction to Economic Activities:

Primary Sector

• Involves extraction and harvesting of natural resources, focusing on raw materials directly from the Earth.
• Characteristics:
  • Labour intensive.
  • Resource extraction.
  • Location in areas with natural resources.
• Examples:
  • Agriculture, mining, fishing, forestry
• Advantages:
  • Rural job creation.
  • Resource availability.
  • Foundation for other sectors (secondary, tertiary).
• Disadvantages:
  • Potential for environmental degradation.
  • No direct revenue generation potential.
  • Potential for decreased demand.

Secondary Sector

• Involves processing, manufacturing, and construction of goods.
• Transforms raw materials into finished products.
• Characteristics:
  • Manufacturing
  • Industrialization
• Examples:
  • Construction, manufacturing.