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.

Explore the differences between Private Limited Companies, Public Limited Companies, and Sole Traders. This quiz covers key features, ownership structures, and capital raising abilities of each type. Test your understanding of business entities and their characteristics.