Private vs Public Limited Companies

Private Limited Companies

• Private limited companies are distinct legal entities separate from their owners.
• To form a private limited company, two documents are required:
  • Memorandum of Association: outlines the company's structure, objectives, and initial shareholders.
  • Articles of Association: details rules for company management, operations, governance, and finance.
• A private limited company must include “ltd.” (short for limited) in its name.
• Moderate ability to raise capital through private shareholder sales.
• Advantages:
  • Limited liability.
  • Owners have full control.
  • Business continuity even if shareholders retire.
  • Shared workload.
• Disadvantages:
  • Potential conflicts among owners.
  • Limited capital raising potential.
  • Adherence to corporate regulations, annual returns, and accounting procedures.

Public Limited Companies

• Minimum of 7 shareholders with no maximum limit.
• Shares can be publicly traded on the stock exchange.
• Company name must include “PLC” or “INC”.
• High capital raising potential through public share sales.
• Increased likelihood of bank financing due to public status.

Sole Trader

• A sole trader is a business owned and run by one person.
• The owner has full control over all aspects of the business and is legally responsible for its finances.
• Features:
  • Unlimited liability.
  • Owner makes all decisions solely.
  • Income is taxed as personal income.
• Advantages:
  • Owner has full control over the business.
  • Easy to establish.
  • Simple tax structure; profits are taxed as personal income
• Disadvantages:
  • No separate legal entity.
  • Owner bears the entire workload and responsibility.
  • Difficult to raise large amounts of capital.

Partnerships

• Partnerships are business organizations owned by two or more people, sharing responsibilities, profits, and liabilities.
• Features:
  • Owned by two or more persons.
  • General partners have unlimited liability, unless it is a limited partnership.
  • Decisions are made collectively with varying levels of authority based on the partnership agreement.

Limited Partnerships

• Limited partnerships cannot have more than 20 people.
• Must have one or more general partners who are liable for all debts and obligations of the company.
• Limited partners' liability is limited to their capital contribution.
• Limited partners do not deal with day-to-day operations.
• A partnership agreement is required to establish a limited partnership, outlining:
  • Partnership name.
  • Nature of the business.
  • Start date.
  • Amount of capital contributed by each partner.
  • Profit and loss division arrangement.
  • Roles and responsibilities of each partner.
  • Voting rights.
  • Duration of the partnership.

Tertiary Sector

• This sector involves providing services to individuals and businesses.
• Examples:
  • Retail
  • Healthcare
  • Education
  • Financial services
• Advantages:
  • Employment opportunities.
  • Economic contribution.
  • Service delivery.
• Disadvantages:
  • Service quality (due to the size of the sector).
  • Training cost
• Characteristics:
  • Consumer interaction.
  • Variety.
  • Economic contribution.

Primary Sector

• This sector involves the extraction and harvesting of natural resources from the Earth.
• Examples:
  • Agriculture
  • Mining
  • Fishing
  • Forestry
• Advantages
  • Open employment opportunities in rural areas.
  • Availability of the country’s resources.
  • Provides materials for secondary and tertiary sectors.
• Disadvantages:
  • Environmental impact.
  • No potential to earn revenue.
  • Decrease in demand.

Secondary Sector

• This sector involves the processing, manufacturing, and construction of goods.
• Examples:
  • Construction
  • Manufacturing
  • Textile production
  • Food processing
• Advantages:
  • Earn foreign exchange for exported products.
  • Reduce the amount of imported goods.
  • Employment creation.
• Disadvantages:
  • High initial cost.
  • Environmental concerns.
  • Economic fluctuations.

Joint Ventures (JV)

• A joint venture is a strategic partnership between two or more independent companies collaborating to achieve a specific goal.
• Companies share both the profits and the risks in a joint venture.
• Each partner typically contributes capital or resources.

Reasons for Joint Ventures

• Risk Sharing: businesses can pool their resources and share risks.
• Cost Sharing: large-scale initiatives become more feasible.
• Technological Advances: development of new technology.
• Access to Capital: access to capital, resources, and partners.
• Market Expansion: expanding to reach a broader customer base.

Types of Joint Ventures

• Licensing: A company grants a licensee in a foreign market the right to produce its products or use its manufacturing processes.
• Joint Ownership: Companies create a new company with shared ownership, management, and profit-sharing.

Co-operatives

• A co-operative enterprise is owned and operated by a group of individuals for their mutual benefit.
• Members share profits and decision-making responsibilities.
• Advantages:
  • Democratic control.
  • Shared profits.
  • Social objectives.
• Disadvantages
  • Limited access to finance.
  • Slow decision-making.
  • Profit sharing may reduce individual performance incentives.

Franchises

• Franchises are businesses where a franchisee is granted rights to operate using the franchisor's (parent company) branding, products, and operational model.
• Financing is easier when using an established brand.

Types of Franchises

• Business Format Franchises: a company expands by supplying independent business owners with an established business, including its name and trademark.
• Product Franchises: manufacturers control how retail stores distribute their products.
• Manufacturing Franchises: a franchisee grants a manufacturer the right to produce and sell goods using its name and trademark.

Ability to Raise Finance (Franchises)

• Strong: Franchises have more access to finance due to the established brand, proven business model, and support from the franchisor.

Appropriateness of Legal Structure (Franchises)

• Appropriate: for entrepreneurs seeking reduced risk, as they benefit from an existing brand, marketing, and operational support.

Challenges of Changing Legal Structure (Franchises)

• Changing from a franchise to an independent business can be challenging due to strict contractual obligations.

Advantages (Franchises)

• Lower risk.
• Brand recognition.
• Support from franchisor.

Disadvantages (Franchises)

• Limited control.
• Franchise fees.
• Reputation dependency.