business structures by wanghonghx


									Business Structures
Business names
A Business Name is the name under which one company may choose to trade.

There are three principal ways of forming a business:
        As a sole trader;

        As a partnership;

        As a Limited Company.

As the term implies, a Sole Trader is an individual operating as a business.
Sole Traders receive their income by taking drawings out of their business.
Their Income Tax liability is, however, calculated on the business's profits.
Sole Traders are also liable for any money that their business owes; a creditor
can take them to court and force them to sell their personal assets - rather than
the business's - in order to pay any amounts owed.
Being a sole trader means that only one person owns the business and either works alone,
or employs others. It is the most straight forward way to start a business.

In brief:
        Liability:   If the business fails, then the owner is fully responsible for all the
                     business' debts.
 Management:          The owner's word is final.
        Finance:     More often than not, owner's personal money.
         Profits:    All profits belong to the owner.
   Continuity:       If owner dies or retires, the business may crumble.

Partnerships are formed between two or more people in business together with the purpose
of making a profit. A partnership is when between 2 and 20 people run a business together.
There cannot be more than twenty partners unless it is a professional organization such as a
solicitors or accountants for example.
Limited Partnership: A limited partnership is formed to protect sleeping partners who wish
to invest only money in a business in return for profit but do not want management
responsibilities. The limited partner contributes a fixed amount of money to the partnership
and can only be held liable for debts etc. up to this fixed amount. The other partner or partners
in the business are still classed as unlimited and so have unlimited liability for debts incurred by
the business. They are also the general partners that have management rights, the limited
partner has no say in the running of the business.

Sleeping (Limited) Partners:
A sleeping partner, is a partner who invests in the business, but doesn't play a part in the
running of the business. A sleeping partner only has limited liability.
The responsibility of running the business is shared, and ability to raise finance for the business
is enhanced. It should also be noted that all partners may be personally liable if the business
incurs any debts.

A General Partner
A General Partner is responsible for the management of the business. A
General Partner has unlimited liability for the debts and obligations of the
business and has the power to bind the Limited Partnership.

Unlimited Liability means that you are responsible for all business debts, and if you are unable
to pay off al of these, you may loose your personal possessions (e.g. home and car) to pay off
the debt.

Limited Companies
A Limited company is a public company consisting of at least five people who fill
the roles of directors and secretaries. Limited companies also have
shareholders and can raise capital by offering shares to the public. The
directors are not liable for any losses that may occur through trading.

To set up a limited company a management structure needs to be put in
place. There needs to be at least one shareholder, at least one director ( a
public company must have at least two directors ), and at least one company
secretary. The director and the company secretary must be two different

Advantages of being a limited company
1- Better access to outside finance, e.g. by issuing shares.
2- Being a limited company means that you as an individual have limited
liability. This means that you as members of the company, are only liable
financially to the value of the shares that you have invested in the
company if the company incurs debts. The company on the other hand is
deemed a legal body by the Companies act and is viewed as unlimited. If the
company fails and incurs debts then the company must pay the debts if
funds are available.

3- As the company has a legal identity of it's own it can continue trading
even after the resignation/death of a member, therefore company members
can change.
4- If you are expecting large profits from your business, being a limited
company may provide more advantageous tax treatment.
The key difference between public and private companies is that a public
company may offer to sell its shares to the public.
A Private Limited Company
In brief
       Liability:     The shareholders' (members') personal assets are protected if
                      the business falls. (Limited liability) You can only lose what you
                      have put into the business.
 Management:          The business is controlled by the board of directors. They are
                      each held personally responsible for it's management and must
                      act in the company's best interests.
       Finance:       Capital is raised by the sale of shares, although not to the
                      general public.
           Profits:   Dividends are paid to the shareholders.
    Continuity:       The company is a legal entity in its own right and can be sold, or
                      buy shares in other companies. It has 'perpetual existence'.

Public Companies - PLC's

1- Limited by shares.
2- A minimum of two members are required to form the company, i.e. two

                          Advantages                     Disadvantages
Sole Trader   You are the sole owner of          You are fully liable for all the
              the business, and                  debts of the business; this
              answerable to nobody but           could mean that you lose your
              yourself.                          house if the business becomes
              No legal formalities are
              needed to start trading.           Very risky

              Keep all the Profit                Lots of competition

              Have the chance to make a lot of   Unlimited Liability
                                                 Can be difficult to borrow money
              Own boss
                                                 Very hard work
              Cheap to start
                                                 If the business fail then the
              Flexible                           sole trader is responsible for all
              Make all of the decisions          debts. All personal assets can
                                                 be seized to pay of debts.
              All profit generated by the
              business is classed as
              personal income (which is
              subject to tax).
              The business accounts do not
              have to be audited.

Partnership   You and your Partner(s) as         Each partner is individually
              owners of the business are         liable for all the debts of the
              answerable only to each            business. If your business
              other.                             becomes insolvent and your
                                                 other partners have no assets,
              Legal formalities can be           the creditors can sue you for
              kept simple;                       every penny they are owed.
              Accounts can be prepared           Usually limited liability
              in a simple form, although
              they will necessarily be           Limited sources of finance
              more complex than for a            Profits must be shared between
              sole trader.                       partners

              Share resources/ideas              Slower decision making than a sole
              Can cover for each other (e.g.
              during holidays)                   Decision of one partner are
                                                 binding on the other
              Partners can specialise (e.g.
              one may specialise in          Each partner is liable for the
              company law, and the other mistakes of other partners and
              in criminal law)               the resulting consequences.
                                             Personal assets may be seized
              Liability for business failure
                                             to pay of debts incurred by any
              is shared with a business
                                             partner or if the business
                Accounts do not need to be simply fails.
                audited.                    If a member of a partnership
                The structure of a          wishes to leave a partnership,
                partnership can be flexible the partnership will have to be
                with a legally drawn up     dissolved.
                Deed of Partnership.
                Limited Partnerships allow
                for partners that only want to
                invest money in a business
                without being responsible
                for the day to day running of
                the business or being liable
                for financial failure

Limited         The owners of the business       The company's accounts have
Company         have limited liability. This     to be fully audited by a
                means that if the business       qualified accountant; your
                becomes insolvent, you           accountancy costs will be
                would not normally be liable     considerably higher than for
                for the company's debts.         the sole trader or partnership.
                Outside investors can put
                money into the business by
                buying shares, and take a
                share of the profits, without
                having to become involved
                in running the business.
                It can be easier to borrow
                money from banks and
                other institutions.

    A trust is a business structure whereby the trustee holds property and
    earns and distributes income on behalf of the beneficiaries. One of the
    most common types of trusts is a family trust. The trustee (usually a
    company) owns the property and distributes income to the beneficiaries
    of the trust, who are usually family members. In this way a person who
    would otherwise earn a large taxable income can split his or her income
    between family members.
    Income is earned by the trust company. The trustee is empowered to
    distribute the trust income to whom of the beneficiaries and it what
    proportions he or she chooses. In the case of a family trust the trustee
      could for example distribute income to the children of the family and
      thereby reducing the taxable income of the parents.
      The main difference between cooperatives and companies is that under
      a company structure there is a profit motive, returning dividends to the
      members of the company, whereas a cooperative operates on a service
      motive, providing adequate services to its members and any return of
      capital is limited.
      Unlike a company, all members of a cooperative have only 1 vote,
      irrespective of their shareholding. It is run in a similar fashion to a
      company. A board of directors is elected which controls the management
      of the business of the cooperative.
A person joining a cooperative takes advantages of the facilities provided
by the co-operative. These services may include advertising, marketing,
and purchasing and well as other types of services. Members of the
cooperative in this way can enjoy the commercial benefits of a larger
International business
 In the second half of the twentieth century, international business has become
an important economic force. Today few, if any, countries are economically self-
sufficient. Even China, with its vast human and natural resources, has not been
able to remain aloof from the world economy. In the United States, international
business touch people's lives daily. Common goods and services, often
identified with the United States, are, in fact, foreign owned. Examples include
Burger King, Pillsbury, Scotty's hardware stores, Shell and Citgo gasoline
stations, Stouffer'sfrozen foods and Carnation evaporated milk. So, what is
international business? Who engages in international business? What are the
rules governing it and who sets them? What are the major contemporary
international business issues? This guide will address these and other issues.
  International business is business conducted in more than one country. It is
  buying and selling goods and services in foreign countries. Other
  international business activities include marketing, manufacturing, mining,
  and farming. In sum, international business is all the practices a business in a
  single country does, but at the international level.

If international business is the process of conducting business across national
boundaries, then multinational corporations are the principal participants in this
activity. They are, so to speak, the actors or players in the international
business "game". Most multinational corporations are based in developed
countries. Multinational corporations are companies that operate in more than
one country.
Such corporations originated early in the 20th cent. and proliferated after World
War II. Typically, a multinational company develops new products in its native
country and manufactures them abroad, thus gaining trade advantages and
economies of labour and materials. Almost all the largest multinational firms are
either American, Japanese, or W European.
While still maintaining a domestic identity and a central office in a particular
country, multinational corporations now aim to maximize profits on a worldwide
basis. The corporation is so large and extended that it may be outside the
control of a single government. Besides subsidiaries, a multinational corporation
may have joint ventures with individual companies, either in its home country or
foreign countries.
Some multinationals enter foreign markets by buying stakes in companies of a particular
Staffing increasingly reflects the global orientation of multinational corporations. Employees,
including key executives, are natives of the country where operations are located.
The trend, then, is for employment to be based on merit, not nationality. Boards
of directors also may reflect a corporation's international activities. Since
multinational corporations are engaged in a variety of activities, there are no
generic requirements for entry level positions. Top executives, however, usually
have at least a Bachelor of Arts or a Bachelor of Science degree, often in
business or a related field. It is not unusual for top U.S. executives to have a
graduate degree, usually a Masters of Business Administration.
Because they are so large (their annual revenues often exceed the Gross
Domestic Product of some developing countries), multinational corporations
can, and sometimes have, exerted questionable political and economic power in
some countries. As a result, critics view multinational corporations suspiciously
and sometimes seek to have host countries impose restrictions on them

When you hear the word " Franchise" you probably think of fast food
restaurants such as Burger King, McDonald's or Wimpy.
In simple terms, franchising is where a successful business format is replicated.
There are franchises available in almost every business area that you can think
of in all price ranges. In addition, because franchising has such a low failure
rate, your chances of success are extremely good.
Compared to starting your own business from scratch franchising can provide a
relatively safer route into self employment. The franchisor will have eliminated
many of the mistakes that are often made when starting a business. It is this
experience and system that you are paying for when you buy a franchise.
The franchisor will not do your work for you and cannot be expected to. What is
supplied is a proven format, name awareness, support and guidance. It will be
still be your hard work and skills that make the business work in your area.
As a franchisee you will have access to market knowledge, established name
awareness in the business sector that you will be operating in, training and
marketing help. You will often take part in and contribute to national advertising
campaigns which would otherwise be outside your reach.
Financially, you will pay the franchisor an initial franchise fee and the costs of shop fitting
together with the costs of equipment required to run the business. Once established, you will
normally pay the Franchisor a further monthly payment based on your turnover. This is known
as royalties or monthly management fees.
With franchising, you are in business for yourself not by yourself.

Franchisors not only have sound training programs, but also knowledge of
financial requirements, marketing, competition & buying contracts - knowledge
that might take you years to collect on your own.
Franchising offers individuals an opportunity to break free & own their own
business whilst at the same time minimising the risk that is inherent in opening
an entirely new business from scratch.
Franchising allows you to follow a tried and tested business system which will
greatly improve your chances of success
Franchising enables you to become involved as part of a company that has
established a tried and tested system and has achieved some market share and
name awareness. When starting a business as a self employed person you will
make mistakes which can be costly if not catastrophic. An established franchise
will have ironed out those problems.
If you decide to buy a franchise, do not relax and wait for the Franchisor to do
all the work, that simply won't happen. Franchising can provide a structure and
a proven system but it is still your hard work and effort that will be decisive in
making it work.
Research has shown that of all businesses starting today, only 20% will still be
trading in 5 years time. With franchising these figures are reversed.
With franchising you are buying into a business that is already operating. The
Franchisor will have made mistakes along the way and will have learnt from
them. This knowledge is passed on as part of the franchise system.

      Franchise - The authorisation of a manufactory/service provider to distribute his
       products under an established name. This is not a branch of the Franchisors business
       but a separate business under the original business name. The franchise is also run
       using the original business concept.

      Franchisor - The owner of the original business that is franchised. The Franchisee
       buys the right to use the franchisors business in the form of a franchise.

      The Franchisee - The purchaser of the franchise who has acquired the right to operate
       the system and use the name, as set down by the franchisor under the terms agreed
       under the franchise contract

      Franchise Contract - The legal agreement between the parties which sets out the
       terms under which the Franchisee will operate the business. Whilst individual headings
       will vary, it will normally include:

                           Retailing and wholesaling
Retailing is about selling products and services to the customer. Retail is a very
competitive industry and one of the main aims is to make money. It is a fast
moving and exciting industry which can be very competitive and challenging.
Employees are very important in the retail industry as they are the link between
the customer and the business, and are the first person the customer meets.

The retail industry has many different sectors and sizes of retailers. The main
sectors of retail are: Food, Confectionery, News and Tobacco, household goods
and fashion and footwear.
Wholesaling is the business of selling relatively large quantities of consumables
to retailers or other merchants rather than to consumers.
Wholesalers are companies that will promote and on-sell your product through
their own retail outlets, or established retail distribution channels with which they
have an association - this is done on your behalf.
Many product lines are being sold through alternative distribution channels. The
most important alternative channels of wholesale distribution are direct
manufacturer-to-retail arrangements, usually made under strategic alliances
with major retail chain stores, warehouse clubs, discount stores, and home
centre stores. Other alternative channels include mail order, catalogue sales,
and direct sales from manufacturer to industrial user or from retailer to industrial
users. Many product lines are being sold through alternative distribution
The biggest negative influence on wholesalers and the wholesaling industry
may be the growth of the internet. The internet enables sellers and buyers to
bypass the middleman and interface directly with each party. Distributors may
be superseded by this new communication and commerce medium. This new
medium has played a major factor is products such as books, CDs, and airline

Company Structures

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