types of business
... by signing and filing the appropriate forms with Companies House. Thereafter, the company will have its own legal identity, separate from its shareholders (who own the company) and its directors (who run the company). Companies pay corporation tax on their profits, with shareholders paying income tax on any dividends received and directors paying income tax as employees on any remuneration paid. Advantages: . Limited liability for shareholders. If the company fails, the shareholders may lose the entire value of their shares but no more, unless they have guaranteed the obligations of the company or committed some wrongdoing. . A company has its own legal identity. This means that: - it can enter into legal agreements on its own behalf. - it owns property in its own right. . Shares enable the separation of the ownership of the business from those who run the business. Disadvantages: . Companies are governed by tighter rules and regulations than partnerships. . Companies face greater disclosure and administration requirements than partnerships. . Directors owe duties to the company. Directors must not make any secret profit out of their position in the company and they must exercise their powers for the benefit of the company. D. Limited liability partnerships The limited liability partnership sits between partnerships and private limited companies. LLPs were introduced to provide a business vehicle which has the flexibility of a partnership, with the benefit of limited liability. The price to be paid for limited liability are duties similar to those applying to private limited companies. LLPs do not have directors, shareholders or partners. Instead they just have members, who own and run the business. LLPs are taxed in a similar manner as partnerships. This means that members of LLPs are treated as if they are carrying on business personally and taxed as self-employed. The members of LLPs are also treated for taxation purposes as owning the assets of the business personally. 2. Outline the types of finance A. Own resource The best form of finance is own money. The reason is that the only cost is that of opportunity, in other words what income could be generated if that money were to be invested elsewhere. It is important to remember that funds raised against assets e.g. house are not "own resources" in the true sense. They are really a form of debt finance which comes at a price, being the interest cost should be factored into one's overall cashflow projections. B. Friends and family All over the world, many small businesses are financed from the resources of the business owner as well as contributions from parents, brothers and sisters and even close friends. To the extent that funding is given freely, with no immediate expectation of any return, it may be considered in the same light as own resources, a no-cost form of finance.Many small businesses suffer failure when family members fall out and demand their money back. Ideally, a business should be funded approximately 50% from own resources to prevent undue strain on the cashflow as a result of interest/finance charges. C. Partners/ joint ventures If own resource and friends and family are not available, it is worth considering the possibility of bringing in a partner to invest in the business. In return for injecting money into the business, partner will acquire a stake in business and will be entitled to share in the profits. A partner is also jointly and severally liable for the obligations of the business. It is extremely important to take legal advice when drawing up a partnership agreement to ensure that the interests of all parties are properly protected. A variation on the partnership option which is gaining in popularity with franchisors is the joint venture. In terms of a joint venture relationship, the franchisor will be a co-owner of the franchise outlet together with the franchisee. The franchisor will therefore make a proportionate contribution to the establishment costs and take a share of the profits. The joint venture arrangement is beneficial to the franchisee because it secures commitment from the franchisor. D. Equity finance There are a number of institutions and private equity/venture capital funds who are prepared to provide finance to a business in return for a small share of the business. The advantage of this kind of funding is that: • It provides the business with a solid capital base. ...