Small Business Entrepreneurship - Essay Example

?CASE STUDY SOLUTIONS Q1a: If Mr.Santos had not had the full ?80,000 back in 2000, where could he have gone for financial help? If Mr. Santos had nothad full ?80,000, he could have used other external sources of finances. The following diagram shows some options for external sources of finances. Since Mr. Santos needs financial help for starting up business therefore, the most suitable sources of financial help for him are loans from financial institutions and commercial banks. Moreover, Santo could also start a venture capital or partnership and could ask someone to be a partner in the business by sharing some capital in the business. Source: Sofat & Hiro Q1b: What benefits, other than more capital, would a partner bring? If two or more individuals share capital in a business, it is recognised as a partnership. Partnership appears to be a beneficial for small businesses because it is the simplest form of business and the partners share the profits and loss of the company. In a start-up business, the risk of failure of business is high therefore, by sharing capital both partners share profit and loss, thereby, having less money at risk. In other words, the partners have the shared financial commitment. Second, the expertise and skills of the partner can improve the operational and financial performance of business. Third, partners have to fulfil very few legal formalities because these enterprises do not have legal status however, they need to have licences. Q1c: In 1996 Finch said ‘if I become your partner, we must have a written agreement –it’s illegal not to’. What are your views on this? In a partnership business, the partners are not legally bound to undergo any legal agreement however, creating written agreements in partnership is important because of a number of reasons. Through a written agreements the two partners could have define the responsibilities and essential terms of the contract and in the case of any conflict between them, the written agreement could help them to resolve the issue. Therefore, in my opinion, the idea of Finch to make the written agreement is a good suggestion however, saying that its illegal not to have the written agreement is not right because in the legal framework of formation of a company in the UK, no legal agreements are required for the General Partnerships because these enterprises do not have a legal status. What advantages would there be in becoming a private limited company rather than taking on more partners? Rather than taking on more partners, become a private limited company has been advantageous for the company because a private limited company has a legal identity. The business owns the property and assets of the company and unlike partnership assets and property are not owned by the partners. The partners are personally liable if a partnership business fails however, in a private limited company, the liability of the shareholders is only limited to the share they have in the shared capital. It means that if a partnership fails, the partners would be personally liable to sell their assets to pay off the loans and borrowings whereas, in the private limited company, the assets of the company would be sold. In other words, the personal assets of the shareholders or the director of the company cannot be used to pay off the loans and debts in a private limited company (Forma Company). Moreover, in a partner if more partners are added, the chances of conflicts and issues are increased whereas, in a private limited company shareholders are bound by the legal agreements and they have limited liabilities which reduce the chances of conflicts. Q2a: In the case study it was said that the company ‘went public’. What effect would this have on the company’s name? The change in the company from a private limited company to a public company would have brought various benefits to the company. First, the value and recognition of the company would have increased because company got listed on the stock exchange which would have made it popular in the public. Second, being a public company would have allowed the company to raise more capital in less time and expense because sources of finances are increased. It is because of the recognition of company’s name in public. Third, the prestige and visibility of company name would have improved among the customers, employees, suppliers and financial community (Flex Financial Group). Therefore, the network of the company would have expanded and its relations would have increased. Q2b: How does ‘going public’ allow the company to employ more people, and to afford bigger premises? By going public, the company attracts more employees and productive labour because it gets able to offer more benefits and opportunities to the people. For example, most of the public limited companies offer stock-compensation plans to the employees through which employees become the shareholders of the company, thereby, increasing their motivation to work in the organisation (Scarborough, Wilson & Zimmerer). The increased access to company to raise more capital in less and expense increase the capability of the company to attract more qualified employees by paying more as compared to the private limited companies. To become a public company appears to be a strategic decision of the company which helps the company to grow by increasing its output, employees, customer base and premises. The company becomes able to afford bigger premises because the capital is raised from the public and the property is owned by business not the individual persons. Q2c: Finch was able to sell his shares because there is a market for doing so. What is it called? Finch was able to sell the shares of the wine company in the market to raise capital because of the presence of stock exchange market. By listing the company on the stock exchange, Santo and Finch changed the legal status of the company from a private limited company to a public limited company. By doing so, the shares of the company were available on the stock exchange of the UK. The stock exchange market provides the opportunity to companies to issue their stocks and attracts investors to raise the capital for the company. In the absence of such a market, selling shares in the public would not have been possible. Q2d: Why do people buy shares in a firm? What do they get in return for their money? People buy shares in a firm because they get the share in the ownership of the company. Shares of a company listed on stock exchange provide business opportunities to the people who have idle money to invest however, who do not have skills and expertise to manage and operate a business. These individuals invest their money in shares of a firm and earn more money as compared to the money they earn through interest. In return for their money, the people get a share in the ownership of the business and they accept to share the profits and loss to the company. The investors make money when the share prices increases and they achieve a capital gain and when these investors earn dividends (History-society). Therefore, people buy shares of a company as business opportunity to achieve capital gains and to increase the value of their idle money. Q3: When the company was doing really well, what factors helped and explain why. Give three reasons. Company started its operations in 2000 with a capital of ?80,000 and the company was performing very well. In 2006 Finch provided more capital to the company and company became a partnership company from a sole trade company. Finch could see the profits in the profitable venture therefore, he invested in the company. Therefore, access to more capital helped the company to further grow and expand. The second factor was the impact of reduced amount of duty payable per litre of imported wine as a result of Portugal association with EEC. This factor reduced the import duties for the company and lowered its import expenses thereby, stimulating the demand for wine. Third, the product development strategy of the company also boosted the growth of the company and when company went public it invested in other businesses such as production of wine racks, bottle holders and bottle openers. Therefore, the three factors which helped the company when it was growing well include the capital access to grow and expand, decrease in import duties and product development strategy of the company. Q4: Write a paragraph outlining the role and responsibilities of the Registrar of Joint Stock Companies when a company ‘goes public’. When a company goes people, a person is authorised as a registrar of the joint stock companies to perform certain duties and responsibilities. The responsibilities and duties have been defined in the Joint Stock Companies Act 1844 which was presented as an Act by the Parliament of the United Kingdom. The registrar is responsible to control and manage the registration of the companies which aim to go public. The registrar of the joint stock companies has the authority to approve or register the companies to go public through a defined legal process. Q5: From the information given in the Case Study draw up an Organisation Chart for the company as it is at the present time. Based on the information provided in the case study about the current workforce of the company, following organisational chart has been developed. This chart shows that current organisational structure of the company is functional structure. Europe What trade links with Europe does your company have, and how have these been improved in the years since the United Kingdom’s entry into the European Union? The company that has been selected is the wine company operating in the United Kingdom. The company is selling wine in the UK and the wine is imported from Portugal. The company started its operations in 2000 when UK was not a part of European Union. Therefore, before the entry of UK into the European Union, wine company was having trade links with Europe because the core product of the company, wine was being imported from Portugal. It has been mentioned in the case study that after the entry of the company into the European Union, the performance of the company improved because UK became a part of European Union and trade links improved. The import duties between Portugal and UK decreased and the company’s expense on trade decreased which reduced the cost of wine in the UK and stimulated its demand. Describe the Social Chapter and explain how it has affected the operation of organisations such as yours since its implementation. State one other European Union policy, and comment on its impact. United Kingdom refused to join the new “Community Charter of the Fundamental Social Rights of Workers” in 1989 which were adopted at Strasbourg and recognised as the Social Chapter (Emplaw). The reason for the refusal was the lack of trust of UK organisations on the Single Market environment and rules. However, Social Chapter positively influenced the major employers and trade unions in the UK as evident from the fieldwork interviews. For example, the UK organisations started to europeanise their graduate recruitment procedures which appeared to be very beneficial for them (PSI). On the other hand, the social chapter impaired the competitive edge of the UK producers because the social legislations of EU created extra costs on employers in the UK and damaged the flexibility of the UK labour market (Dspace). Living and working in a single market is the European policy which dates back to the establishment of European Union (Europa). Through this policy the workers and people are open to move or work in any European market. This policy of EU has not improved the access to productive workforce. Today, UK organisations are offering highly attractive salaries to attract the skilled workers from different European economies. From the viewpoint of your chosen organisation, what is your opinion of the United Kingdom joining the single currency? The option to join single currency can bring various advantages and disadvantages. The first advantage is that counter-cyclical fiscal policy instability would be reduced after joining single currency. It will reduce the impact of major macroeconomic factors on the company. Second, the strength of Portugal currency against UK pound makes the wine expensive for the company however; by adopting single currency these currency fluctuations will not harm the company. Third, like the entry of UK into European Union has improved performance of company, the adoption of single currency will further abolish the trade barriers. Moreover, the single currency will enhance the price transparency of wine. The first disadvantage is that the wine company like other companies in the Europe would be more affected by the currency policies of the member of European Union. For example, if central bank of UK devalues pound, it directly influences the demand of wine in the UK and if UK adopts single currency the devaluation and other policies and actions of other European members would directly influence demand of wine in UK. Second, the monetary and exchange rate policies can influence the interest rates thereby, affecting the cost of loans available to the company. Third, the devaluation of Portugal currency against UK pound provides significant benefit to the wine company by making wine cheap for the company however, by adopting a single currency; this benefit would no longer be available. What additional advantages and disadvantages can be foreseen for UK organisations as a result of future expansion of the European Union? First, a number of UK organisations have not been able to expand to the large markets of the Europe by expanding into high-return sectors however; expansion of European Union may provide this opportunity to the UK organisations (Deardorff & Stern). Second, the expansion of the European Union can increase the migration of people to the United Kingdom which will increase the customer base for the UK organisations (Mueller). Third, expansion of European Union will enhance the expansion opportunities for the UK organisations as the trade and other barriers will reduce. On the other hand, the abolished trade barriers as a result of expansion of European Union will increase the competition for the UK organisations. For example, more companies can enter into the UK market to target wine customers. Second, the new member states may not agree on the existing rules of European Union and the new rewriting of rules may influence the political power, the ways the funds are currently transferred and other macroeconomic changes may take place (Mandelbaum). These changes can directly influence the operations of the UK organisation. Bibliography Deardorff, Alan V og Robert M Stern. EU Expansion and EU Growth. 29. October 2002. 16. February 2011 . Dspace. THE EUROPEAN SOCIAL PERSPECTIVE . 9. May 1999. 16. February 2011 . Emplaw. Definitions and interpretation / Social Chapter. October 2010. 16. February 2011 . Europa. Living and working in the Single Market. 16. February 2011 . Flex Financial Group. Benefits of Public Company. 14. February 2011 . Forma Company. Benefits of a Limited Company. 14. February 2011 . History-society. Fundamentals of Business. 15. February 2011 . Mandelbaum, Michael. EU Expansion Offers Benefits for Everybody. 23. December 2002. 16. February 2011 . Mueller, Dennis C. European Union Expansion: A Constitutional Perspective. 2002. 16. February 2011 . PSI. Conclusions. 16. February 2011 . Scarborough, Norman M, Douglas L Wilson og Thomas W Zimmerer. Effective small business management: an entrepreneurial approach, Edition 9. Prentice Hall, 2008. Sofat, Rajni og Preeti Hiro. Basic Accounting. India: PHI Learning Pvt Ltd, 2008. Read More