Limited Companys Advantages and Limitation, Conflict of Interest Analysis, and Stakeholders Analysis - Assignment Example

LIMITED COMPANY’S ADVANTAGES AND LIMITATION; CONFLICT OF INTEREST ANALYSIS; AND STAKEHOLDERS ANALYSIS By (NAME) Course Professor University Date : Question A Advantages of Limited Company Starting a business has always been a challenging task for most entrepreneurs because of the changing business environment and the difficulty of deciding on the type of business to start (Milman, 2014; Nonaka, n.d.). However, among the possible options available in the United Kingdom is a limited company, which is the focus of this question. Some of the advantages of forming a limited company include: Entitlement to Flat Rate VAT pay: running a business through a limited company has the advantage of paying a standardised and subsidised personal tax unlike a sole proprietorship, which can save you thousands of pounds of additional profit each year (Bytestart, n.d.; sjdaccountancy.com). For instance, unlike other types of companies such as public corporations, taxation of small businesses in UK is on a low-profit rate that currently stands at 20% unlike for sole proprietorships, which can go up to 40% (Adrian, 2010). Security of company name: a limited company enjoys security over its business name unlike a sole proprietorship because during registration you get the advantage of going through the company name search to ensure no other business is using your business name before you register (sjdaccountancy.com, n.d.). Reduced costs for expenses: a limited company provides an entrepreneur with the opportunity to claim business costs incurred, back as expenses such as accountancy fees, travel, software, equipment among many others (Bbc.co.uk, n.d.). Moreover, many accountants often charge little fees for preparing yearly accounts for a limited company than a sole trader. Limited liability: as an entrepreneur you do not risk losing your personal assets that are not a company’s property in event of bankruptcy or insolvency but only the business’s property or assets (Gov.uk, n.d). Greater Control over the business: running a business through a limited company gives you the opportunity to manage all the operations of the business unlike in public corporations where shareholders have no control over the business (Lalkaka, 2001). That notwithstanding, there are many other advantages of limited companies such as they create a high credibility with customers and suppliers; high return take home among many others. Limitations of a limited company Some of the common and inevitable challenges of running a limited company include the costs incurred in filing annual tax returns and claiming business costs from expenses can be tedious, strenuous and time-consuming. Moreover, failure to reimburse the percentages outlined by the HM Revenue and Customs often has a dire repercussion such as closure and auction of the business. Another limitation is that a limited company incurs an additional amount of paperwork monthly just like public corporations because you will have to take part of your operation time to analyse and validate documents. That notwithstanding, it is costly when contracting deals within a short period for a limited company. Consequently, all limited companies in the UK are currently not permitted to contract deals less than £25,000 annually (Startups.co.uk, 2013). Question B Key Stakeholders in a Typical Larger Private Organisation Stakeholders are individuals or constituencies who participate or contribute willingly or unwillingly to an organisation’s wealth creating process, thus, making them the potential beneficiaries and risk bearers of the business (Post, Preston and Sauter-Sachs, 2002). Universally, a company’s stakeholders can be categorised into three groups namely; internal, connected, and external stakeholders (Greasley, 2009, p. 11). Internal Stakeholders The key internal stakeholders of a private company include the managers and employees. Managers are individuals tasked with overseeing the operations of the business, thus, are accountable to the owners for the decisions made by the business (Raybould, 2009). Finally, employees are support staff or subordinates of the business who undertake the day to day activities of the business in return for wages and salaries. However, employees like managers will always want to be assured of their job security and protection from uninformed dismissal (Bourne and Walker, 2005). Connected Stakeholders Beyond the bounds of a business, there are other stakeholders who are directly connected to the business. These include customers, shareholders, investors, suppliers and distributors, lenders among many others. However, the key stakeholders in this category are the customers, investors, suppliers and distributors. Customers are the primary consumers of a company’s products and, therefore, have a range of interests such as buying goods at low prices, better quality products, availability, and service delivery (Freeman, 2001). The second are the shareholders who have a stake in the capital of the business such as through share purchase. Thus, they expect managers to safeguard their funds and generate profit (Mr. D, 2009). Further, private companies also rely on creditors or lenders such as banks and other investment companies for financing. For instance, investors and lenders have interest in the company in form of dividends and interests respectively. The final key stakeholders are the distributors and suppliers. The distributors are very significant to the company because they connect it to consumers while suppliers, supply goods and services such as raw materials to the company (Business, n.d). Therefore, just like other stakeholders this group has its interests and desires in the company. For instance, suppliers will want to get the highest price for raw materials supplied whereas distributors will want to procure as cheaply as possible so that they can score high when selling to the end users (Bryson, 2004; Bryson, Cunningham & Lokkesmoe, 2002). External Stakeholders The key external stakeholders of private firms are the government and the community. Governments enact legislation that regulates how companies operate. Moreover, governments like other stakeholders have interests in private company operations in a form of tax, which they use to finance their operations (Gaeremynck & Willekens, 2003). On the other hand, the community where a private corporation sets its operational base provides a business with market for goods and services and in return the community expect the business to provide employment opportunities and participate in community CSR programs (Freeman, n.d.). Where Might Conflicts of Interest Arise? Managers vs. Shareholders The shareholders and management conflict often arises because of the company’s capital. Shareholders frequently view excess cash on the balance sheet of the company and agitate that it be returned to them in form of cash dividends or share repurchases as a way to boost the stock value. However, management can be reluctant to give in to the shareholder’s wants unless the company’s shares are undervalued. Moreover, management may want to raise additional capital by issuing new shares to private individuals but because the existing shareholders fear for dilution of ownership, they can object to the decision resulting in conflicts (Shaftoe, n.d.). Creditors vs. Shareholders Creditors such as banks, investors (bond holders) and suppliers will always be concerned about a company’s capital structure and ability of the business to meet their demands when they fall due (keythman, n.d.). However, because shareholders have control over the business through managers, they may advocate their interests at the expense of creditors. For instance, managers can borrow more credit to repurchase shares to benefit shareholders. However, because creditors are concerned with the company’s capital structure, the increase in debt will cause conflict because it affects the future cash flows from which they are paid their interests and loans (Graham, Harris & Middlemas, 2011). Community vs. Company Businesses are supposed to be socially responsible to the community in which they operate because it is the community that provides market for its goods and services (Carroll & Buchholtz, 2014). Moreover, a company needs to conserve the environment in which it operates by ensuring it disposes off its waste in a better form to avoid environmental pollution. Therefore, if a business ignores practising safe environmental waste disposal practices conflicts are likely to arise, which can result in suspension of the business’ licence or even face closure altogether (Luetkenhorst, 2004). Employees vs. shareholders The primary objective of any after profit business is to maximise profit and shareholder’s wealth. Therefore, this being the interest of shareholders, they will at all costs through management try to cut down company expenses including salaries and wages to maximise profit and in the process they may be forced to lay off employees or reduce their salaries. Thus, because of this decisions, an intense conflict may arise between employees and shareholders (Johnson, n.d.). How Managers Determine Which Conflicts Needs More Attention at any Given Time Management has to determine, which among the conflicts enlisted above needs first to be addressed. Factors to consider in this determination may include the scope of the conflict, the overall impact on a company’s operations, and the long-term impact on the business (Manzini & Ponsatí, 2005). For instance, the scope of a conflict would explain how far a company has been affected by a given conflict such as a situation where creditors have refused to extend credit to the company due to high debt in a company’s capital structure. Moreover, customers may also fail to buy a company’s products due to poor quality in terms of services and products or high prices, thus, necessitating management to establish how far the company’s sales have been affected by the customer reactions (Elias, 2008). Therefore, based on this factor, conflicts should be prioritised based on the current situation facing the company. However, some conflicts such as community vs., company have a long-term impact on the business. Therefore, they should be prioritised and be taken into consideration before a business is established or when drafting a business plan (Isixsigma.com, n.d.). The other factor is an impact on a business’ operations. For instance, this factor is common to employees and shareholder conflicts. Depending on the terms of contract and the extent of pressure by unions, these conflicts can lead to go-slows (SEC.gov, 2013), which are likely to affect the production of the company, thus, impairing it from meeting its market demands. Therefore, in such a situation management should prioritise this conflict at the expense of the others (Elias, 2008). Question C Tesco’s Stakeholder Analysis Tesco’s stakeholder analysis involves gathering and qualitatively evaluating information to determine who among its stakeholders should be prioritised when invoking changes. The analysis herein employs Gardener’s Power/Interest Matrix mapping as the technique Tesco’s senior management can use to analyse, which conflicting needs ought to be resolved first. This mapping technique, therefore, classifies stakeholders in relation to the extent of their interest in the company’s actions (Wu, 2012; Walker, Bourne, & Shelley, 2008). Power is either low (L) or High (H) (Vogel, 2008). There are four Groups of interest: A- minimal effort (low), B- keeps informed (high), C- keeps satisfied (low), and D- keeps players (high). Its stakeholders are customers, investors, suppliers/creditors, distributors, and local community; all arranged in descending order in terms of power and level of interest. Stakeholder Analysis Group A: These stakeholders need minimal monitoring progressively perhaps due to less interest in the company (Mr. D, 2009). They have high power outside Tesco’s operation, but they have low interest in changes invoked by Tesco. These stakeholders include the Government and lenders such as banks. Group B. These are stakeholders who Tesco’s senior management has to keep informed whenever any changes have occurred in the company. Considering their high power and high interest, they can influence the other stakeholders. They include suppliers and distributors and investors or shareholders. Creditors/suppliers continually put their money in Tesco and, therefore, have a high level of interest in any change that has to happen. Consequently, investors have invested in terms of shares in the company; thus, Tesco always has to inform them (Moura & Teixeira, 2010; Brody, et al., 2003). Group C. These represent Tesco’s class of stakeholders who are powerful but have a low level of interest. They are usually expected to be passive, but at times, they may move into Group D on a matter of particular concern (Raybould, 2009). This is the group that represents Tesco’s customers, who are often classified as connected stakeholders. Group D. These groups of interested parties are most critical to the success of Tesco and are classified as internal stakeholders. They are both powerful and have high interest; a factor that necessitates that they are always informed (Margherita & Secundo, 2011; Missonier & Loufrani-Fedida, 2014). Consequently, their cooperation is chief to the success of both old and new strategies. They are Tesco’s management team and the entire members of staff; thus their actions are evidently felt by all Tesco’s stakeholders (Business, n.d.). Bibliography Adrian, 2010. Advantages and disadvantages of a limited company. 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Managing Stakeholders: An Integrative Perspective on the Source of Competitive Advantage. ASS, 8(10). Read More