The Forms of Business Ownership - Essay Example

?Business and Transport Introduction The form of business ownership indicates how a business is legally set up or what the business’ legal structure is. There are different types of business organisations such as sole proprietorships, general partnerships, limited liability Company, and corporations. These different forms of business organisations aim to achieve different objectives. Public limited company refers to a limited liability company that offers shares to the public under the United Kingdom company law. The first session of the paper will critically discuss the concepts related to a ‘sole trader’ and a ‘public limited company’. The second part of the paper will deal with modes and types of transport and travel around the world where examples of sole traders may be found. The paper will also suggest potential remedies to overcome the inherent issues that a sole trader operating in transport sector would face. Part I Sole Trading When a person individually initiates and operates his/her own business, it is called sole trading. This form of business may have one or more employees. It generally involves fewer amounts toward capital investment as compared to other modes of business ventures. It is best fitted to people with innovative business ideas and sufficient capital for running their business. The main benefit of this system is that the businessman owns everything what he acquires from the business. Moreover, with the feasibility of self guidance, the individual can grow without restrictions. In addition to this, as Tonkin (2006) states, sole trader can start the business with minimum set up cost and can continue operations without a tax file number. He is also exempted from many other legal charges and superannuation. The most competitive strengths of a sole trader is that he can easily offer specialist services to customers and cater the needs of local people. On the other hand, sole trader is not free from risks as he is the only person responsible for any loss incurred in the business. A series of legal obligations may also drag him out of the line; sometimes he needs to pay provisional taxes and hence his annual tax returns may become more complicated. It has been identified that sole proprietorship is the most common form of ownership in the UK. In UK, sole traders are legally required to keep proper business accounts and records for assisting Inland Revenue to collect the tax on profits. Public limited company In UK, a public limited company is ‘legally abbreviated to plc with or without full stops’ and it may either be ‘an unlisted or listed company on stock exchanges’ (Company formation). However, some exceptional public limited companies, mainly nationalised concerns, which have incorporated under special legislation, do not need to bear any of the identifying suffixes. When a new company plans to commence its operations in England, Wales, or in Scotland, it has to register with Companies House. Although a public limited company is not compulsorily required to offer its shares to the public, many such companies do so and these shares are generally traded either at the London Stock Exchange or at the Alternative Investments Market. In UK, a minimum of two directors is essential for the formation of public limited company. Under this system, many persons jointly invest their capital for the formation of company at the time of its registration. Before a public limited company commences its operation, it should issue its shares to the value of at least ?50,000 and out of which ?12,500 must be paid up. Similarly, a company may increase or decrease its authorised share capital by passing an ordinary resolution. The public limited company may issue different types of shares like bearer share, cumulative preference shares, ordinary shares, preference shares, and redeemable shares. Nowadays, most of the UK companies are formed electronically with the help of Company Formation Agents. During the company formation, documents such as Memorandum of Association, Articles of Association, Form 10, and Form together with specified registration fee are sent to the Registrar of Companies. The most potential feature of a public limited company is that it can be easily converted to a private limited company. Critical comparison Public limited companies enjoy potential strengths over sole traders with respect to key aspects of business strategy such as finance, human resource management, and marketing, especially in recession. Since a shareholder can transfer his shares whenever he needs, this facility provides more liquidity to his savings. However, as Schneeman (2009, p.202) points out, unlike the case of sole proprietorship, shareholders private properties cannot be sequestrated in order to realize their business liabilities. Similarly, a company is more stable than a sole trader or partnership firm because the shareholder’s death, insanity, bankruptcy or termination does not affect the operation of the company. Corporate accumulation of sufficient capital and efficient managerial capabilities facilitate the scope of company’s further expansion. Since a public limited company consists of large numbers of shareholder, it has easy access to abundant financial sources; and this condition may add value to company’s financial stability. In contrast, sole trading business has less financial stability since the sole trader himself needs to meet his financial requirements. Similarly, a public limited company has competitive advantages over a sole trader on the ground of human resource management and marketing. Since the company engages in large scale business operations, it may have separate departments and supervisors to efficiently manage manpower and to effectively market goods and services. In the case of a public limited company, a shareholder has no further liability once he has paid full amount on his shares. Since a public limited company is a financial conglomeration of people from multiple spectrums and the ownership identification is marked by the possession of a Share Certificate, more complex registration process and other legal formalities are inevitable in its formation. Excessive government control also would hinder the smooth running of a public limited company; whereas government rarely involves in the business affairs of a sole trader. However, a public limited company performs far better than a sole trader in certain crucial situations like recessions. Since a public limited company has easy access to abundant potential financial sources, it can easily pool additional resources in times of contingencies. Often, a sole trader may not survive a strong recession as he has many limitations in raising additional funds. Part II Tourism as a fast growing industry has become the major source of revenue for many developing countries. There are two trends emerging in tourism recently; people visiting hill stations, seashores and historical places of domestic land, and people travel abroad to enjoy the beauty of foreign destinations. The growth of both domestic and international tourism has forced governments to design their own policies and special projects toward tourism planning. Hence, the recent developments in transport sector can be greatly attributed to the increasing scope of tourism. Modes of transport give a clear view regarding different ways to perform transport. Most prominent modes of transport are land transport including road, off-road, and rail transport; aviation; and ship transport. In addition, pipelines, cable transport, and human powered as well as animal powered transports are used to transport goods. Land and airways services are mainly intended for the transport of passengers while goods are transported mainly by water transport. Each mode of transport has its own infrastructure, technological aspects, vehicles, operations, and unique regulations. Different forms of organisations operate in transport sector. It seems that the government directly controls most of the transport modes especially, air traffic. However, there are many sole traders who operate in each and every mode of transport. Dyson’s Bus Services is an example for privately owned bus services which operates at Melbourne in Australia (‘About Dyson buses’). It was founded by Laurie Dyson in 1952. It provides services in number of bus routes in accordance with the contract terms of the Victorian State Government. Before extending its services to the northern and eastern suburbs, the Dyson’s Bus Services provided services to the Melbourne suburbs of Reservoir and East Preston. Similarly, Plantation Bay is one of the largest privately-owned waterways in the world, and it reflects colonial plantation architecture. Plantation Bay provides waterways services mainly for the purpose of entertainment. It started its operations in late 1996 and presently it has over millions of visitors from various parts of the globe (Plantation Bay). The homely feel and calm environment are the main features of the Plantation Bay. In addition, due to its unique geology and location, the Plantation Bay offers increased safety and security to visitors. Finally, Virgin Atlantic Airways Limited is a British aircraft service mainly owned by Sir Richard Branson with 51% shares. The prominent feature of the Virgin Atlantic is that it does not operate short-haul services like other privately owned airways services (Virgin Atlantic). It carried around 5.3 million passengers in 2010. Before the introduction of Virgin Atlantic, British Airways was the only air service from Britain. Hence, the fast growth of Virgin Atlantic caused intense market competition. Limitations and opportunities to a sole trader It is obvious that when sole traders operate in transport sector, they may face a series of issues. In the words of Singla (2006-07, p. 34), the limited sources of capital are the most inherent limitations to a sole trader operating in transport sector. In the modern world, new and improved modes of transport are developed everyday. Hence, the marketer must have easy access to financial sources in order to effectively confront with emerging market threats. Since sole traders have limited access to capital, they cannot survive market competition beyond a certain level. In order to overcome this limitation, sole traders may depend on banks and other financial institutions. However, banks would allow credits only after ensuring that the sole trader has the potential to repay the loan amount within the stipulated period. Hence, the sole trader cannot take advantage of bank loan if his market reputation is poor. Under such circumstance, sole traders may apply for bank loan by pledging their private properties. While taking this type of dangerous decision, the sole trader must ensure that his business venture is potential enough to repay the loan within the time. Similarly, unbalanced management is a disappointing aspect of sole proprietorship. According to Singla (2006-07, p. 34), in sole trading, all day to day business activities like purchase, production, marketing, sale, and financing have to be performed by the trader himself . However, it is obvious that a single individual would not be able to perform all these activities successfully. In transport sector, a sole trader needs to compete with industrial giants who possess highly organised management team. Under such a situation, he/she has to face a series of managerial and other issues. Consequently his decision may get imbalanced. Since the sole trader has limited financial sources, it is not possible for him to appoint a manger on salary. Sole traders can solve this issue to some extent if they divide the managerial responsibilities among the available staff. According to Jain, Trehan & Trehan(2009-10, p. 427), secret nature of sole trading is found to be an inherent disadvantage as this feature causes suspicion among the customers and general public. Under this business system, majority information is kept secret; and this practice may make the outside people suspicious. For instance, the situation conceals the actual state of affairs of a sole trader and this situation may prevent a transport sector sole trader from getting bank credits for further expansion. By publishing annual or interim financial statements, a sole trader can eliminate this difficulty to a large extent. Finally, uncertainty is the characteristic feature of a sole trading business. When a sole trader is forced to abstain from business activities for a period as a result of unforeseen circumstances like illness, he either has to handover the business to employees or to close the firm for some time. Both these situations may dissatisfy the customers. A sole trader must develop at least one employee to manage the business in times of owner’s absence. References ‘About Dyson buses’, n.d, Dyson Group of Companies, Viewed 29 July 2011, ‘All about us’, 2011, Virgin Atlantic, Viewed 29 July 2011, Jain, TR, Trehan, M & Trehan, R 2009-10, Indian Business Environment [For BBA and BBA (CAM)], V.K. Enterprises, New Delhi. ‘Public limited company formation’, n.d, Company Formations, Viewed 29 July 2011, ‘Plantation Bay resort and spa’, n.d, Viewed 29 July 2011, Singla, RK 2006-07, Business Studies, V.K. Enterprises, New Delhi. Schneeman, 2009, Law of Corporations and Other business Organizations, 5th Edn, Cengage Learning, USA. Tonkin, C 2006, The Australian Consultant’s Guide II: Setting up and running your own consulting business profitably and painlessly, Aragon Gray Pty Ltd, Australia. Read More