BE102 – Forming a company Differences between legal entities:When forming a company, you must decide what structure youwish to establish, below is my evaluation of three different legal entities:Private company limited by shares (LTD):The main advantages of a privatelimited company are due to the disassociation between the company itself andthe people involved with its operations in the eyes of the law, this makesacquiring investment easier as the liability of shareholders is limited totheir initial investment and any unpaid shares they own.This separation allows for alower risk as personal assets are not vulnerable if the company dissolves.Sole trader:A sole trader is the singleindividual who owns, controls and is held accountable for the actions of thecompany it is the simplest model with all financial records remaining private andfinances going through as their personal income and so is taxed accordingly.The ideology of being the sole controlling party comes down to a personal evaluation,there is a greater workload and associated responsibility however all profitsare yours due to the lack of staff.
Limited Liability Partnership (LLP):An LLP is a partnership betweentwo or more individuals but with the liability being limited to the value oftheir initial investment or personal guarantees that were made duringformation. These limits allow for a similar level of protection as an LTD. Anadvantage of forming an LLP over a Ltd is the members are taxed asself-employed where as a Ltd has to pay corporation tax and then dividends aresubject to income tax.
1, 2 Business processes:Health and safety:The rules and regulations of health and safety arerepresented under various legal acts, now the list is relentless but they areall encompassed under the health and safety act of 1974. The purpose of thisact is to reduce the risk of injury and life to as low as possible forconsumers, employees and anyone that is relevant to a company.Health and safety concerns are evaluated through riskassessment forms, as seen below: 8 4. It is the responsibility of the company to do as much asthey can in respect to health and safety, meaning there is no need to bankruptyourself for safety, there is a balance between risk and cost and in the eyesof the law you need “to ensure safety standards so far as reasonably practical.”To reduce the probability of hazard occurring and to mitigate the consequences.An example of this is fire safety, Non-flammable materials should be used wherepossible and to have some alarms and an evacuation policy in place so that if afire was to break out the risk to life is drastically reduced.8 Finance and accounting: There are two types of accounting in business financial and management.Management Accounting: Management accounting focuses on specificneeds of the company and is used to track financial progress over a given timefor example Nike releases a new line of clothing and they want to track howwell it is doing in comparison to a pre-existing line over the course of ayear.
Once this data has been collected it gives a clear representationallowing managerial staff to generate forecasts as well as targets. 9Financial Accounting:Financial accounting is producedfor the needs of the stakeholders and is a legal requirement by company’shouse. It is broken down into three sections; income statements, statements offinancial position and finally statements of cash flow.
9Income statements: The income statement, also known as the profitand loss account, is used to report how much profit a business has generated.To calculate profits, it records the quantity and sources of revenue forexample £35’000 from sales of goods, alongside quantity and sources of expensefor example £10’000 in salaries and wages.9Statement of financial position:Secondly the statement offinancial position “this statement shows the forms in which the wealth of abusiness is held and how much wealth is held in each form.” There are two mainsections assets and equity and liabilities. An asset is something that hasprobable financial benefits down the road, with the company having the right tocontrol it. Equity “represents the claim of the owner(s) against the business”from the funds they have contributed.
9Statement of cash flow: Finally, the statement of cash flows a newaddition to the requirements of financial accounting, this statement is used tocategories the cash flow under the following headings: cash flow from operatingactivities (e.g.: profit before tax, depreciation and decrease in inventories),cash generated from operations (e.
g.: interest paid, taxation paid, dividendspaid), cash flows from investing activities (e.g.: interest) and cash flowsfrom financing activities (e.g.: issue of ordinary shares). It will then closewith net increase in cash and cash equivalents, cash and cash equivalents at 1stJanuary year and the same at 31st December year.
9 Governance (“The action of governing a state/ business/ organisation.”):Therefore, good governance in this aspect is to conduct theactions of the business in an ethical and responsible manner. Which includesthe laws, policies, systems, behaviour, roles, responsibilities and procedures.These processes are updated where needed so that excellence is consistentlypractised.Effective Board:For a board to be effective andmake democratic decisions all parties must act within their own independentjudgement being influenced by only the evaluation of facts that results in asolution for the benefit of the company and/ or business and not for personalreasons such as financial gain sourced from external parties. A board must alsobe comprised of a sufficient number of members with reasonable diversity inorder to provide a boost in morale for employees as they can associate on apersonal level with them allowing a positive figure in a successful position toaspire to as well as the variety in opinion and viewpoints to broaden theperspective of the board implemented through frequent meetings and sufficientcommunication via the shareholders.7 Employees:The board is responsible forrecognising and managing risks, there is always a level of risk when employingnew staff or implementing staff into new positions and so in order to mitigate theserisks it is necessary for a suitable level of training to be introducedespecially for new directors as the stakes are much higher. Skills andknowledge must be updated regularly to adapt to the frequently changinglandscape that is the average consume.
The company must also provide sufficientremuneration (pay) so that workplace morale and therefore productivity ismaintained in both standard and quantity.7 Process of incorporation:Setting up a private company limited by share like allcompanies is done through company’s house there are two methods of going aboutthis, filling in the relevant paper work and mailing it or alternatively andfar simply doing it online. This can be done through the gov.
uk website orthrough a third party that are designed to make the process simpler and provideadditional services such as “Jordans” where you fill out the information forthem and they submit it to company’s house for you with the addition lawyers,accountants, trust managers, data specialists and company formation agents atyour disposal for an addition cost (Jordans.co.uk). Although to simply registerI would not use these resources as the process in of its self is rather simple.6Now the requirements for incorporation are as follows:A suitable company name:The name for you decide for yourcompany is not necessarily the name that you will trade under it merelyrepresents the company for example if I decided to start a company called”Holden Ltd” and I was going to sell shoes “Holden Ltd” isn’t particularlyenticing so I can trade under and have on my store front a name like “PremiumFormal Footwear”, with “Holden Ltd” being the name displayed on all officialdocumentation such as invoices. The name must also not be in use by anotherparty within a similar field to which you wish to enter, in order to preventconfusion and people ‘piggybacking’ off the success and recognition of another.You can check to see if a company’ name is already in use on the gov.ukwebsite.
5 An address for the company:Your company must have aregistered address so that official mail can be sent and knowingly received aswell as if the company needs to be surveyed for any reason such as by a healthand safety inspector. It is also a legal requirement to have your company namevisible from outside at all times even if it is dark. All other addresses wherebusiness is conducted must also be stated.5 Directors/ Shareholders (D/S meaning they areinterchangeable)All directors/ shareholders mustbe listed by their full name as well as their address. Additionally, fordirectors their role at the company must also be shown this Is so (for example)companies house knows where and who to send requests for financial information.
At least one director/ shareholder is required.5 Shares:The information of shareholdersrequired is stated in the previous paragraph. Other requirements include numberof share, the distribution of said shares, their nature as well as their value.5 SIC code:The standard industrialclassification code or SIC code for short is a five digit numeric that is usedto describe the industry in which your company wishes to conduct businesswithin for example the code of 01120 is used for the industry of growing rice.5,4 Memorandum and articles of association:The final requirements are twofold a memorandum of association which is a legal document that needs to besigned by all founding shareholders to state the agreement to form the companyand secondly the articles of association which is basically a rulebook on howthe company should be run. It requires agreement shareholders, directors andthe company secretary. There is a standard template that can be used oncompany’s house or for an additional fee you can write your own.5 Peer assessment:Recently we conducted peer assessment within our companyteam it was assessed on five factors as seen below alongside the results(scored out of 5): Collaboration:75% scored 4 out of 5, 25% scored 3 out of 5Cooperation:100% scored 4 out of 5Critical thinking:25% scored 5 out of 5, 25% scored 4 out of 5, 50% scored 3out of 5.
Additional comment: “you are a realist; this is a good contrast”Communication:100% scored 4 out of 5Creativity:75% scored 3 out of 5, 25% scored 2 out of 5 Bibliography: 1 Anonymous. 2017. ‘Limited LiabilityPartnership’. Small Business Pro.
Available at: http://www.smallbusinesspro.co.uk/start-business/limited-liability-partnerships.
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sparkyfacts.co.uk/_documents/RiskAssessmentFormforElectricians.pdf accessed05/12/20174 Anonymous. 2017. ‘Nature of business standard industrialclassification (SIC) codes’. Companies house.
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JordansLimited. Available at: https://www.jordans.co.uk/aboutaccessed 08/12/20177 Chris, Jones. “Good Governance”. Lecture8 Sarah, Fuller. “Health and Safety in the workplace”.
Lecture9 Atril, Peter and Eddie, Mclaney. 2017. ACCOUNTING AND FINANCEFOR NON-SPECIALISTS (10th ed.).
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