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Types of employment

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Companies and other private sector organisations

Limited company (Private company limited by shares)

What is a limited company?

A limited company has a separate legal identity governed by the Companies Act 2006. However not all of the provisions in the Companies Act 2006 have come into force and some provisions in the Companies Act 1985 remain relevant.

  • One or more persons can set up a company for any lawful purpose by subscribing to a memorandum of association, which is a written document detailing the company's name, registered office, purpose, the limited liability of its members and distribution of shares.
  • A limited company is owned by the shareholders ('members').
  • A limited company is managed by its director/s (by whatever name) who may or may not be shareholders.
  • Individual shareholders have limited financial liability for debts incurred by the company.
  • A limited company must have 'Ltd.' or 'Limited' after its name.

What are the advantages of a limited company?

  • If a company fails, the shareholders only lose what they have invested - but for new start-up companies, funders usually ask for personal guarantees.
  • It may be easier to get funding, because of the legal protection for shareholders afforded by the limited liability status.
  • If successful, a company will probably have a lower overall tax bill.
  • It is easier to arrange investment.
  • It is easier to sell part holdings.

What are the disadvantages of a limited company?

  • Can be comparatively expensive and complex to set up so legal assistance is advised.
  • There is a legal requirement to hold Annual General Meetings and to produce audited accounts.
  • Everything is in the public domain so your accounts are public documents.

Public limited company

What is a difference between a public limited company (PLC) and a private company?

A public limited company:

  • Can offer its shares for sale to the general public.
  • May be quoted on the Stock Exchange.
  • Must have at least two members.
  • Must have two company directors who can also be members of the public company.
  • Must have a qualified company secretary who is a Chartered or Certified Accountant, or who is a lawyer or who has relevant previous experience.
  • Must have share capital of at least £50,000 or €65,600.
  • Must have 'Public Limited Company' or 'PLC' after its name.

More information is available from:

Franchising

What is franchising?

A franchise is a licence from the owner of a business brand name or trademark allowing another person to sell a product or service under that name or trademark. Under the franchising agreement, the franchisee usually agrees to conduct the business, or sell the product or service, in accordance with agreed systems and procedures. In return the franchisor is usually responsible for market research, advertising, support and training.

As a franchisee you are buying the owner's expertise, technology and image. You will pay a fee to the franchisor for the right to use the brand name and also pay ongoing management or royalty fees based on your turnover.

If you are considering buying a franchise, check the following:

  • Is the franchise within the jurisdiction of the British Franchise Association?
  • Is the franchise credible and secure?
  • Has the franchise been established for a reasonable period of time?
  • Have you talked to other franchisees?
  • Has the franchisor met all the statements in its contracts with other franchisees?
  • Has the franchisor behaved ethically towards other franchisees?

Examples of franchises include: Body Shop; Dominos Pizza; Hunters Estate Agents; O2; Prontaprint; Subway.

What are the advantages of franchising?

  • Entry into the market is comparatively fast as there is frequently an established track record for the business, product or service.
  • Low risk with a greater chance of success.
  • Can have very large potential.
  • Access to the franchisor's market knowledge, training and support.

What are the disadvantages of franchising?

  • The franchisor might not deliver the promised marketing, training, business systems or brand expertise.
  • There may be a danger of competitor franchises with a stronger brand name which are more likely to succeed.
  • As an entrepreneur with your own ideas you may have difficulty following the franchisor's system.

For more information about franchising visit the British Franchise Association website.

Co-operatives

In the UK, a co-operative is not a legal business entity as there is no legislation regarding co-operatives. Before setting up a co-operative business, it is important to seek advice about choosing an appropriate legal format which suits your enterprise and its members.

Co-operatives are generally defined as organisations which comply with the co-operative principles set out by the International Co-operative Alliance (ICA), the global federation of co-operative enterprises:

"A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise."

A co-operative business differs from other business enterprises in that it is not run by its investors but by its member-owners and it usually subscribes to a set of shared values and principles. It is not primarily profit driven, although profits may be needed to reinvest in the business. Generally there are two main types of co-operative:

  • producer or worker co-operative, in which the members produce products or services. An example of a worker co-operative is Spain's Mondragon Corporation, a major global producer of food, industrial products and financial services which is owned by its workers.
  • consumer co-operative, in which the members group together to buy goods or services. The most famous example is the UK's The Co-operative Group, "a business democratically run by members to meet their common needs and aspirations".

Membership of a co-operative is limited to the producers or consumers of its products or services or its employees. Profits may be shared amongst them according to how much work they have put into the enterprise or how much they have spent as customers.

For more information about co-operatives look at these websites: