The Language of Small Business Texts and Vocabulary Training (for students of Economics) Part 2. Учебное пособие

Your Business Identity

12. SELLING PART OF YOUR BUSINESS

This can be slightly tricky if you are a sole trader or in a partnership. One way of solving this could be to take on a partner (or a further partner), but this obviously means you must have trust in the person. If part of your business is easily separated, you might be able to sell it as a going concern on its own.

It should be somewhat easier to sell part of your business if it is in the form of a limited company. You could sell some of your shares. This may not be so easy if the company is unquoted; but it should be less of a problem if the company is quoted on the Unlisted Securities Market.

Summary

Selling part of your business is easier if it is in the form of a limited company.

QUIZ: SOLE TRADER, PARTNERSHIP

OR LIMITED COMPANY?

Use this quiz only as a rule of thumb. In this quiz, the scoring of each factor is equally weighted, that is, assumed to be of equal importance to you. You should put in your own weighting. For example, if raising money is crucial to your business, multiply the score by a number, such as 3, to give this sufficient weight in your decision.

Set up a piece of paper with three column headings: sole trader, partner, limited company. Answer each question and tot up the scores for each form of business – the higher the score, the more suitable the business type.

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The Language of Small Business

Example

Peter Jones is thirty and wants to start a business selling frozen Chinese food with his wife Laura.

The Language of Small Business

Peter and Laura should choose to form a limited company.

HOW TO SET UP AS A SOLE TRADER

It is really very easy and straightforward. You need to:

−tell your local tax inspector, if you are becoming selfemployed;

−check with the Planning Officer that your place of work will be suitable;

−if you decide to trade under a name different from your own, you must put your own name on your headed paper;

−consider whether you have to or whether you should ask to register for VAT.

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Your Business Identity

HOW TO SET UP AS A PARTNERSHIP

The fundamental drawback of a partnership is that each partner is jointly liable with the other partners for all the debts and obligations that each partner incurs. This financial responsibility can include all your own personal assets, which could be seized to pay partnership debts (which might have happened as a result not of your actions but of your partner’s).

You must be able to trust your partners. Do not drift into an informal partnership. Make sure you and your partners have discussed difficult problems right at the start and come to some clear agreement.

TYPES OF PARTNERS

There are several different sorts of partners; but only two are suitable for consideration in a business partnership:

−a full partner who will share in the profits and losses in an agreed proportion and will be part of the management;

−a sleeping partner who will have no part in the management of the business, but will still be held responsible for the debts.

THE PARTNERSHIP AGREEMENT

This is a job for a solicitor. Briefly, an agreement should include among other points:

−the names of the partners, the name of the business and its activity;

−the date the partnership starts and how long it will last;

−the capital and the interest on it;

−the profits split;

−management and control of the business;

−holidays;

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The Language of Small Business

−what happens on retirement, on death and if one of the partners wants to leave.

HOW TO SET UP AS A LIMITED COMPANY

This is also a job for a solicitor. If you form a company from scratch it can take several weeks. You could form a public company – and put PLC after its name – but this must have an authorized share capital of at least £50,000 and at least one-quarter must be paid on each share. This means you need at least £12,500 to form it. Or you can form a private company (which is any company which is not a public company). A public company must have two directors and a private company one. Every company must have a secretary. A sole director cannot act as a secretary.

You need to register the company with the Registrar of Companies. You need to send in:

–Memorandum of Association. This should state the name of the company (this will need to be approved by the Registrar), the location of the registered office, the objects of the company, its limited liability, its share capital and details of the shares. It needs to be signed by two or more people

–Articles of Association. This should have the detailed rules about internal management of the company. If you don’t draw up your own Articles, the standard format set out in the Companies Act will be adopted

–Registration fee, made payable to «Companies House». Instead of forming a company from scratch, you can buy a

ready-made one. This is a quicker process, but it may take three or more weeks to change its name to whatever you want to call your business. To change a company’s name you need to convene an annual general meeting or extraordinary general meeting and pass a Special Resolution. Within fifteen days, a signed copy of the

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Your Business Identity

Resolution should be sent to the Registrar of Companies with a registration fee.

There are certain rules about displaying information. For example, the Certificate of Incorporation and the registration date need to be displayed publicly. On your letterheads and other stationery, for example, you need to show:

−the full registered name of your company;

−either all or none of the names of the directors;

−the place of registration (for example, Registered in England and Wales);

−the registration number;

−the registered office address (marked as such) as well as the

trading address of the company.

You must put the company name outside your office premises.

WHAT DIRECTORS MUST DO

There have been a number of changes in recent years in what directors must do and how they should behave, and you may have the impression that a director’s personal responsibilities and potential liabilities have become very onerous. In practice, a director’s general obligations are not much worse than those for a sole trader or partner, and indeed they can be better. This is because by forming a company you can separate your own assets from the business assets (in theory at any rate). But this separation is conditional upon what could be called, in layman’s terms, responsible business behaviour.

However, a director also has to cope with some technical, more detailed requirements, for example sending in your accounts, which aren’t there to trip up a sole trader.

Some of a director’s duties, responsibilities and potential liabilities are:

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The Language of Small Business

−to act in good faith in the interests of the company. This includes carrying out duties diligently and honestly;

−not to carry on the business of the company with intent to defraud creditors or for any fraudulent purpose;

−not knowingly to allow the company to trade while insolvent («wrongful trading»). Directors who do so may have to pay for the debts incurred by the company while insolvent;

−not to deceive shareholders;

−to have a regard for the interests of employees in general

−to comply with the requirements of the Companies Acts, such as providing what is needed in accounting records or filing accounts.

If a company is insolvent, and the directors have failed in their duties and obligations, they could be declared «unfit» and disqualified from being a director of any other company for up to fifteen years.

FORMING A COOPERATIVE

WHAT IS A COOPERATIVE ALL ABOUT?

There are four basic points:

1.The management, objectives and use of the assets of a cooperative must be controlled by its workforce. If the assets are not all owned by the workforce at the outset, it must be an aim of the cooperative to own them eventually.

2.You need to organize a voting system. An example would be one vote for each worker. Decisions would be made on a simple majority.

3.The only payment for providing money for a cooperative can be interest on a loan. Any profits should be shared among the workforce.

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Your Business Identity

4.You should agree at the outset that the cooperative can be disbanded only if its members agree. With some cooperatives the proceeds from selling the assets will not be distributed to the members.

CHOOSING A LEGAL FORM

You will need to get legal registration or incorporation for the cooperative. There are four possible legal forms.

First, you could form a partnership. The disadvantage with this is that there is no limited liability. And the business could be sold for the benefit of its members; this is not in keeping with a fundamental principle of a cooperative (see above). On the other hand, you can form a partnership with only two people, whereas to form a cooperative society (see below), you need seven.

Second, you could form a limited company; but the aims of a company run counter to some of the basic principles of a cooperative, so it would be difficult to organize.

Finally, you could organize the cooperative as a company limited by guarantee. This has the advantage that it needs only two people to form it.

TYPES OF COOPERATIVE

There are different types of cooperative structures, and depending on the objectives of your enterprise you should discuss with your sponsoring body which types of structure will suit your requirements the best.

The main ones are:

−worker cooperative;

−marketing or service cooperative;

−neighborhood cooperative;

−community cooperative;

−equity participation cooperative.

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The Language of Small Business

Vocabulary