Module Number: BMP3002

Module Name: Business in Practice

Year/Trimester: 2020-21/Semester 1

Module Leader: Pranita Gosavi/Nathaniel Frimpong/Flomny Menon/Dr Shohail Choudhury

Learning Outcomes Assessed:

LO1: Differentiate between different types of companies and their legal entities

LO2: Describe different internal and external factors which impact on businesses

Assessment Brief:

You have been employed as an assistant business analyst by a large multinational organisation to investigate different types and sizes of business they will have to compete with. They also would like to know how internal and external factors impact businesses. You were asked to write and submit 2,000 words Management Report to the CEO and your report should include the following:

Section 1: You are to show an understanding of the different types of companies and how they work.

Your response should cover the following:

• Definition, characteristics and example of micro business, small business, medium size business and large size business.          

Section 2: You are required to explain different companies from sole traders to cooperatives and Limited Liability Partnerships.

Make sure, your response includes the following:

• Definition, characteristics and example of sole trader business, partnership, limited liability business, public limited liability business and Cooperative.

Section 3: To consider different business structures and how external factors affect businesses.  

In this section of the report, you are required to:

• Identify different organisational structures and explain how organisational structure affects business productivity.  

• Using PESTLE analysis explain how different external factors affect the performance of a business.

You should present your report professionally using Ariel 12 pt font size and include the following sections: –

• Cover page
• Contents index
• Introduction
• Main Body
• Conclusion
• Reference list

Minimum Secondary Research Source Requirements:

Level FE3/HE3 – It is expected that the Reference List will contain at least five sources. As a MINIMUM the Reference List should include three academic books.

For general guidance on writing assignment and submission please refer to section 12. Guidelines for the Preparation and Submission of Written Assessments on the module guide.

Specific Assessment Criteria:

Please note that the General Assessment Criteria will apply. Please see matrix below for HE3:

Essay Answered

1.    Introduction

The aim of this report is to examine different types and sizes of business to understand the scope of competition that an organisation is likely to face. Also the report includes an analysis of internal and external factors that are likely to have an impact on businesses. Ranging from micro to large size businesses, the external factors affect all of them and their survival depends on how they adapt to those factors. At the same time, different types of businesses ranging from sole trader to public limited liability company have their own advantages and disadvantages, and it is, therefore, up investors to decide which they want to invest in after considering both sides of each. 

2.    Main Body

Section 1: Different types of companies and how they work 

Microbusiness:

Micro businesses are businesses that have less than ten employees; in addition, according to the EU definition, a micro-business has a maximum annual turnover of 2 million euros (OECD, 2005). Microbusinesses play a critical in the UK as they account for more than 90% of all businesses (Merchant Savvy, 2020). Besides, apart from accounting for 33% of employment, they contribute 22% of the national turnover (Rhodes and Ward, 2020). The growth of micro-businesses in the UK is driven by the desire of the majority of the UK population start their own business to increase their income or to be their own boss. Examples of micro-businesses include family-owned clothing shop and local barbershop.

Small business

Small businesses are those with more than ten but less than 50 workers. A small business has an annual turnover that exceeds 2 million euros but not exceeding 10 million (OECD, 2005). Small businesses account for less than 4% of businesses in the UK and contribute 15.0% of employment and about 15% of the national turnover (Merchant Savvy, 2020). Examples of small businesses range from small private retail stores, restaurants, to family-owned bakeries such as Marshfield bakery. 

Medium-size business 

The medium-sized business has 50 to 249 personnel and annual turnover below €50million but above €10million (OECD, 2005). Medium-sized businesses constitute less than 1% of businesses in the UK, and their employment contribution is estimated at 12.6% while contribution to the national turnover is about 15% (Merchant Savvy, 2020). Most medium-sized businesses grow out of small businesses and can eventually become large businesses. An example of medium-sized business is Verdant Leisure with an annual turnover of about £15.5 million and about 100 employees. Interestingly, medium-sized businesses’ growth rate in the UK in recent years has exceeded that of small businesses. 

Large size businesses

Large size business has 250 or more employees and has a turnover exceeding £50 million. Although large companies constitute less than 0.5% of private-sector businesses in the UK, they contribute the highest employment at 39.5% and 47.5% of the turnover in the sector (Merchant Savvy, 2020). Large companies are generally stable than other business sizes because can access large capital from different revenues. However, there are many regulations they have to deal with. Examples of large businesses included large retail chains such as Sainsbury’s, Banks such as Barclays and multinationals such as BP. 

Section 2: Different companies from sole traders to cooperatives and Limited Liability Partnerships  

Sole trader business

Sole trader or sole proprietorship is the simplest type of business organisation as it is owned and run by a single person. The owner enjoys all the profits after tax but he also suffers the losses alone if the business underperforms. It is the responsibility of the owner to ensure that all sales and expenses records of the business are well kept and annually, send a self-Assessment tax return (GOV.UK, 2020). 

Something that separates the sole trader from other types of business legal structures is that the business cannot act as a legal entity. It means that the business cannot be separated from the owner. Therefore the owner is directly liable for anything wrong done by the business. On the other side, there no many regulations and rules that must be followed as the businessperson only require a licence depending on the products or services he is dealing with (Scarborough and Cornwall, 2018). Examples of sole trader businesses include business consultant, electronic repair shop or hairstylist.

Partnership: 

A partnership is a type of business organisation that is jointly owned by two persons or more under the partnership agreement (Hamilton, 2010). Two or more parties formally agree to operate and manage the business and share the profits. Although in a general partnership there is an equal share of profits and liabilities, there are other forms where partners have limited liability. (Hamilton, 2010) In the part of the partnership agreement, partners layout how profits will be shared (Kopp and James, 2020). In addition, there is a clause outlining what can lead to the expulsion of a partner. 

In limited liability partnership (LLP) the personal liability of partners is limited such that other partners cannot be liable for the wrongdoing or malpractice of one partner(Korchak, 2017). Professional firms such as law firms, accountants and architects as some of the common businesses that fall into this category. 

Also there is limited partnerships, which combines the aspects of LLP and general partnership. In this form of partnership, there is at least one silent partner who does not have a personal liability of any other transactions by the partnership apart from the amount invested. At the same time, there is at least one general partner who is fully personally liable for any debt by the partnership. Moreover, the silent partner does not have an active role in the daily running of the business (Kopp and James, 2020).  

The advantage of partnerships over a sole trader is that it can access more capital and more ideas to manage the business profitably. Besides, unlike a sole trader, there is sharing of burden at least in the general partnership. However, partnerships can have a slow decision-making process and sharing of profits, unlike a sole trader (Korchak, 2017). 

Limited liability business

 Limited liability companies are types of business that act as separate legal entities from the owners. It means that in case of any transaction, malpractice or liabilities, the business is treated separately from shareholders and managers. LLCs, in the UK, must go through incorporation at the Companies House for them to be recognised as independent “legal persons”.Besides, limited companies are run under the provisions of Companies Act and the company’s articles of association (Korchak, 2017). 

For private limited companies, shares held by shareholders determine ownership. The shares can be wholly owned by one shareholder who is the owner or can be between two or more shareholders (Hamilton, 2010). In the case of a private limited company that has multiple shareholders, the numbers of shares owned by the shareholders determine their voting rights and the number of dividends they can receive. However, private limited companies cannot acquire capital by selling shares to the general public (Korchak, 2017). Examples of private limited companies in the UK include John Good Shipping, 

Public limited company

Regarding the limited liability aspect, a public limited company is similar to a private limited company. However, there are some distinguishing features. First, before trading, it is required that the company issues at least £50,000 combined nominal value shares.The company is also required to appoint a company secretary and a minimum of two directors (Korchak, 2017). Another aspect that separates public limited companies from other types of companies is that the former gain capital by offering shares to the general public (Hamilton, 2010). In the same line, they can have their shares listed on the stock exchange. Examples of PLC include Tesco, Unilever, and BP among others. 

Cooperative 

A cooperative is a type of business organisation formed, owned and run by people with a shared objective (Ica.coop, 2020). The structure of a cooperative is such that it adapts to the needs of the members. Cooperatives are democratically run as each member has one vote and all have equal voting rights. One aspect that makes cooperatives stand out is that “they are not owned by shareholders” thus allowing the members to control their social and economic pathway since the benefits remain in the community (Ica.coop, 2020). In the UK there are more than 7000 cooperatives. Examples include Midlands Co-operative, Arla Foods UK and Openfield Group. 

Section 3: Different business structures and external factors affecting business

3.1 Identification of different organisational structures and explaining how does organisational structure affect business productivity

The functional structure involves grouping employees in their line of specialisation or their specific roles (SHRM, 2015). Some common departments in a functional structure include human resource, marketing, accounting & finance, and customer service. The departments are independent and each has department head. The department heads interact among themselves and are directly answerable to the chief executive officer or the top management. The advantage of this structure is that it has a clear accountability chain as employees can report to a single departmental head.The disadvantages of functional structure include slow decision making due to hierarchical bureaucracy and disorganised cooperation among employees since working in different departments that make them loyal to their head (SHRM, 2015)..  

In a divisional organisational structure, different functions are put in a division. The divisions can be on the product, regional, or service. Each division has its own “functional structure (SHRM, 2015). However, the divisional heads report to the CEO or the senior management.

Generally, the organisational structure influences productivity by bringing individuals with common specialisation together. Besides, standardisation and mechanisation, which in turn leads to increased productivity especially in a functional structure (SHRM, 2015). The hierarchy of management is essential in ensuring that policies and procedures are followed in the organisation. However, the organisational structure has a lot of bureaucracy it can negatively affect productivity. 

3.2 How different external factors affect the performance of a business – PESTLE Analysis 

The organisation should be aware of its external environment and more precisely of the factors that may influence the organisation in different ways. The use of the PESTLE Analysis is assisting in this direction. The scanning of the external factors help the organisation to prevent unexpected events (Armstrong et al, 2016.

Political factors: – these include political stability, laws and governmental regulations. Taking the example of political stability, the business performs well in politically stable regions such as most of Western Europe because there is a consumer as well as investors’ confidence.  

Economic factors: – These include factors such as ease of getting credit, taxation, trade agreements and general purchasing power of the population (Armstrong, Kotler and Opresnik, 2016). One of the notable economic factors that are affecting businesses in the UK is the Brexit, which has led to go slow in some businesses as it is not yet clear what kind of a trade deal between UK and EU. 

Social factors: – this includes the demographics and culture of the population. In a modern society where young people are the frequent shoppers and always looking for trendy products, companies such as Mark & Spencer that have traditionally focused on “mature” women, need to find a way to include the young generation or they risk a decline in earnings

Technological factors: – these are technological factors that affect the performance and way of doing business (Armstrong et al, 2016). Examples include digital and internet technology, innovative mechanisation of production and “green” technology. Taking the example of internet technology, it has enabled companies such as Amazon to penetrate in the UK with ease and bring competition to the local retailers. For their survival, the local stores are forced to also invest in internet technology.

Environmental factors:- they including factors such as climate change, natural disasters and the general climate. Regarding climate change and global warming, businesses are encouraged to invest in clean energy and sustainable sourcing. In some jurisdictions, there are taxes for carbon emission, which can affect the profitability of businesses.

Legal factors: – laws concerning business operation, taxation, and employment. 

Conclusion

Before starting a business or venturing in a particular market, it is important to understand the different types and sizes of business. Furthermore some business start without a certain type of structure, however in a long-run the owner should be aware of the best possible option. The evaluation of how external factors are likely to affect the business is also very significant for the business.

References

Armstrong, G., Kotler, P. and Opresnik, M., 2016. Marketing. Pearson Education UK.

GOV.UK, 2020. Set Up As A Sole Trader. [online] GOV.UK. Available at:

<https://www.gov.uk/set-up-sole-trader

Ica.coop, 2020. What Is A Cooperative? | ICA. [online] Ica.coop. Available at:

<https://www.ica.coop/en/cooperatives/what-is-a-cooperative>

Kopp, C. and James, M., 2020. Partnerships: What You Should Know. [online]

Investopedia.

Available at: <https://www.investopedia.com/terms/p/partnership.asp>

Korchak, J., 2017. What Is A Limited Company? – Inform Direct. [online] Inform

Direct.

Available at: <https://www.informdirect.co.uk/company-formation/what-is-a-limited-company/>

Korchak, o., 2017. Advantages And Disadvantages Of A Partnership Business –

Inform Direct. [online] Inform Direct. Available at: <https://www.informdirect.co.uk/business-management/partnership-business-advantages-and-disadvantages/>

Merchant Savvy, 2020. UK SME Data, Statistics & Charts (Updated Feb 2020).

[online] Merchant Savvy. Available at: https://www.merchantsavvy.co.uk/uk-sme-data-stats-charts/

OECD, 2005. OECD Glossary Of Statistical Terms – Small And Medium-Sized

Enterprises (Smes) Definition. [online] Stats.oecd.org. Available at: <https://stats.oecd.org/glossary/detail.asp?ID=3123> [Accessed 15 November 2020].

Rhodes, C., and Ward, M, 2020. Business Statistics. UK Parliament.

Scarborough, N. and Cornwall, J., 2018. Essentials Of Entrepreneurship And

Small Business Management. 9th ed. Pearson.

SHRM, 2015. Understanding Organizational Structures. [online] SHRM.

Available at: <https://www.shrm.org/resourcesandtools/tools-and-samples/toolkits/pages/understandingorganizationalstructures.aspx>

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