Legal Status
Table 1: Summary of Legal Status of Business.
The table presented above highlights the major legal statuses of businesses in the UK and their strengths and weaknesses. The first and easiest form of business is the sole trader because it can be started and operated by a single individual. Depending on the scale, a sole trader can also hire a few employees to help with the operations of the business. The key strengths include that a sole trader can gain full control of the business. Additionally, it requires relatively less capital to start and operate. A sole trader can also be flexible because the nature of operations is small scale. Lastly, a sole trader faces minimum government regulations, which makes it easier to run. A sole trader also has several weaknesses, some of which are summarized in the table. First, the business is inherently risky because the trader is not a separate entity from the business. In other words, the liabilities of the business are borne by the sole trader. Second, sole traders are only suitable for small-scale investment, and scaling up may be difficult. Lastly, as an unincorporated business, a sole trader has limited sources of finances besides personal savings and small loans and grants. Sole traders cannot raise equity finance through the issuance of shares.
The second form is an unincorporated association, whose first strength is that it is cheap, quick, and easy to set up. Additionally, it does not require the payment of fees, does not require the services of a registrar, and does not have to submit accounts. Other strengths include that an unincorporated association is run by members, which means no expensive labor needs to be hired. Lastly, it can be relatively flexible in terms of aims and business activities.
A partnership is another legal status that can be adopted by an entrepreneur. Its strengths include that it is less formal, which means it has fewer legal obligations, and it is relatively easy to set up since the partners can agree verbally or in writing. Additionally, the partners share the burden of running the business where the tasks are shared among the partners, and the mutual support means the partners can have access to shared knowledge, experience, contacts, and skills. Lastly, with more than one person involved, there is better decision-making, partners can raise more capital as compared to other forms, including sole traders, and ownership and control are combined among the partners. The weaknesses of a partnership include it lacks independent legal status, meaning that the partners are can be personally liable to the partnership’s obligations. Partnerships also have unlimited liability, which means the partners bear the obligations of the business. They also have limited access to capital since they rely mostly on partner contributions, and there is potential for differences and conflicts among the partners regarding business matters. Lastly, decision-making is slower because all partners have to be involved, and the revenues and profits are shared among the partners.
Limited partnerships involve a business with general partners and limited partners. The key strengths include the fact that Limited partnerships can raise more capital from the partners. Additionally, there is a limited partner who faces limited liability for losses incurred. Lastly, the responsibility for the work is distributed among partners. The weaknesses include that the general partner bears maximum liabilities for the obligations of the partnership. Additionally, conflicts and differences among partners may emerge and, lastly, the limited partners have little influence on the decision-making.
Another option for an entrepreneur is to establish a limited company, whose key strengths include the fact that it is more tax-efficient. A separate legal status protects the shareholders from the liabilities of the company and allows the company to run all business affairs in its name. Lastly, limited companies can have access to a wider pool of finances. A limited company also has weaknesses, for instance, it is complex and complicated to set up. Additionally, decision-making can be time-consuming due to the many shareholders involved. Company names are subject to certain regulatory restrictions, and strict procedures have to be followed when withdrawing funds and accomplishing other tasks.
The strengths of a limited liability partnership (LLP) include that all partners are protected from the liabilities of the business because LLPs are separate legal entities. Additionally, LLPs are more flexible in terms of the operation and distribution of profits. LLPs can do business in their name, and the partnership names are protected through registration as the Companies House. LLPs also have weaknesses, for example, they are subject to public disclosures. The revenues are regarded as personal incomes and are taxed as such. The profits cannot be retained in the same manner as companies limited by shares, and LLPs have relatively limited access to capital as compared to limited companies.
The strengths of community interest companies (CICs) are that these businesses have a clear commitment to social goals. CICs offer access to more funds, especially from donors, and the owners and managers are protected from the liabilities of the CICs. Additionally, the structures of the companies are more flexible, they are quicker to set up, and have fewer governance requirements. CICs have weaknesses, include that they follow the same incorporation procedures as other companies, which can be complex. Ongoing company compliance can be a challenge as the social purpose has to be maintained. CICs do not benefit from tax breaks granted to other forms of charitable organizations. Additionally, access to funding can also be limited, and these businesses face restrictions on the payment of dividends.
Lastly, cooperative societies have such key strengths as voluntary membership. Cooperatives are easy to form and operate. They are operated on a democratic basis, which means the interests of all stakeholders are met. Other strengths include that surplus are equitably distributed, they offer limited liability to members, they often receive government supports, and taxation is low. In terms of weaknesses, funding is often limited, and cooperatives often over-rely on government funds. Additionally, mismanagement can result from a lack of proper management skills, while operational inefficiencies can lead to losses.
Sources of Finance
Starting a business as an entrepreneur means determining the sources of capital. Currently, the ongoing Covid-19 pandemic has meant that funds are scarce. The three most likely sources of finances include startup business loans, government startup loans, and venture capitalists. Business startup loans are often unsecured personal loans intended for business purposes only. The main strength is that these loans do not require any securities, which means entrepreneurs with promising business ideas can easily access them. A second strength is that they have low-interest rates, often around 6% p/a (Watts, 2021, para. 6). Additionally, these loans make it possible to protect personal wealth from the losses of the business. Lastly, the entrepreneur can retain ownership of the businesses. The weaknesses include the fact that only limited funds can be offered as loans for startups, often ranging from £500 to £25,000. Startups that require additional capital will be required to raise using alternative sources. It is hard for entrepreneurs to qualify because lenders often perceive startups as risky ventures (Fora Financial, 2021, para. 13). Lastly, loan repayment restricts the cash flow, which can disrupt the progress of the venture.
The second source of funds is grants from the government for entrepreneurship purposes. Many governments across the world, including the UK, are seeking to fill the funding gap for startups through loan guarantees and subsidized personal loans (Bertoni, Marti, and Reverte, 2019, p. 371; Marti and Quas, 2018, p. 397). The main strength of this source of funds is that it does not need to be repaid. Therefore, an entrepreneur can save personal finances or reinvest them to grow the business further. Additionally, the absence of loan repayments means that the cash flows are not disrupted. An entrepreneur can focus on growing the business as opposed to repaying the loans. Most importantly, government-backed loans are often targeted towards certain initiatives. Therefore, the entrepreneurs whose businesses are aligned with the interests of the government can easily access these loans. In times of Covid-19, ventures that are designed to help the country ease the burden of the pandemic can easily be supported by the government.
The main weakness of the government-backed loans is that they do not cover all the startup costs, which means that the entrepreneur has to get finances from other sources. In many cases, startups are exempted from government grants because these funds are sources from the taxpayers. Without a track record, the government may not risk the taxpayers’ money. Government-backed loans are also highly competitive, making it difficult for entrepreneurs to access them. Such difficulties are expounded by the inability of the startups to align their agenda with the interests of the government.
The third source of capital for a startup is venture capitalists. By description, venture capitalists are a collective investment in a venture that often engages in innovative activities. The gains of the business are shared between the business and the investors (Lyasnikov et al., 2017, p. 112). The main strength is that an entrepreneur does not necessarily need a track record, especially where the investors have faith in the business. The main weakness is that the proceedings are sharded between the entrepreneur and the investor. The payment of these proceeds means the entrepreneur does not have full control of the business, and the revenues gained from the businesses cannot be easily reinvested. Investors are often more focused on recovering their investments, which means a conflict of interest may occur.
Sectors in the UK Economy
Three sectors within the UK economy where a business can operate include the services sector, agriculture, and construction. The services sector is one of the fastest-growing and most important for the UK government. According to Elliot (2021a, para. 4), the services sector accounts for approximately 80% of the national output of the country. The sector comprises such businesses as hospitality, leisure, and other activities that involve directly serving the customers. Today, it is estimated that the services sector in the UK employs about 16.1 million people, which accounts for 50% of the country’s workforce (Sutton-Parker, 2020, p. 517). Therefore, it can be argued that the UK heavily depends on this sector for both employment and revenue generation. Additionally, several other trends can be observed in the sector, one of the most important being the proliferation of information technology and sustainability practices. These elements, it should be noted, as common across all sectors, especially at a time when businesses are under pressure to minimize carbon footprints.
The construction sector in the UK is also an important one for the country. However, the sector accounts for an estimated 6% of the total UK output, which means that it is nowhere near the services sector in terms of size and contribution to the economy (Elliot, 2021b, para 2). However, the progress of the construction industry may depend on other sectors. For example, the growth of the hospitality sector may result in growing construction efforts, which fall under construction. Expansions and government investments in certain facilities, as well as private commercial ventures such as housing, are also key to the growth of the construction sector. Therefore, it can be argued that the sector plays a supporting role to others. Regardless of how it is perceived, it is expected that the construction industry will continue to grow. Its diversity means that the sector is involved in such aspects of the business as buildings, infrastructure, and manufacture and supply of products. Additionally, operation, disposal, and maintenance of the infrastructure, buildings, and products also fall under the construction industry.
The agricultural sector is another critical sector in the UK, which often responsible for feeding the country’s population. Among the key facts regarding this sector include that it employs over 4 million people and contributes an estimated £120 billion to the country’s economy (Countryside, 2020, para. 1). Agriculture can be described as a driving force behind other economic activities, which give similar characteristics to construction. For example, such activities as food production and restaurant businesses may depend on agriculture to provide the basic raw materials. In a recent government report, it was estimated that agriculture contributed approximately £9,435 million in terms of Gross Value Added at basic prices to the economy (Department for Environment Food and Rural Affairs, 2021). The most important aspect is the fact that the sector helps improve UK’s food self-sufficiency, which currently stands at 64% (Countryside, 2020, para. 6). Therefore, it can be argued that this sector has the potential to make a critical impact on the country’s economic wellbeing in the long run and to address the issue of scarcity in the country’s food resources.
The main difference between these three sectors is in terms of how much they contribute to the total output of the country. The facts presented above indicate that the services sector is leading the race of the most valuable sector in the country. The rate of growth of the services sector may also be a key difference considering other such sectors as construction grow at a very low rate. Therefore, it can be argued that the services sector offers the best potential for any startup. Additionally, the current growth of the services sector is fueled by advances in technology. As mentioned earlier, all sectors have benefited from new technology, which offers operational efficiencies and cost-saving capabilities. For example, robotics and global positioning satellites in agriculture and new machinery and computer tools for design in the construction industry have significantly helped develop the sectors. However, IT helps in the development of new business ideas and ventures, including such online services as payments and communication. Therefore, technology has had different impacts on the three sectors.
The value of each sector to the UK economy can be perceived in terms of the contributions to gross domestic products (GDP) and other such economic benefits as employment and food security. For the services sector, the rate of employment is massive, as illustrated by the fact that 50% of the country’s workforce is employed here (Sutton-Parker, 2020, p. 517). Agricultural is also extremely valuable to the UK because it is the main source of the food consumed in the country. Without this sector, the UK would be forced to import food from other countries. This value is in addition to the millions of sole trader farmers in the rural areas and the contributions to the GDP. Similarly, the construction industry provides the basis for the country’s development agenda.
HR Policies
Human resource (HR) policies are critical for the effective management of personnel in the workplace. Two of the most important policies include health and safety and anti-discrimination policies. Health and safety policies tend to define occupational health in the workplace and mitigate against accidents and other health risk factors (Jonathan and Mbogo, 2016, p. 1). In the modern workplace, there are many reasons to ensure that the employees remain safe. Using the concept of opportunity costs, it can be argued that the employers are liable for the accidents and the resulting injuries to employees, which could mean expending more than what could have been used in the development and implementation of health measures. The costs of insurance and medication for injured workers, as well as other such risks as reputational, may have significant detriments for the businesses. The HR managers are, as a result, required to help the organizations in the governing of workplace safety through health and safety policies.
Depending on the nature of the workplace and the industry, the degree of necessity of health and safety differ, as well as the costs of noncompliance. In such industries as construction, the workers tend to work in dangerous environments. Building and other construction sites are always hazardous, which means that critical and effective safety and health measures are needed. According to Jonathan and Mbogo (2016, p. 1), it is not only the employers who are responsible for compliance with the health and safety policies. The employees are also bound by certain rules and regulations, especially focusing on their codes of conduct. For example, laboratory workers or those working with dangerous chemicals must use the appropriate safety gear and clothing. These guidelines can be enforced and closely monitored by the HR department to prevent the occurrence of incidents.
The second HR policy is anti-discrimination, which is often a key legal requirement by governments across the world. In the modern workplace, there have been heightened efforts to fight discrimination against vulnerable groups of people. Examples include the members of the LGBT (lesbian, gay, bisexual, and transgender) and people with such health conditions as autism. Additionally, racial and ethnic discrimination in many western countries is a major challenge. The anti-discrimination HR policies are also founded on the principle of equality, a major provision in the constitutions and legislation of many countries. Roughly interpreted, equality entails offering all people equal opportunities in the workplace (Amirkahni and Tabghi, 2016, p. 97). However, anti-discrimination policies go beyond the opportunities, which are often expressed through such HR practices as recruitment. In essence, the treatment of people based on their differences, for instance, lower wages for certain ethnic groups or harsh treatment of women in the workplace, are all addressed in the anti-discrimination policies. Modern society embraces equality, more so because cases of inequality and discrimination have become highly political and controversial. Therefore, it is critical that an organization has a policy in place to address this issue.
Just like the health and safety policies, the anti-discrimination policies are intended to guide and correct the behavior of the employees towards others. Modern workplaces have become increasingly sensitive with many legal battles against employers. Reputational costs in an era where there is a scarcity of talent can be extreme. The modern generation, comprising mostly the millennials, tends to prefer more reputable organizations, especially those that address some of the major issues, including sustainability. The new generation also understands that they have a key role to play in making the world better. Therefore, it is possible that the most skilled workers could refuse to take jobs in certain businesses because of their discriminatory practices. Additionally, it is important to acknowledge that modern businesses use diversity as a form of competitive advantage (Ensari, Gurel, and Alay, 2017, p. 105). The global nature of modern corporations means that HR managers need to manage diversity better. However, their efforts may fail to materialize if the workplace is discriminatory in nature or where certain workers are not treated right. The anti-discrimination policies could be the best approach to diversity management.
Reference List
Amirkahni, A. and Tabghi, R. (2016) ‘Comparative study of anti-discrimination laws of the UK, the United States of America and India’, Mediterranean Journal of Social Sciences, 7(3), pp. 96-111.
Bertoni, F., Marti, J. and Reverte, C. (2019) ‘The impact of government-supported participative loans on the growth of entrepreneurial ventures’, Research Policy, 48(1), pp. 371-384.
Countryside, 2020.Contributing to the economy.Web.
Department for Environment Food and Rural Affairs (2021) Total income from farming in the United Kingdom, first estimate for 2020. Web.
Elliot, L. (2021a) UK service sector growth hits seven-year high as Covid restrictions ease.Web.
Elliot, L. (2021b) Sharp pick-up in UK construction amid rapid economic recovery. Web.
Ensari, S., Gurel, P. and Alay, H. (2017) ‘Does diversity management provide competitive advantage?’, The International Journal Of Business and Management, 5(1), pp. 101-113.
Fora Financial, 2021. Pros and cons of startup business loans. Web.
Jonathan, G. and Mbogo, R. (2016) ‘Maintaining health and safety at workplace: Employee and employer’s role in ensuring a safe working environment’, Journal of Education and Practice, 7(29), pp. 1-7.
Lyasnikov, N. et al. (2017) ‘Venture capital financing as a mechanism for impelling innovation activity’, European Research Studies Journal, 20(2B), pp. 111-122.
Marti, J. and Quas, A. (2018) ‘A beacon in the night: government certification of SMEs towards banks’, Small Business Economics, 50, pp. 397-413.
Sutton-Parker, J. (2020) ‘Quantifying resistance to the diffusion of information technology sustainability practices in United Kingdom service sector’, Procedia Computer Science, 175, pp. 517-524.
Watts, J. (2021) Sources of business finance: 6 ways to fund your start-up.Web.