Different Legal Statuses of Business and Sources of Finance

This document provides information on different legal statuses of business in the UK, including public limited company, private limited company, and registered charity. It also discusses three sources of finance for startups, such as trade credit, cash credit, and issues of debentures. The strengths and weaknesses of each legal structure and financing option are explained. The document is relevant for students studying business and finance.

Structure of Business

Contents
INTRODUCTION......................................................................................................................3
Main body..................................................................................................................................3
A- Different legal statuses of business with its strength and weakness...........................3
B- Three sources of finance with strength and weakness.................................................5
C- Identify three sectors within the UK economy in which a business can operate......8
D- HR Policies and importance...........................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

INTRODUCTION
The entrepreneur starts up the new business by bringing innovative ideas and optimal
utilization of the resources by making contribution in the economy to achieve the objective.
The word startup denotes to a business in the primary phases of operations. The Startup
business are originated by entrepreneurs who need to grow a product or facility for which
they think there stands demand. These businesses usually commence with huge budgets and
restricted income, because of that they look for capital from a various of sources such
as venture capitalists. The individual person has the competence, skills and aptitude to start
and run the business. To startup the business various resources are recognized including the
legal business structure, sources of finance and human resources with policies. In developing
the business strategies, the financial requirement is determined with the segmentation of the
business into legal structures and implementing the suitable policies in mandate to generate
the distinctiveness of the business in the market (Calvo, N and et.al., 2018). In the study the
comprehensive information is provided on various legal structures of the business in UK with
its strengths and weakness that were adopted. It also states information regarding the diverse
sources of finance to startup the business with its advantages and disadvantage and three
different sectors of the UK economy and their differences. In study it has been also well-
defined changed human resources policies and their importance in the workplace. The chosen
startup business is Cosmetic company defining the manufacturing and distribution of the
cosmetic products to the customers of UK economy in the market. The cosmetic company
provides the wide range of products including the makeup, skincare, haircare, toiletries and
perfumes etc. the products help in enhancing the beauty of the customers and makes them
look beautiful.
Main body
A- Different legal statuses of business with its strength and weakness
The legal status of the organization describes the rights and liabilities of the
employees in the terms of the business ownership control, personal liability and financial
structure. With this it also determines companies and owner legal liabilities. These are
primarily divided into varied business sectors such as public limited company, private
Limited company and registered charity. The discussion is below-

Public limited company- In the company minimum paid-up capital is prescribed where
minimum number of members is seven and no limit in case of maximum members. The
public company provides the financial assistance within the prescribed limits. The company
shares are offered in the public which is freely traded by the members. It accepts and invites
the deposits from the public. The prospects are prepared by the public companies to issue
shares in public.
Strength- The capital is raised easily in the public company through public deposits,
acquisition by contributions shares which primes to the opportunities of the development and
growth. The company valuation is calculated easily as the companies are mandatory to file
the financial statements which gives the shareholders, investors, financial analysts to get
access regarding the company information (Detthamrong, U and et.al., 2017).
Weakness- The Public companies are susceptible to amplified examination from the
government, regulatory agencies, and the public. The company necessity meets numerous
obligatory reporting standards that are established by government entities. The owner loses
the control over different business. It requires the legal and regulatory requirements to protect
the shareholders. The required level of the transparency was high for the public companies.
Private limited company- It is designed legally with limited liability or lawful safety for its
stakeholders that places limitations on ownership. The members liability is limited to the
shares held by them which cannot be traded publicly. In the company the mini um number of
members is 2 with the maximum limit number of 200 members. The companies do not invite
and accept the deposits from the public. The company returns are separated and dispersed
among the shareholders in the form of dividend.
Strength- In the private limited company minimum capital is not required as it is a separate
legal entity. Venture capitalist and angel investors helps in raising funds. In the private
company the shares are transferrable by the shareholders to other person which is easy to
fetch funding. The financial problem is abridged due to limitless stakeholders and obligation
is been divided into diverse shareholders.
Weakness- The private limited company restricts the transfer ability of the shares by its
articles and does not require to issue prospectus to public. The shares cannot be quoted in
stock exchange. The administrator of the companies is held accountable for the liquidation of
the business (Dicke, T.S., 2017).

Registered charity- It is a charitable organization whose prime objective is to deliver social
wellbeing. For charitable purposes registered charity is established and operated and
resources are utilized for charitable activities. The funds are not used to benefits the members
and meets the public benefits. The registered charity is incorporated and governed by the
legal document known as trust and constitution. It defines the organization purposes and
structure. The license is provided by the central government after satisfying object and
intention of the association which is called as registered charity (Epifanova, T.V and et.al.,
2017).
Strength- The charitable organization gets the high relief from the taxes and gets the public
recognition and trust as prevailing for social good which also helps in assisting with
fundraising. The assets of the charity are used for only charitable objectives and cannot be
used for private benefit. For the charitable status the sources of the grant funding are open to
the organization.
Weakness- The weakness of the charitable organization is it faces the limitations to transmit
out numerous activities and obligatory to fulfill with monitoring requirements outlined by the
UK government. The capital cannot be raised up from equity reserves. The imbursement to
the representative is for the supply of the qualified service is forbidden without the structure
of charity and charity commission sanctions to pay with this necessitates aspect description.
B- Three sources of finance with strength and weakness
The sources of the capital are explored by the entrepreneur to who wants to start a
new business. In the context to the cosmetic company, it is essential for the finance manger to
choose the right source and mixture of finance by deep analysis each source and
understanding the characteristics of financing sources. The source of finance is classified on
the basis of time period comprising of short-term, medium-term, and long-term (Freitas
Junior, J.C.D.S and et.al.,2017).
Short term sources of finance
The financing is available for a period of one year or less in known as short term
finance. It is used to finance the working capital and the need arises to finance the current
assets such as raw material, inventory and etc. It forms the gap between short term expenses
and income. The sources are-

 Trade credit- it defines to the credit that a customer gets from the supplier of goods in
the normal course of business and buying firm is not required to immediate pay cash for
the purchase made. The deferral payment in the context to the cosmetic company is short
term financing. It is an informal arrangement decided on open account basis.
Strength- It is easy to obtain and available to the small firms provided flexibility serving
in the growing of the firm sales. It is economic and informal source which does not
require any negotiation and formal agreement (Hrustek, L and et.al., 2019).
Weakness- The disadvantage is related to extending the accounts payable outside the
credit period. The complications are involved in understanding the terms and conditions
of trade credit.
 Cash credit- The arrangement is made by the bank for the borrower is allowed to
withdraw funds from the bank up to the sanctioned credit limit. The credit can be
withdrawn periodically in the extent to the requirements and repaid by depositing surplus
funds in the cash credit account.
Strengths- The benefits to cosmetic company are it takes less time in approving the credit
and delivers flexibility as the time period can be extended according to the customer
needs. It also fulfills the current liabilities of the enterprise.
Weakness- The availing facility of cash credit requires more security in cash approval
and has high rate of interest. The extension of the credit amount and time limit is
depended on the bank consent.
Medium term sources of finance
The financing of the finance is provided for the two reasons when the long-term
capital is not available and deferred revenue expenditures are made such as advertisements.
The time period of the financing is for 3to 5 years. The sources in which finance is availed
are-
 Issues of debentures- It is beneficial source of financing for the cosmetic company as
when the company decide to raise loans from the public the loan amount is divided into
equal value units which is known as debentures. The debenture holders are the creditors
of the company who makes investment (Kooshknow and et.al., 2018).
Strength- It is cheap source of finance as interest rate is low than the rate of the return on
shares. The funds are raised by issuing the debentures to earn the high rate of return for
the business.

Weakness- The issue of debentures is not suitable for all the companies with the
fluctuating income and puts the burden on the companies to pay the interest whether
profit or loss incurred.
 Lease financing- Lease financing is momentous technique in request to meeting the
financial requirement of cosmetic company in which the corporate acquires the
possessions and further immovable assets on rent by reimbursing the scheduled rents for a
certain period of time. As cosmetic company is a startup business consequently, gaining
the appreciated fixed assets of the business advantage to diminution the monetary load of
the business and meet the corporate necessities.
Strengths: It offers secure rate capital. It delivers possible tax supports reliant on in what
way the lease is prearranged. The lease financing profits in assembly the financial
requirements of the corporate and reductions the responsibility for procurement the fixed
assets.
Weaknesses: Lease cannot be ended formerly the original term is finished. The
ownership of the lease financing is non transferrable to the proprietor which is still
accountable to preserve the possessions and equipment as per the definite relation of the
lease (Levenson, A and et.al., 2017).
Long term sources of finance
It partakes a noteworthy share in the monetary administration of the corporate
describing the credit facility providing for more than five years. This foundation of money is
compulsory to achieve the long-term liabilities comprise of secure capital required for
investment in fixed assets. The sources are-
 Retained earnings- Retained earnings are named as inside bases of funding for the
corporate activities. Retailed earnings are too recognized as the undistributed profit. It is a
portion of the proprietorship of the wealth of the business. The corporate sustains the
capitals established out after the revenue castoff for the business development. Cosmetic
company kinds the usage of this method by recollecting the incomes in the relation of the
reserves in demand to encounter the additional business requirements.
Strengths: It is a inexpensive source of funding deprived of connecting any acquisition
cost. The retained earnings deliver the strength to the corporate in monetary position and
stability which increases the marketplace worth of the shares (Lim, L.Y., 2017).

Weaknesses: There is an inappropriate operation of the reserves if correctly not specified
retained earnings which primes the decrease in the corporate productivity and efficiency.
The stockholders of the business are not acceptable to relish the full advantage of real
incomes of the business.
 Government grants- The UK government allocates financial and non-financial cash to
the company in UK, in order to reassure the commercial growth of the industries.
Cosmetic company receipts the funding of the governmental grants that assistances the
profitable to transport corporate progress resolve to the familiar problems confronted by
the business and profit the help of the financial support fetched by the UK government.
Strengths: The prime advantage of the government grant is the informal and appropriate
method to encounter the financial requirements of the corporate as the business is not
obliged to reimbursement back and delivers great variety of cash (Miroshnychenko, I and
et.al., 2021).
Weaknesses: The measures of the administration in granting the funds are stringent
which develops problematic in admittance necessitates a solid and considerable business
proposal. The contributions are obtainable on the involved polices and the cash is castoff
for the preliminary strategy by fulfilling the rules.
C- Identify three sectors within the UK economy in which a business can operate.
The income and economic development are constructed by the dissimilar commercial
segments in the economy of UK. These principally encompasses the primary, secondary,
tertiary which comprises varied business activities in order to reassure healthy economic
development. The diverse business segments bring input and output to enhance the worth in
the economy (Ray and et.al., 2018).
The primary business sector encompasses prime activities of businesses such as
providing raw material to supplementary businesses. It is also recognized as extraction sector.
The resources in this sector are renewable and includes the business that carries out for the
mining activities and income is received by the marketing to further business determinations.
The manufacturing and production activities is contained by secondary business
sector. This sector generates and allocates the finished goods by directing production and
manufacturing commercial activities. The manufacturing industry obtains the raw material
from the prime sector and syndicate them to yield a high value-added finished product. The

relocating of the raw material assistances the corporate in receiving returns by contribution
finished good to vender and retailers (Schaltegger, S. and Burritt, R., 2018).
The immaterial assets and services distributed to the clients covers in tertiary business
sectors. This sector involves of those business which fetches marketable services to the
different customers by concerning transportation, insurances and other physical value to the
clients. These corporate manufactures revenue on the basis of the services available by the
business in the marketplace.
D- HR Policies and importance
The HR policies is a general guidance that specifies the broad parameters within
which the organization members are expected to operate in pursuit of business goals. The
policy provides advance information and predicable decisions for situations. The HR policies
are statements of personal objectives for an organization which lays down the criteria for
decision making in field of personnel management. The policies identify the intention of
organization in the matters of recruitment, selection, placements and developments. In the
framework to the cosmetic company the HR policies are articulated by the HR manager to
preserve the optimistic business environment in the organization and sustaining government
measures (Scuotto, V and et.al., 2019).
Importance of HR policies
The HR policies are important for the organization as business is conducted in the
ethical way which helps in managing the business activities and workforce. The performance
standard is served by comparing the results with the policies to determine the organization
efficiency. The policies provide the feeling of the security by the employees as they know
what action is required to be taken in a particular situation. The manger also benefited by the
HR polices in delegation of authority to subordinates who are willing to accept the
responsibility. The importance of the HR policies primes to the worker enthusiasm and
faithfulness by launching reasonable principles and fairness so that progress can be improved.
The well-defined HR policies helps in prompting decision making on routine and repetitive
issues which prevents the wastage of time and energy. The policies formulate by the HR
department help in illuminating the administration rational for decision making (Villarón-
Peramato, O and et.al., 2018).

HR policies
Health and safety policies- This policy defines the course of action that influence the
decision making in the workplace and guides the actions. It is body of regulations described
at government level and implemented at workforce by the individuals. It provides the job
security to the personnel in the working environment to make them feel comfortable. These
health and safety measures encompass the understanding leaves of the employees such as
paternity leave, maternity leave, leaves for accidents and others. In the context to the
cosmetic industry the human resource manager provides the job security to the employees
and does not organize the physical infrastructure which might damage the employees. It is a
commitment in maintaining the safe and healthy working environment. A manager's health
and safety policy transfer this security obligation and commitment to each individual
member. The manager's health and safety policy depend on the scope and requirements of the
specific association. The efficiency and competence are increased in the workforce by this
policy (Waluszewski, A and et.al., 2017).
Equality and diversity policies- It is the policy of simple written agreement for the group
stating the avoidance of the discrimination in contradiction of people and creates safe,
comprehensive atmosphere for the members and service users. The equality defines
infringement down barriers, eradicating discrimination and safeguarding equivalent
opportunities by accessing all groups equally in employment, and to goods and services
whereas diversity means rejoicing variance and appreciating everyone. In context to the
cosmetic company the policies by the human resources manager assistances to boost fairness
and right management of the human capital in the association. Whereas, a place of work
necessitates of publics meanwhile different backgrounds, cultures thus it tries out to be
momentous to esteem the societal and cultural beliefs of the peoples. The human resource
manager in cosmetic company growths guidelines in order to sustenance the workplace
diversity and that each and all workforces feel comfortable and distributes equality of equal
opportunities in the workplace (Zhang, Q. and Wang, Y., 2018)0.
Conclusion
It has been summarized from the above study the to startup the new business in the
economy the resources are very important in order to meet the requirements in most ethical
and legal way. In the starting the business it should be consider the different legal structure
framed by the government to have the recognition in the market and complying with all the

legal formalities. The companies make the startup plan defining the strategies, policies and
the evaluate the sources to obtain the funds to meet the obligations. The HR policies and
guidelines are implemented in order to conducts the operation in the ethical way and for the
welfare of the society and employees. The effective implementation of the startup in the
economy brings the brand identity and growth with efficiency.

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