Basic Company Business Structures and Finance Criteria.
Every country has different structures of how companies are supposed to be registered before they can trade. A company’s set up will influence its ability to raise finance for the business. Legal entities range from independent business people and partnerships, all the way up to public companies listed on a stock market.
In the United Kingdom there are five basic types of legal business entity: Sole Trader, Partnership (Limited Partnership), Private Limited Company, Public Limited Company and Co-operative.
The sole trader is a business normally run and managed by the owner, while a business partnership is an entity where ownership is divided by a partnership agreement between two or more individuals. While there are several partnership constructions, normally the business is run by a general or managing partner who controls the day to day function of the partnership.
A Private Limited Company is an entity driven by the articles of association and has ongoing direct legal standing. It is owned by one or more registered shareholders who can sell or buy shares in the enterprise. A Public Limited Company (Plc) has a similar legal status as the Private Limited Company, with the sole difference that the shares can be sold to the general public.
Finance is the issuing of money, which is to be repaid by a predetermined future date and from an identified source. This can make credit decisions difficult, as the lender has to make a forecast for the future based on historical data.
Lenders can be divided into three main categories. The first group are Institutional Lenders. These are usually ‘depository institutions’ such as banks, savings and loans, credit unions and many government regulated monetary businesses. The second type of Lender is a Private or Commercial Lender. These are ‘non-depository’ companies, such as Insurance companies, mortgage banks, and commercial finance companies. The third type of lender is the Public Market Lender. These are securities dealers who provide debt and equity securities to the public and the proceeds are then utilised by business, for capital.
What does this all mean to industry as a whole or rather more pertinent, what can it mean for your business? Hopefully a wide variety of available options, all designed to fund companies and individual projects. It does help to understand some of the basics where the money comes from, as it will assist in understanding what type of funding to go for. Commercial finance can be divided into three categories: 1. Direct Loan. This is the most common type of finance related to an identified subject, and based on repayments according to a contract, as many consumer type loans are regulated by the Consumer Credit Act 1974. Examples in this category are car and van loans, first and second mortgages, home improvement loans, business loans, and leasing. 2. Indirect Lending. This type of credit extension occurs when the borrower does not directly receive a value of any proceeds from the credit agreement. Some examples include: letters of credit, surety bonds, some equipment leases, dealer floor plans and public and private securities offerings. 3. xyz type loans. This is a catch phrase that is used when credit extension facilities are not formalised or are not considered to be true granting of credit. These examples include the purchase of an asset at a discounted or ‘down-valued’ price from their actual market value.
“No-one ever went broke making a profit” is a simple statement, but in the day to day world of business and competitiveness it is not always easy to live up to. Adequate finance support is required by most businesses on a regular basis. Used wisely it will help maintain a positive cash flow for your operation. Making the right level of finance therefore serve as fertiliser, should help making your business grow and prosper.
The type of funds available in today’s commercial markets is varied to say the least. From straight asset based finance, accounts receivable finance, factoring, sales and lease back, bridging loans and equipment and vehicle leasing. Plus a variety of commercial property and development finance.
As a business owner or company director it helps to see a money lender as a long term partner for your business. Just like your other professional advisors, such as a solicitor or accountant. Once your money provider gets to know your company and activities, he can better assess the strengths and weaknesses in your business cycles and provide the necessary funding at the right time.