What is a firm?
A small company that someone starts and owns to be self employed. The individual will then be ready to trade goods or a skill if they have one to offer. The goods that the individual will trade will either be a physical product or a trained skill he will use for people in need of work.
Owning and managing one of these independent businesses means that there will need to be a very clear up to date record of trading the business does because this will be used by the government to sort out tax that is owed.
In the 1750s individuals who had their own small company needed more money to continue trading when the trading business grew, so trade companies came together to form a partnership.
Partnerships Between Firms
Forming a partnership with another firm was very easy to start just agree and go. The wealth that is made together splits between the partners equally (e.g. 2 people 50/50). This means trust is required because each person involved with the partnership is reliable for any problems the other person does or commits.
Partnership would use a thing called a sleeping partner where one person would hold all the money and did the trading while the other person just came often to take his share of the money.
In victorian times the government came up with ‘Limited Liability Firm’ (Ltd) because companies needed even more money to trade. which means people could invest in a company to receive a profit and share of the companies wealth while the company used the money they invest to keep the trade going. To avoid letting criminals and con artists make a fraud firm to trick people into investing there was a list of things people needed to do like the company had to publish what their firm was about, they had to publish how well the company was doing annually, they had to publish their profits and losses and they had to publish the names of the companies directors and where they lived.
Starting a Ltd firm
To own the rights for a Ltd firm and getting started is simple, people can go to their solicitors and buy one right off the bat. In the next 2 weeks the Ltd firm would be up and running and ready to trade, after completing a lot of paper work before.
It is very difficult to stop a Ltd firm after it is started because in the law a Ltd firm is treated like a person it has rights like any other person and this is because the company owns assets that are needed to run the firm and are not owned by a person’s personal belongings, e.g. a restaurant will have tables and chairs. These tables and chairs don’t belong to anyone they belong to the firm.
Eventually a Ltd became too small because of the rise of big scale investments so the government came up with Public Limited Company (Plc) Which means that shares are freely shared on the market so anyone can join in with the investments.
The issues with Debts in Firms
- Profits/loss - where is the company making a profit or a loss.
- Cash Flow - The overall knowing of what money is coming in and money going out.
- Balance Sheets - The list of people and companies money is owed to.
In a firm Cash Flow is what sends businesses out of business because they spend too much money and then all of a sudden a ton of bills come in that need paying for the work done that they just spent money on.
What Did I learn and Summary
This lecture was aimed at people who might like the idea of starting their own independent company or joining other students in a partnership. The lecture focused on the basics of starting a firm and explained the different types of firms that can be created. During the lecture I learnt that it is really easy to start a Ltd firm and it can be started by anyone, I also learnt that when a firm is started it develops its own personal rights through the assets it owns like a person who has rights to their personal belongings at home. Because of this I realised that if the company gets into any debts the name that is on the papers for people who come to take assets away is the company name not the people working there.
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