Types of Organisation

Nursery ManagementUnderstanding and Managing Finance

Some Types of Organisation

Sole Trader Partnership Limited Company (Ltd) Public Limited Company (PLC) Voluntary organisations Central and local government Quasi-governmental bodies

“Sole Trader”

Owned and controlled by one person (though more may work in it) for example a registered childminder or a private nursery owned by an individual

Advantages: Simple, flexible, full control and full retention of profits

Disadvantages: Unlimited liability, Difficult to raise capital, limits growth

Indicative Requirements: Licence VAT registration Accounts (for tax reasons) Health and Safety regulations Employment regulations

Advantages and disadvantages of being a sole trader

Advantages: Full control and full retention of profits

Disadvantages: Unlimited liability, it may be difficult to

raise capital

“Partnership”

Similar to Sole Trader but owned/ controlled by more than one person, for example a privately owned nursery run and owned by two friends

Governed by formal or informal partnership agreement (“Deed of partnership”) or subject to Partnership Act 1890

Shared responsibilities Shared finance and profits “Jointly and severally liable” Liability of “sleeping partners” can be limited

Limited Company (Ltd)

Subject to stricter regulatory framework, than sole trader and partnership

Example a large nursery chain like Busy Bees Owned by shareholders, run by Directors Separate legal entity to those who own it or run it Limited liability (may be limited by guarantee) Pays Corporation Tax on profits Profits distributed to shareholders through dividends Registered with Companies House Governed by Articles/Memorandum of Association

Limited Company (Ltd)

Advantages: Protection of limited liabilityContinuity through separate identityEasier to raise financeCredibility£100 to start up

Disadvantages: Legal formalities and costsLack of privacy of accountsAccountability to shareholders

Public Limited Company (PLC)

Similar to Limited Company but shares traded publicly through Stock Exchange

Must adhere to specific legislation (e.g. 6 monthly accounts, qualified accountant as Company Secretary)

Method of raising finance (e.g. through sale of shares)

Original owners can realise some of the value of their shares

Statutory Requirements for Incorporated Companies

Annual report including:

Annual return

Profit and Loss Account, Balance Sheet and

Cash-flow Statement

Notes to Accounts

Directors report

Auditors’ report (if appropriate) Information required is dependent on size of the

Company (small, medium, or large)

Voluntary Organisation - Unincorporated

Collection of individuals with common aim Example a small crèche run by a local church group May have a membership structure and constitution No separate legal status - cannot incur debts or be sued Individuals may therefore be jointly liable (but may take

out liability insurance) A trust may be suitable for organisations with charitable

aims A trust is normally governed by a trust deed - trustees

manage the assets for the benefit of a specific purpose

Voluntary Organisation - Incorporated

Company limited by guarantee or Industrial and provident society

Example a Charitable nursery Can hold property, enter into contracts and

employ staff in own name Limits personal liability (to the guarantee)

assuming no breaches of trust Has to comply with law and legislation and will

incur additional costs

Charitable Status

A group MAY register as a charity if its aims and objectives are “charitable” according to the Charity Commissioners’ definition - i.e. they fall into one of the 4 “heads of charity”: - relief of the poor, the handicapped and the aged - the advancement of religion - the advancement of education - other purposes beneficial to the community

Trustees may not benefit from the organisation and beneficiaries cannot be those who give (i.e. self-help groups are not charitable

Charitable Status

Disadvantages Political and campaigning

activities are limited Trading activities are limited Must comply with charity law -

submitting annual accounts; stating charitable status of official documents

Monitored by Charity Commission

Application process (though now simplified including model governing documents

Advantages Financial - including exemption

from most forms of direct taxation

Status/credibility of charity registration number

Central and local governmentQuasi-governmental bodies

• An example of early years provision here, in England, could be Children Centres