Regulatory practices in setting up businesses
HELLO, EVERYONE. I trust you are all enjoying principles of business and that you have began to review what you have been learning. Remember that time is very short and, before you know it, exam time will be here. Remember, too, that ‘the early bird catches the worm’.
This week, I take pleasure in presenting a lesson on some of the regulatory practices by which persons must abide when they are setting up businesses.
The regulatory practices governing the establishment of businesses refers to the rules and regulations by which persons who wish to establish a business should be guided. The regulations differ according to the type of business.
As far as the sole-trader type business is concerned, there are very few regulations in the setting up of the business. In fact, many sole-trader type businesses do not have any requirements to satisfy at all. A few may be required to have permits or licences in order to operate businesses. For example, those involved in handling food, say, at a restaurant, are required to have a food handler’s permit. They are also required to take a medical examination to satisfy the authorities that they are in good health as, otherwise, they could spread diseases. Public health inspectors will also visit the premises to ensure that sanitary conditions apply. For those who are selling alcohol or spirits, a licence authorising them to do so is required. Taxi operators are considered to be illegal operators if they do not have the correct transport documents, including a licence to carry passengers. They are also given regulations regarding the number of passengers they should carry in their passenger vehicles. Hairdressers and barbers will be licensed to operate once it is proven that they are qualified and that they have hygienic places in which to operate. Sand miners also need a licence to remove sand from riverbeds.
The partnership should have a minimum of two partners and a maximum of 20. In setting up a partnership, a Partnership Deed, or Deed of Partnership, should be drawn up. This document includes the name of the business, name and other occupations of the partners, and statements as to how profits and losses will be shared. The document may be drawn up by a lawyer, but it is not mandatory. The Deed of Partnership should be taken to the Companies Office of Jamaica, who will give permission for them to operate the partnership if everything is in order. If a partnership is set up and there is no Partnership Deed, then the partners will make reference to the British Partnership Act 1890, which indicates that all profits and losses should be shared equally.
Private and public limited companies are required to register with the Companies Office of Jamaica and to present the documents required. Included is the very important document Articles of Incorporation, which has replaced the Memorandum of Association and the Articles of Association. A private company may be formed with one person, or may have up to 50. For the public company, the minimum number of shareholders is seven, and there is no maximum. Public companies are required to publish their accounts and may sell shares to the general public via the stock exchange. The private company is not allowed to sell shares to the general public and, therefore, is not allowed to use the stock exchange.
In the case of professionals, for example, doctors, lawyers, accountants, etc, the requirement is that they register with their professional associations. Their associations are permitted by government to play a major role in overseeing the professional conduct of their members.
Persons who are engaged in trades, such as electricians and plumbers, must be licensed. Some are required to sit and pass examinations which qualify them to receive their licences and practise unsupervised.
Co-operative societies should register with the Registrar of Co-operative Societies. They are required to pay a small fee. They should operate the co-operative based on the five co-operative principles.
Now, let us talk a little about the various sources of venture capital for the business. You may recall that we defined venture capital as capital used to start the business or capital required for a special project within the business. The various sources of capital available to the business depend on the type of business.
The sole-trader normally uses private means of raising capital. He may use his savings, his inheritances or he may borrow from friends and relatives. Financial institutions are not normally a source of capital for the sole-trader type business, since they are normally very small and, as such, are not competitive when it comes to qualifying for loans. However, financial assistance my be given to them from the Small Businesses Association of Jamaica.
Partnerships rely on the pooling of money by each of the partners and they also borrow from financial institutions such as commercial banks.
Private and public limited companies and co-operatives get their capital mainly from selling shares. In addition, public and private companies may sell debentures. Debenture holders lend money to companies at interest. Depending on their size, they may also qualify for loans from financial institutions such as commercial banks.
I will leave you to consider how public-sector businesses (government-owned) raise capital. See you next week. At that time, we will discuss collateral and other forms of security. Take care until then.