What is a corporation? Types of corporation, advantages and disadvantages of corporation? How is Amy's ice-cream working and how can it become more popular and wide-spreader?
A company is a legal entity that is separate and distinct from its members and shareholders. When a company is formed, it is said to have become "incorporated". A company is capable of owning property, making contracts, employing people and being sued or of suing. Unlike sole proprietorships or partnerships, companies have continuity of succession, as it is unaffected by the death or incapacity of one or more of its members.
There are three types of companies, a company limited by shares where the member’s personal liabilities are limited to the par value of their shares. As inspired from the book The Lean Startup (Ries, 2011, pp.27-63) a company is limited by guarantee where the liabilities of the members will be restricted to the amount each agrees to contribute to the assets of the company in the event of dissolution or liquidation and an unlimited company where there is no limit to the member’s liabilities.
1- Company limited by shares is the most common type of company structure. Companies limited by shares falls into two categories - Public limited companies and Private limited companies.
Following are the main points of difference between Amy’s Ice Cream (Private Company) and Public Company.
Minimum number of members, being a private company, Amy requires minimum of 2 members, whereas a Public Company requires at least 7 members, on the other hand maximum number of members in a Private Company is restricted to 50 and here is no restriction of maximum number of members in a Public Company. In case of Amy, there is complete restriction on the transferability of the shares through its Articles of Association, whereas there is no restriction on the transferability of the shares of a Public company. A Private Company (Amy’s Ice Cream) is prohibited from inviting the public for subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public Company can issue a Prospectus. As mentioned in Cornell Law Review (Ratnert, 1970, vol.56) Amy may have 2 directors to manage the affairs of the company, whereas a Public Company must have atleast 3 directors. There is no need to give the consent by the directors of Private Company, whereas the Directors of a Public Company must have file with the Registrar consent to act as Director of the company. The Directors of a Public Company are required to sign an undertaking to acquire the qualification shares of the public Company, while Amy doesn’t need to. Amy can commence her business immediately after its incorporation, whereas a Public Company cannot start its business until a Certificate to commencement of business is issued to it. Amy also cannot issue Share Warrants against its fully paid shares, while a Public Company can. Further issue of a Private Company need not offer the further issue of shares to its existing shareholders, but a Public Company has to offer the further issue of shares to its existing shareholders as right shares, further issue of shares can only be offer to the general public with the approval of the existing shareholders in the general meeting of the shareholders only. Statutory meeting, Amy’s Ice Cream being a private company has no obligation to call the Statutory Meeting of the member, whereas of Public Company must call its statutory Meeting and file Statutory Report with the Register of Companies. The quorum in the case of Amy is TWO members present personally, whereas in the case of a Public Company FIVE members must be present personally to constitute quorum. However, the Articles of Association may provide and number of members more than the required under the Act Managerial remuneration.
If a question asked is if Amy’s Ice Cream become a publicly held corporation, then there is no doubt in saying yes, there are several reasons for it, one of the primary reasons that Amy’s Ice Cream should go public is that she can raise a substantial amount of money. When a company wants to expand its business operations, one of the most effective ways to do so is to go public. Within a very short period of time, the company could raise millions of dollars from investors who want to buy stock. Amy can then use the money as it sees fit with no restrictions involved. Mergers and Acquisitions, once public, stocks could be considered as valuable as cash allowing you to acquire other businesses and assets. Market values of a public company are normally substantially higher than a private company with the same structure within the same industry. Statistics published by the U.S. Chamber of Commerce demonstrates that sellers of private companies receive an average of 4 to 6 times their net earnings. In contrast, public companies sell at an average of 20-25 times their net earnings. High-tech companies are valued even higher. Becoming a Public company, Amy could use stock and options as an incentive to attract and retain important employee’s .There are also tax advantages when issuing stock to an employee public. As a public company Amy’s Ice Cream will be seen as competitive and stable, allowing her to potentially win more business opportunities and investors. The prestige of a public company gives people on the outside the perception of stability and power. The major benefit of being a public company is the ability for its founders to create personal wealth. As stock becomes liquid it offers financial independence, increasing the personal net worth of the shareholders. Employees and officers have two ways to add to their wealth: by receiving a salary and selling stock or trading the stock for another type of asset. The public company can also be used as part of estate planning for management, allowing the business owner to leave their assets to heirs. And last but not least, Public companies are more likely to receive the attention of newspapers, magazines and periodicals than a private business. The proper use of press releases, interviews and news stories can increase investor awareness, shareholder value and demand for public company stock. Publicity alone for a public company can encourage investments from the public, business development and strategic relationships.
2- As mentioned in an article mentioned in Investopedia by (Marv Duman, Sep.5, 2008), private business itself has number of advantages. Amy’s stocks are remained with her family and friends and are not open to public. She also has another advantage in her field that she has Limited liability, continuity, sells more stock to earn more money, her business is registered as a registrar of business and it is not owned by a government or any other unknown person. It is very easy to form; simply Children or successors will inherit the family business only by way of transfer of ownership. The owner nominates his children via a will or a notarized power of attorney prior to death, In many cases, even when a sole proprietorship business is successful, all profits generated are taxed on a personal basis and tax exemptions are limited to personal and family matters. Therefore, as profits increase, so will the taxes. In a private company there are a lesser number of people to be consulted. Family members, relatives and close friends form a private company. They can take prompt decisions. A private company is not required to publish its accounts or file several documents, so it gives a good option of maintaining business secrets. There is greater personal touch with employees and customers in a private company. There is also greater incentive to work hard and take initiative in the management of business due to little separation between ownership and management. A private company is required to perform lesser legal formalities. It enjoys special exemptions and privileges under the company law. Therefore, there is greater elasticity of operations in a private company. When more resources or large-scale production is necessary, forming a private limited company protects the interests of lenders. With adequate funding, your company can produce goods at a lower cost, thus increasing profits and customer satisfaction. Furthermore, the future of the business becomes more secure. The private limited company is a proven, successful business model. The business owners hold all shares of the company privately. Forming a private limited company results in protection of personal assets, access to more resources, financial assistance and greater tax cuts, according to a research conducted by the New York times “As Companies seek Tax deals, governments pay high price.” (Louise Story, Dec 1, 2012).
3- For Amy, she is not just selling an ice cream but also an experience, complete with fanatical customer service, unique and delightful products and a happy and fun atmosphere to enjoy those things in. She wasn't the first super-premium ice cream shop in Austin, but she was the one that lasted and her fanatical customer base sure didn't hurt. It is important that the brand should be part of the community and she does this through their charitable works. I think it’s a key differentiator for them and is also crucial. Amy believes the food experience is all about slowing down and savoring what you are eating, that the experience is more than just the taste. Amy has a stated goal that for her company, the long term is 100 years. Having such a clear goal directs her decision making towards outcomes that may build slower, but surely more enduring and legitimate, value for her customers, her company, and her investors. Two of Amy’s operating principles that I thought were pretty unique and applicable was how she handles customer complaints. First, all complaint or suggestion e-mails go directly to her. Second, she turns complaining customers into secret shoppers, which creates a sense of belongingness in them, which is important for company’s growth, survival and success. Further, in the stores itself, what’s really great about Amy is that she makes it unique, though, is their great employees.
Many employees of Amy’s will do “tricks” with the ice cream as they prepare it and before the customer receives it. These tricks include things like throwing ice cream scoops under the leg, behind the back, and over people. Some locations are known for throwing ice cream across the street, where either the recipient or another employee will attempt to catch it which is crazy and fun, and tends to attract people.
“In this competitive world it is important to constantly keep on making plans and thinking of different ways to expand and grow the business…” mentioned in the book Plan as you go (Berry, 2008) so that one is not left far behind, one of the best ways is to go organic, due to the fact that day to day people are becoming more concerned towards the healthy lifestyle in this polluting world. This would help Amy gain the attention of the majority of people who live an organic lifestyle, and increase her value in market financially. In today’s fast moving world, it is important to continuously stay in contact with the outside world, due to many changes and competition in the market. In this age, technology plays an important role in business life. Amy can take up the task of running ads in local newspapers, post flyers, hand out business cards, and send post cards to targeted residents in various areas. Make them aware of the fact that you are available for parties, weddings, family reunions, picnics, and church functions and also contact local businesses to obtain permission to sell on their property. She should also think about the idea of opening more outlets at hot spots like highly visited places example Disney World etc.. A mobile ice cream truck for Amy’s Ice cream could be a good choice if Amy wants something new for her business. Aside from the fact that she only needs a little capital, she may choose to run this mobile ice cream truck in a seasonal basis especially during summer time. Since her business is a mobile truck, there is no specific location for it but she could let it pass by highly populated area like mall fronts, parks, schools and beach. Drive Through service could prove to be a good means for drawing significant sales too.
The driving force behind it, Phil Clay, the production manager, explained that “while the product is of excellent quality and does come in some unique flavors, ultimately ice cream is ice cream. One can just as easily go to Swensen’s or the Marble Slab to get great ice cream stores and keeps customers coming back again and again.” And indeed, the service at Amy’s is unique. When she opened the first Amy’s Ice Cream in October 1984, she had two philosophies: one that an employee should enjoy what he or she does, and another that the service as well as the ice cream should make the customer smile. These philosophies have provided the foundation for a business that two decades later is firmly established and thriving.
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