1. You must advise specifically on the continuing use of the words ‘John Morgan Plumbing’ in the name of any proposed trading format you recommend.
2. Explain why you chose your recommended trading format with particular reference to the considerations outlined above and how your choice can facilitate the achievement of these objectives.
1. John Morgan has built his business as a sole proprietorship and gained a lot of prominence and progress. He has always traded as John Morgan Trading and the business’s name has become and household name going by the fact that it has obtained successful contracts for a number of major public sector developments. He has also increased the workforce to more than twenty people as well as a number of vehicles for transporting the plumbing personnel and equipments. A business name is also known as the trading name. It is the title under which a company or any other legal entity trades with. A business name, not only identifies the business to the customers, it also allows the business entity to differentiate itself from its competitors (Gregg, 2004 p50). It also helps the customers to make an emotional connection to a business brand, products and services. The business name is the most valuable asset of majority of businesses.
In this particular case, we see a sole proprietor using his own name as the business name; many of his clients know his company by the name John Morgan Plumbing. That is a brand that cannot just be wished away because it has already marketed itself to a great extent. John Morgan should consider the growing nature of his company and adopt a more manageable trading format that will ensure a continued growth and expansion of his business. However, he should maintain the business name because it is more convenient to work with an established brand name rather than incur costs of registering a new name and marketing it from scratch.
It is important to note that companies change their names often to reflect the arising market changes or due to conflicts in copyrights. There are huge multinationals that once changed their names and eventually triumphed in the market after very aggressive marketing campaigns. For instance, Nissan was once known as Datsun, LG was known as Lucky and Gold star while Xerox was initially known as Halloid Company (Spadaccini, 2004 p24). John Morgan’s company is unique in the sense that it deals with plumbing services rather than tangible products. A service business or a company derives its reputation from the quality of services being offered. In this particular case, the quality of plumbing services is closely tied to John Morgan who is the sole owner. Changing that name would complicate the company’s prospects of going concern.
It is expensive to change the company’s name. Changing the name of the business would require John Morgan to change the marketing materials, stationary, signage and business cards. In addition, he would have to overhaul the company’s website as well as the domain’s name. A change on company’s name would also require a change in the design of the logo as well as conduct a new market research for the new name. It is more advantageous for John Morgan to retain his original business name in order to maintain the trusted brand as the company expands. Such a company needs a robust name to maintain its original clients and networks.
It would also be costly to register a new company bearing in mind the legal factors associated with the exercise. Changing a company name would require the owner to conduct a trademark of the new name and register the company’s new name as a trademark. John Morgan would also have to obtain new employer identification number and submit the final tax returns to the IRS. By changing the company name, it would require the company owner to inform their bank and update their legal documentation including the articles of association. It is crucial for Morgan to retain the original company name because it is a small growing company and will not need any legal or tax advice.
Brand equity is another added value for retaining the initial company’s name rather than changing it. Many people including the clients, suppliers and customers are familiar with John Morgan Plumbing. When that name changes, definitely the company would lose its brand equity in the sense that not everyone will be familiar with the new name. For instance, John Morgan Plumbing had already built a good reputation in the plumbing industry and built some worthy networks. It is advantageous to retain the same name because the company is widely known by that name. Otherwise it would be very difficult to inform the loyal customers of the change of name whereby some will not necessarily associate themselves with the new name. Building a new reputation from scratch is an uphill task and would require the use of some substantial amount of resources (Martin, 2010 p73). It is also not logic to abandon an established brand in favour of a new one.
Even though the company has expanded so well and increased the numbers of employees, vehicles, operations etc, it is still a small company. Changing a name of such a company can sometimes be very disruptive. For instance, changing the company’s name, designing the logos and materials can take up a good deal of time for the employees. Such a change would require reworking of marketing materials and contacting customers of the changes made. The entire process may end up translating into loss of productivity as well as lowering of employees’ morale. Sometimes the employees may not support the change of company’s name and doing so would result to less productivity. The advantage of maintaining an established brand name is to allow employees ample time to focus on their work and to continue building the company brand rather than to concentrate on implementing the changes (Schneeman, 2012 p8).
John Morgan Plumbing should retain that particular business name. However, they should adopt a trading format of a private company limited by shares in order to effectively manage the company as it expands to become a huge company. Being a sole proprietor, John Morgan may find it difficult to effectively manage the growing number of employees and company’s operations by his own. Bearing g in mind that he still wants to maintain effectiveness of his business, he would still do so as the majority shareholder in the company.
2. The Irish Company Act 2014 underwent significant changes to create several types of Limited liability Companies. One of them was private companies limited by shares (LTDs). I prefer the trading format of a LTD because it provides an organization structure that enhances effective management. A Private Company Limited by Shares can be managed either by the owners or by the managers. Such a company can be managed by one director and Morgan has an opportunity to grow his business as a company while at the same time maintaining the control and autonomy in decision making of the company. Unlike corporations, LTDs are an operating agreement where the owners create rules that govern the business (Mancuso, 2015 p16). It is easier to form a private company limited by shares and maintain a good legal standing. John Morgan Plumbing would be do well as LTD especially at this time when it is expanding and growing to be a big company. It requires the attention of John Morgan to oversee a major transformation in terms of restructuring, management and delivery of plumbing services to the clients. It also requires his attention into further marketing of the company.
Benefits of Choosing LTD as the Appropriate Trading Format of John Morgan Plumbing
A private company limited by shares does not have a limit for the number of owners it can have. It can be either be owned by one member or many members. This element is in line with John Morgan desire to remain in control of his plumbing business. He will not have to lose the shareholding of the business because he has an option of remaining the sole owner while at the same time running the business as a LTD (Bevans, 2006 p89).
Similarly, a Company Limited by shares for John Morgan Plumbing is an ideal trading format regarding taxation purposes. Just like sole proprietorship, the incomes from the LTD are treated as personal incomes for the business owner. In that regard, they are not subject to certain federal taxations for which corporations are liable. Taxes are not paid at the business level but rather at an individual level. The tax returns are therefore reported on the owner’s personal income. For John Morgan, this is an ideal trading format because it is almost the same as the sole proprietorship and John Morgan will still remain the sole owner of the company and will be in total control of the business.
Creation of a Private Company Limited by Shares helps to affirm to the customers, employees, partners, traders and suppliers that the company has made a formal commitment to the business.
John Morgan Plumbing is currently a sole proprietorship and the business owner is directly liable for the companies liabilities because its a personal business. However, if he adopts a trading format of that of LTD, then he will be a distinct individual untied to the company. In fact the company is regarded as a legal person distinct from the owner. The owner is not liable or responsible for the business debts. Every transaction for the company will be done on behalf of the company and not for John Morgan. This is an ideal format of doing business because it disassociates personal finances of the business owner to those of the company. It is an easier format to expand the business and to access credit. It is also an easier format for negotiating business deal with other entities as well as with the suppliers, creditors and debtors. For instance, the creditors cannot pursue the personal accounts of John Morgan to recover the business debts because he is a distinct person from the business. In that regard, his personal assets are not vulnerable from the business debts. For a business expanding in such a fast phase, it is prudent to separate private and family life from the business in order to embark on a strategic management of business in terms of marketing, production, service delivery and brand management.
Under the new trading format, John Morgan will be in a better position to restructure the company’s processes including delegation of duties, designing the communication structures and defining specific roles and responsibilities of specific workers and managers. He will also be in a better position to seek consultancy services for the company on legal matters, management, marketing and services. He will also be in a better position to create or modify his company’s service brands for particular market segments depending on the market needs. This will be a recipe for expanding the business because every worker will have a set of defined roles and responsibilities.
Such a trading format will instil discipline in the workplace because the company will have a set of company’s mission statement, vision and objectives. Workers will be expected to work as a team whereby they will have a shared vision all working to meet the set objectives. This will go down to enhanced plumbing services to the respective clients. The company will be in a better position to monitor its operations and to identify the hard and smart working employees who can be used to further the company’s good reputation for purposes of continued excellent delivery of plumbing services.
A LTD is also an ideal format for John Morgan Plumbing because it will be seeking to do business with big organizations, government and other institutions. Big organizations such as institutions and government departments prefer to deal with reputable companies rather than an individual because aspects of professionalism are given priority. We have seen that John Morgan Plumbing had already obtained some contracts for major public sector developments as a sole proprietor. The success and reputation of this business will not only rely on its previous performance, but also on the measures taken to improve the company’s future engagements with other businesses. The objective of any business is to have a going concern and for such a booming plumbing business, the prospects of doing well in future lies on the kind of trading format they adopt at the moment. For a huge business, sole proprietorship would not be a viable business model because it would overstretch the management efforts of the business owner. It is in this regard that we say that a private company limited by shares is the best model that would guarantee John Morgan Plumbing a going concern.
Formation of a LTD will of course require some expenses and fees to file the Articles of Organization within the state. The fee used is more than that of the sole proprietor. However, the benefits of this new model are far bigger than the registration fees. Going with the fact that John Morgan was very eager to retain the control of the business, LTD provides that platform because unlike the corporations where one can sell shares, it is difficult to transfer an LTD. It is the prerogative of the owner to approve any addition of new owners or to alter ownership percentages. It is also important to acknowledge the fact that an LTD requires very simple legal process and is easy to manage especially when the owners are few. In this particular case, the owner is one and decision making process can be fast and strategic. It would not require setting up of long boardroom meetings to arrive to a decision because John Morgan can solicit competent advice from managers and consultants to make informed decisions regarding the business. I therefore, believe that an LTD is the best trading format that John Morgan Plumbing should adopt while at the same time maintaining the initial business name.
Bevans, N. R., 2006. Business Organizations and Corporate Law. Illustrated ed. Boston: Cengage Learning. Available at: https://books.google.co.ke/books?id=87G4yWVkehAC&printsec=frontcover&dq=Bevans,+N.+R.,+2006.+Business+Organizations+and+Corporate+Law.&hl=en&sa=X&redir_esc=y#v=onepage&q&f=false
Mancuso, A., 2015. Form Your Own Limited Liability Company. Berkeley: Nolo
Martin, A. R., 2010. Limited Liability Company and Partnership Answer Book. Alphen aan den Rijn : Aspen Publishers. Available at: https://books.google.co.ke/books?id=Nt_NyGiLXV8C&pg=SL10-PA8&dq=Limited+Liability+Company+and+Partnership+Answer+Book&hl=en&sa=X&redir_esc=y#v=onepage&q=Limited%20Liability%20Company%20and%20Partnership%20Answer%20Book&f=false
Schneeman, A., 2012. The Law of Corporations and Other Business Organizations. 6, illustrated ed. Boston: Cengage Learning. Available at: https://books.google.co.ke/books?id=lnoy85p0Pr0C&printsec=frontcover&dq=The+Law+of+Corporations+and+Other+Business+Organizations&hl=en&sa=X&redir_esc=y#v=onepage&q=The%20Law%20of%20Corporations%20and%20Other%20Business%20Organizations&f=false
Spadaccini, M., 2004. Ultimate Book of Forming Corps, LLCs, Partnerships & Sole Proprietorships. New York: McGraw-Hill Companies,Incorporated.