Question

Merrythought is a business that makes teddy bears, located in Ironbridge, Shropshire, in the United Kingdom. The business was founded years ago by Gordon Holmes. It is a private limited company, still owned by the Holmes family and is currently run by Gordon Holmes’s great-granddaughter Sarah Holmes.

The business has approximately 25 employees and does all its manufacturing in England. It makes a large number of different styles of teddy bears, ranging from “traditional British bears, to special occasion bears and various “ novelty’ bears.

1. Identify and define the type of business the Holmes family is conducting. Justify your answer
2. List its advantages and disadvantages.

Answer 1

Answer 1:

The Holmes Family is conducting a Small Family Owned, Private Limited Company.

A family-owned private limited company refers to the company structure in which the family members will hold the majority of voting shares and control the business. In this type of structure, one of the family members who is a shareholder as well in that company will involve in the management of the company.

In this type of company structure, the family retains the ownership and fully control the business. It is known for the oldest form of business structure. The private limited company is a separate legal entity that is owned by a family with the majority of shares held by the family. A private limited company is not allowed to offer its shares to the public.

Advantage of Family Owned Private Limited Company:

There are many advantages of a family-owned private limited company that we will discuss in below points:

a. Common Believes: When the company is controlled by the family members, there would be the same believes in business operation and management. They will have common agreements on how should the business be run?

b. Cost-effective: The business that is run by family members would be benefited from the lower operational costs. The family members would be interested in business growth and would be taking lesser salaries and other benefits for personal development. The family member will control the capital and would be spent on business development rather than personal development.

c. Long terms plans: The family-owned private limited company will have majority shares of the company and would have full control over operation and management decisions. They will not have any outside pressure to run the business outside a person's command such as investors, non-family member shareholders, etc. So the company would have long term plans rather than short term profits.

d. Flexibilities: This is one of the main advantages of a family-owned private limited company. Everyone will be contributing to business development even if they have to handle additional duties that are not covered in their job role. Everyone will be willing to handle multiple job roles with the only objective of the organization's development.

e. Loyalty: A family-owned business will have more loyal members who would be loyal to the business and to each other. They will stand together in the hard times and will perform better to make the business grow.

Disadvantages of the Family Owned Private Limited Company:

The family-owned private limited company would have some disadvantages as well that are discussed in below points:

a. Lack of Experienced and Skilled team: A family-owned organization would have a tendency to hire family members for most of the job posting. The business could face the issue of a lack of experienced and skilled team. In this structure, owners will not check out the experience and skills of the candidate but will hire new employees just because he is the family member.

b. Family issues: Business conflicts between members are common and every business faces this issue but at a professional level. But when conflicts happen in the family-owned private limited company, family relations would be at risk. Due to that whole family members will face issues of fight, depression, and lack of support from family members.

c. Succession Planning: This is one of the main issues that is the lack of succession planning for the business. The management will find it difficult to plan for succession post their step down from the business. Due to improper succession planning, the business will face the issue of poor leadership, financial and legal issues in the future.

d. Fewer growth opportunities: A family-owned business will find difficulties in business growth due to lack of resources such as capital, team, experienced senior leadership, lack of expansion plans, etc. The investors will be less interested in family-owned companies as company will not have any exit plans as they want to keep the ownership within the family members, and the decision making will be in control of the family members itself.