Over the last eight years, Peak Design has already raising money through Kickstarter for producing new series of products. However, there is a risk for Peak Design if they can’t gather capital successfully from people on the worldwide, the company may have financial problems. Peak Design is facing an important period to consider which legal structure should the company adopt in the future, transiting the company into a new operation system. The main purpose of this essay is to examine private limited company is the best legal structure for Peak Design in future development. After first exploring the benefits of private limited company, it will examine the drawbacks of it by comparing with other business structures. Finally, it will attempt to draw a conclusion.
There are a number of benefits of being a Private Limited Company for Peak Design. According to The Business Study, “Private limited companies are often family businesses owned by members of family or close friends” (Chambers and Gray, 2008:31). One benefit is that private limited company allows the firm to gather wealthy people who have same interests or related skills as shareholders and do the decision together with Peter Dering when in a dilemma. Peak Design is a design company which financing its fund through crowdfunding campaign to produce its products. Although since 2011, it has already received more than 15m dollars from Kickstarter (Peak Design, 2018). It may also have problems when they couldn’t get enough money from crowdfunding going concern, they should prepare a plan B about asking for loans from banks. However, as a private limited company, it can reduce the risk of lacking capital largely. Gathering shareholders in previous stage helps to raise enough money for operation. There are fewer stresses on R&D team about launching products on crowdfunding websites to gain the financial support. The research team could pay attention on product innovation. Another benefit for Peak Design using this structure is that the company can maintain its core R&D team to be loyal to the company by distributing the shares to employees. It is often to see that other companies pay much higher salary or provide much better working and life circumstance than the current jobs for talented staff, in order to tempt them skipping from their previous jobs. However, asking ambitious staff joining the company as shareholders can reduce the possibility of that phenomenon. Become as shareholders, it convinces staff consider their current job as their lifelong career, devote themselves into work with passion, responsibility and high level of productivity (GOV.UK, 2018). A further benefit of being a private limited company is that the power of organization and management of the company will not be lost to outsiders. As a private limited company, as long as Peter Dering holds the majority share, he can achieve its design objective as it has explained in the mission of the company’s website that their top priority is having fun, staff can choose their working time and working places as long as they like. (Peak Design, 2018) It encourages employees to follow their hearts and work as what they want, providing a comfortable working ambience to stimulate creative ideas of products. In comparison with public limited companies, where shares can be sold to public as stocks and anyone can buy it in stock exchange to be a shareholder of the company. Chambers and Gray (2008:32) state that since outsiders purchase shares of the company from stock exchange, the power of controlling the company may be lost because of high proportion of the share are hold by outside interests. In addition, there are more regulations in public limited companies and at least two directors or shareholders who do the management and decisions are required in the company operation, thus a decision to be made requires a half number of directors or shareholders in favor of the new policy. As for Peak Design, although public limited company can bring a big amount of capital for future operation, it may destroy Peter Dering’s initial dream of doing good-looking and thoughtful products to improve people’s life and having satisfied working environment, while some of shareholders have completely different values.
Another benefit for setting up the business as a private limited company is that shareholders have limited liabilities of the company. “Private company whose owners are legally responsible for its debts only to the extent of the amount of capital they invested” (Startups.co.uk: Starting a business advice and business ideas, 2018). In other words, the business is incorporated, the owners are separate from the company. If the business fails, shareholders cannot be forced to mortgage their assets to pay back the company’s debts. The maximum amount they could lose is the value of their shares. Compare with sole traders or partnerships, who have unlimited liability for the company. If the business fails, the owner has to use his/her own property to overcome the debts.
While the advantages have been mentioned, there are several disadvantages of setting up as a private limited company. The biggest problem as a private limited company is that there is less possible for them to expand the business, because of limited finance. “The shares of a private limited company cannot be bought and sold without the agreement of the other directors” (Marcouse et al, 2011:27). That is to say, it is not easy to raise more capital through having more shareholders as public limited company, the shares of the company cannot be advertised or sold on the stock exchange. As for Peak Design, if it faces financial problems again, it should use crowdfunding campaigns again to raise money or take a loan from the bank. Private limited company may not be a long-term financial solution.
A further significant drawback of private limited company is that the companies are required to provide its records of performance and taxes public. “It is critical to document the records at Companies House each monetary year, which will be on an open record” (MyOnlineCA, 2018). This behavior asks Peak Design to hire external auditors and adds company’s expenditure. It may also hurt Peak Design’s revenue, if the competitors embezzle the ideas from annual reports into their new products, it leads to a low cost for the competitors, grabbing Peak Design’s market share, due to less cost on R&D. Compare with any other legal structures except public limited company, they have no need to announce their financial statements to the public, it protects company’s privacy in a big extent.
In summary, this essay has considered both advantages and disadvantages about private limited company for Peak Design in the future. It is obvious to see that private limited company can have at least two shareholders, it helps to gather shareholders in previous stage in order to raise setting up money for future operation. There are fewer stresses on R&D team because of lack of money and they can have more expenditure on research and development to create better products. The company can also set up a special welfare for talented people, which can detain them by sharing shares with them, hence they will be loyal to the company and devote themselves in to the work. Furthermore, the shares cannot be sold on the store exchange, the founder will not lose its management power to the outsiders. The directors can build the company with warm and positive relationship, rather than strict and cold hierarchy. In addition, the shareholders have limited liability, they have no responsibility on debts if the company fails. While there is still some shortage. Private limited company is not easy to expand in later, due to shares only can be sold between relatives and friends, there is limited financial income to meet the requirement for expansion. Besides, company should public its annual report to the public, it may give competitors a chance getting Peak Design’s strategy of the coming year and take some protective or offensive action quickly. Therefore, a conclusion can be drawn that although there are some disadvantages of being a private limited company, it is still the most suitable legal structure for Peak Design adopting in the future. It is clear to see that Peak Design can release its financial pressure to be a private limited company and have more funding on innovation, as well as maintain the corporate culture.