Economics

Mohammed Isaaq

Assignment 2
Over the last few decades the construction industry has grown rapidly within the U.K
in size and economy. It is one of the biggest industrial sectors and is still rapidly
increasing. This consists of around 183000 firms in the private sector alone as well as
the public sector. The Construction economy has been built from all sorts of
companies from small soul-trader firms to large Public Limited companies. Nearly all
of the multi million pounds firms all started off as small soul-trader firms and grew
over time.
The soul-trader firms are small firms that originally start off with few employees or
sometimes none and do work in a small geographical area. These firms are based
around a certain skill of the owner of the person who has started the firm. These small
firms borrow small capital from banks or building societies to kick start their
companies so they can get going. There is no specific registration for them so the only
thing they need is a name for the company. These organisations operate mainly from
home and contact through mobile phones. They use their personal cars and convert
them into their cars for their business. Along side these they hire simple tools for their
work purposes. In reality such firms are self employed individuals, and they pay
income tax on any profit made. Nowadays a lot of sole traders are setting up their own
businesses via the internet by creating small web-based companies whilst working
from their own homes.
The sole trader does not pay corporate taxes, but the organizer of the business pays
personal income taxes on the profits made making accounting much simpler. It may
be that they are legally responsible to pay more tax if they set up as a limited
company. Another advantage of being a sole trader is that it is far easier to set up
compared to a limited company as it requires little time and capital. It all comes down
to the fact that you are your own boss; there is much more freedom as time is flexible,
as you work the way it suites you.
The downside with this kind of firm is that its not separate from the individual and
there is a treat of personal bankruptcy. . Sole traders may also be forced to work long
hours as the may be the only one who works for the business. Additionally sole
traders prices are often higher than those of larger organizations, this is because sole
traders tend to be small and are unable to buy materials in bulk and benefit from the
lower prices that are offered in bulk purchases. Another drawback for a sole trader
being the only worker of the company is if he or she was to fall ill or for example go
on holiday the business is likely to suffer.
From here it is difficult to flow because of the restricted finance and skill limitations.
Some examples of these companies would be plumbers, decorators and builders. The
soul trader firms in construction do general repair and maintenance on private
housing. Mainly consist of Specialist sub-contractors. Most are known as domestic
consultants.

Economics

Mohammed Isaaq

The easiest and most common way for small firms like these to grow is to go into
partnership. Partnership allows different skills to be combined e.g. office with
production skills. This partnership consists of more than one person and can go up to
20 partners. The advantage of this is new capital can be introduced and as a result
more opportunities are available like expanding the organisation physically. Also in
partnerships is something called limited liability partnerships, these are larger
partnerships where each partner has protection from business failures.
Limited partners are not accountable for the responsibilities or debts of the business
outside the amount contributed unlike general partners therefore it is easier to attract
investors as limited partners. Limited partnership benefits limited partners because it
doesnt involve any hands on work and no time is need be devoted to the business. A
limited partners purpose is to provide funding not expertise. There are many other
advantages of limited partnerships for example general partners can use there
expertise to manage the business and make key decisions due to the arrangement
made through the partnership.
But like most things there are also disadvantages and one of the biggest is trust.
Partnerships depend on trust between one and other. The problems that can arise in
having a partnership are that firms and individuals are still not separate and so
unlimited liability. Another more personal issue is dishonest partners. They can cause
many problems and as a result can break up the firm. Along side this is a more natural
problem, illness or even death. This would also have dire consequences and so need to
be watched out for but hard to avoid.
In the construction industry, the partnerships would be similar to soul trader firms in
terms of work. They would also do smaller scale private work but are likely to be
more organised. An example of partnerships would be two companies, one in
plumbing and the other in drainage to come together to have a company that does
both. Other examples would be plumbing and heating or Brick work and stone work
or even plumbers and bricklayers. This would attract customers more as they might
have had a previous job don e good in one thing and so would also like it in
something else.
From here firms can grow to the next step which is growing into a company. These
companies then split into a few different types. One of them is limited liability
Company, similar to what I already said earlier on. Here the individual is separate to
the company and this means the company takes on assets and debts on to itself. This
makes the individual an employee of the company. The biggest difference form other
companies is the fact that in the event of company insolvency (bankruptcy) the
individual owner is limited in his or her losses by original share holdings. This
secures partners or the owners in a company.

Economics

Mohammed Isaaq

Another type is LTD which is a private company. Normally a bit smaller but similar to
the PLC .The PLC is a public limited company and is larger physically and capitally
than the LTD. This is a private company with only a few shareholders, usually
between 2 up to around 50 owners. Company is run by directors who are employees.
Shares are restricted and are not available to the public. Companies tend to be larger
than sole traders/partnerships and because the individual is separate, it becomes easier
to borrow funds in company name which also means companies pay corporate tax on
any profit. Also a Ltd company can start trading immediately upon incorporation; it
does not require any trading certificate to start its business.
This sort of company is a bit different to set up than the soul trader firms. First of all
the company involves registration at company house, and must be accordance with
the laws of the Company law. The accounts have to be registered and the company
must have tax returns.
Like before even the Private Limited Companies have disadvantages for example
there are strict legal requirements which orders private limited companies to file
annual returns and accounts under the Companies Act. Also all company information
is publicly through companys house, as well as that they are normally more time
consuming and costly to set up and public limited companies may find it difficult to
obtain credit due to limited liability.
Something a bit bigger than this is the PLC which stands for Public Limited
Company. These companies appoint their own directors. Here shares can be sold to
the general public and shares are traded on stock exchange. Its similar to private
limited companies but here a Public limited Company will have more productive skill
covering a broad range of elements and also have a well established company name
which would have been registered. They also can also get better deals loans from
banks as they can borrow up to millions and have a low interest rate due to their low
risk of failure.
A newly incorporated PLC cannot start as a business or start borrowing until it has a
certificate issued under Companies Act (1985) confirming that the company has
issued share capital of 50,000; the certificate is proof that the company is entitled to
begin trading and borrow. PLCs also have various other requirements which includes
have at least two directors and a fully qualified company secretary.
Public limited companies also have limited liability therefore shareholders would only
loose the amount invested if the firm was to go bankrupt and the companies can be
subjected to take over.
In terms of converting a private limited company into a Plc has its advantages as this
means more capital and a wider opportunity of getting better contract deals plus the
fact that any member of the public can invest for a share in the company. If a
particular plc owner feels that the company share price undervalues the actual cost of
the company it can go back to being a private company once more.

Economics

Mohammed Isaaq

Owners of PLC companies are really big companies like banks and insurance
companies. In the construction industry the Larger PLC companies do nearly all the
new work done around the U.K. These are larger new contractors, doing the work in
the industrial and commercial sectors. They work more with the government and PFI
(private finance initiative) contractors. These companies do a lot of overseas
contracting and provide a range of professional services within construction.
The Housing Association are a good example of this as they are a company bodies
which provide social housing for a very low cost, for those in need of a house. They
are now the largest providers for new homes for rent in the UK. They, in addition,
have many other schemes for providing homes for older people and larger estates for
families. They have many specialists projects for people with mental health and
learning disabilities. In terms of funding they are supported by many companies for
example Housing Corporation.
The smaller companies (LTD) do more new work and less repair and maintenance.
Here they mainly do industrial and small commercial work. They do more private
housing work in smaller developments. Along with all this they do consulting services
to commercial clients. These companies do a lot of work for the RSL. The RSL stands
for Registered Social Landlord and the developments they do are around community
housing organisations, housing associations, council housing departments, local
housing companies, and housing partnerships

Economics

Mohammed Isaaq

What is a DLO?
DLO also known as the Direct Labour Organisation carries out most of the
maintenance on Council houses, together with some maintenance to other council
owned property. DLOs constantly try wining contracts for additional work therefore
increasing their turn over. DLOs seek to provide a quality service and try improving
their service whilst tackling problems for customer satisfaction.
The DLOs were developed by a Fabian group which, were a political sector; although
small in numbers they were very influential in ruling the Progressive Party. The
Fabian group managed to put constant pressure on the Progressives Party and they as
a result enacted a by-law which basically meant contractors working with a LCC
contract had to abide by the Trade Union conditions.
This by-law was a result of confrontation of the Fair Wages movement (Equal Pay Act
1970) which was the main argument of the case; the contractors response to the fair
wages movement was to accommodate to the increased labour costs.
The DLO is a member of various trade bodies such as CORGI, NICEIC and British
Coal. They both monitor the training and quality of work. The DLO maintains good
relationships with trade unions and the Construction Industry Training Board (CITB)
and also with the local schools and further education centres.
The Direct Labour Organisation (DLO) mainly carries out maintenance work strictly
on council houses and as well as some council owned property. Majority of there
work is based on repair and maintenance call outs; some of there work is also based
on modernisation and improvements such as, the Langstane Housing Association, and
Cornerstone Community Care. The DLO is pretty much a 24 hour service providing
repair and maintenance services.
Initially this became the first major step in ensuring the bringing up of the DLO in
1892. What helped the DLO to become a major organisation are the public concerns
over corruption scandals associated with building works led by the Metropolitan
Board of Works (the forerunner of the LCC) and also the housing crisis pertaining at
the time.
Since then there has been a major recline for DLOs and a debate on whether closing
down DLOs or to unrealistically expand them. Ever since World War 2 there has been
a halt in the progression of DLOs and since then there repair and maintenance and
new building work has been observed by the government.
The DLO is constantly trying to win contracts for additional works thus increasing its
turnover. Benefits from this are that the DLO can offer a greater diversity to the
workforce, offer greater expertise to its customers and return more money to the
Housing Revenue Account (HRA) from the additional profits made.

Economics

Mohammed Isaaq

Reference Sources: A2 Level Business studies: AQA Revision Guide

Langford, D.A, (1982) Direct labour organisations in the construction industry, Brunel
University, Gower
http://acronyms.thefreedictionary.com
www.creativematch.co.uk