Business Structures and Regulations: A Case Study of Whiskin & Company Limited and Clayton Financial Training Limited

Paper Type:  Case study
Pages:  7
Wordcount:  1786 Words
Date:  2022-04-16

Introduction

One of the most important factors taken into consideration by investors is the structure of the business they wish to establish. According to Popp (2001), this structure can be viewed as a form of business entity that is recognized by the laws set governing operations within a particular jurisdiction. There are different forms of business structures. They include sole proprietorship, partnership, and a trust entity (Messenger, Richardson & Butler; Shade & Epstein 2003). A company is another form of business structure that investors can establish. The organization must operate in accordance with a set of rules and laws. The laws governing the operations of the firm are what Spadaccini (2007) and Cassim, Cassim, and Cassim (2012) refer to as business regulations. They vary from one jurisdiction to the other and from one form of business structure to another.

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In this paper, the author will respond to two questions relating to business structures and regulations. The questions will relate to a case study of Whiskin & Company and Clayton Financial Training Center.

Acquisition of Whiskin's Freehold Office

Acting on the suggestion made by Jacob, Sean Bush visited the freehold offices of Whiskin & Company Limited (Whiskin). Sean was the opinion that the premises would easily be converted to an assessment hub for Clayton Financial Training Limited (CFT). The office would expand the asset portfolio for CFT. It is also noted that LTT has no interest in the facility. According to Sean, CFT should buy Whiskin's freehold premises for PS250000. To this end, LTT will loan Sean PS13500 to cater for the expenses to be incurred while moving from Newcastle to LTT's headquarters. Based on this scenario, following is the advice given to Sean with regards to the issues raised:

Potential Consequences of CFT Acquiring the Freehold Office from Whiskin for PS250000

Clayton Financial Training has different options through which it can acquire properties to expand on its asset portfolio. One of the options entails acquiring the property through a leasehold arrangement. According to Verma (2006), this is a situation where the property is rented out or leased by the owner to another party. The lease means that the property owner has control over the asset for a fixed duration of time. Most offices and business premises are leased from the freeholder for a specified number of years (Baum et al. 2013). One of the advantages of this form of ownership is that it is cheaper compared to acquisition of the asset for an indefinite period of time. In addition, the leaseholder does not have to pay some of the levies and fees charged on the property by the government. Most of these expenses are catered for by the owner of the property.

The second option through which CFT can acquire the office premises from Whiskin is through a freehold. The company went for this alternative. What this means is that by paying Whiskin PS250000, CFT gets to acquire the offices fully for an indefinite number of years (Baum et al. 2013). The premises will not revert back to Whiskin and the buyer, CFT, gets full control over the property.

There are a number of consequences associated with the freehold acquisition of the property. To start with, CFT becomes the sole owner of the office (Verma 2006). To this end, the investor will own the entire office and the land on which it stands. Clayton Financial Trading Limited will own the office and the land if the premise is a free-standing entity, meaning that it occupies its own lot of land. However, if the office is a freehold within a larger building, the ownership structure will follow that used in apartments (Baum et al. 2013). It is where CFT will have sole ownership of the office itself, but acquire a shareholding right on the building housing the office complex. Consequently, the investor will not own the land on which the office is built. If the office acquired from Whiskin is like an apartment in an office block, CFT can still acquire and own the property on a freehold basis. However, as already indicated, this ownership will be limited to the internal parts and structures of the office, such as cubicles. Common facilities, such as lifts, corridors, and stairs, will be shared among the other occupants of the office complex as far as the ownership is concerned.

According to Baum et al. (2013), CFT can own the property after acquiring the freehold from Whiskin for as long as the owners of the company wish. Unlike in the case of leasehold where ownership reverts to the original owner after the expiry of the lease, CFT can own the office for eternity. It can then dispose of the property as it wishes without interferences from Whiskin and other agents. However, the disposal method must be within the laws of the land. What this means is that the company can lease the offices, sub-let them, or sell them as a freehold to another investor without interference from Whiskin (Verma 2006).

Another consequence of acquiring the freehold from Whiskin is that the property will be registered under CFT's name in the relevant authorities, such as land registry (Baum et al. 2013). Considering that the ownership will revert completely from Whiskin to CFT, the former will appear nowhere in the final ownership registration documents. The registering of the asset under CFT's name will be a major selling point in future. It will increase the value of the property in the asset portfolio held by the firm. In addition, it will be easier for CFT to transfer the property to another party in the future given that it is registered under the company's name.

Another consequence of the freehold is that CFT can do with the property as the investors wish (Verma 2006). However, this has to be within the limits of the relevant laws and regulations. For instance, CFT may opt to demolish some walls, make some additions to the interior design, and accommodate other parties within the newly acquired premises.

The freehold will be a long term investment to CFT (Baum et al. 2013). Consequently, the value of the company will be increased when it comes to valuation. Furthermore, CFT will not have to pay rent to Whiskin. In the long run, the expenditures of the firm are significantly reduced.

However, on acquiring the freehold, CFT will take full responsibility over the property (Verma 2006). The investor will have to pay the requisite charges to the authorities on a regular basis, as well as cater for maintenance expenses. The freehold is also likely to be an expensive undertaking for CFT, especially in the short term (Baum et al. 2013). It is expensive compared to acquiring the property from Whiskin on a leasehold basis. As a result, the short term finances of the company will be dealt a blow. However, based on a balanced analysis of the situation, it is recommended that CFT should acquire the office on freehold as opposed to on leasehold.

The Proposed Loan from LTT to Sean

As already indicated earlier in this case study, LTT has agreed to give Sean Bush a loan of PS13500 to help him relocate from Newcastle. The proposed loan has various implications on both Sean and LTT. To start with, a loan such as the one being offered by LTT is convenient and accessible (Popp 2001). From the case study, it is obvious that the lender has shown the willingness to loan the money to the borrower. The arrangement works to the benefit of Sean, the borrower. The hustle and bustle that is normally associated with securing of loans is eliminated in this case (McLaughlin, Lydecker & McLaughlin 2016).

Most lending institutions are easily accessible to borrowers. In this case, it is apparent that Sean Bush has a long standing relationship with LTT. If LTT is a bank and Sean has been regularly transacting with the institution, the ease at which the loan is given is understandable (McLaughlin, Lydecker & McLaughlin 2016). A degree of familiarity has already been established between the two parties. As such, LTT is a convenient and familiar source of financing for Sean. To this end, Sean does not need to borrow the money for relocation from his friends or family. The lender, LTT, will cater for this due to the established nature of the relationship between the two (Walter 2004).

Sean Bush can also negotiate with LTT to provide the loan option that is appropriate for his current needs of relocating from Newcastle. The reason is that most lending institutions have different types of loan schemes and options that are available to their customers, such as Sean (Walter 2004). For instance, Sean can borrow the money in form of a standard business loan, term loan, and any other product portfolio offered by LTT (Walter 2004).

Depending on the nature of the relationship between the two parties, Sean has to understand the profit sharing implications associated with any form of loan (Goldberg & Palladini 2010). He needs to understand how the lender will recoup their investment considering that this is a loan and not a financial gift. For instance, LTT may decide to recover the loan by sharing in the profits generated by the business activities carried out by the borrower. However, in the current case study, it appears that LTT is not interested in the earnings made by Sean from his businesses. Consequently, the profit sharing in this scenario is indirect (Goldberg & Palladini 2010). The lender is only interested in recovering the money given to Sean in form of a loan. The investment decisions made by Sean as far as the nature of his business is concerned are not influenced by the lender.

Sean also needs to understand loans are paid with a certain percentage of interest (Walter 2004). The interest makes them expensive compared to other sources of finance. For example, if Sean borrowed the money from a friend to help him relocate from Newcastle, he may not be required to repay it with an interest. However, this is not the case in the current scenario. He has to repay the loan with a certain percentage of interest. As a result, the loan will become a financial liability to the borrower.

It also appears that LTT seems intent in influencing the way Sean will use the money loaned to him. For example, from the case study, it is explicitly stated that the lender is willing to loan the borrower the money to facilitate his relocation from Newcastle. What this means is that as much as Sean remains an independent business person, the lender will have indirect control over his actions (Walter 2004). It is assumed that one of the terms and conditions in the loan agreement will clearly stipulate that Sean should use the money borrowed from LTT to facilitate his reloca...

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Business Structures and Regulations: A Case Study of Whiskin & Company Limited and Clayton Financial Training Limited. (2022, Apr 16). Retrieved from https://proessays.net/essays/business-structures-and-regulations-a-case-study-of-whiskin-company-limited-and-clayton-financial-training-limited

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