Within any industry, there are various organisations that work to provide different services and formed in different ways. They are all shapes and sizes, ranging from one-man band traders to huge companies.
This guide will explain a little about each type and how they operate, as you are likely to come across them all at some point in your career in construction.
Looking to learn more about what it’s like to work in the industry? Read why choose construction?
Every single one of the organisations we are about to cover is a legal entity. This means they exist to serve an economic purpose and follow rules and regulations which are legally recognised.
Organisations are to be thought of as separate from the people who own it or work within it, for example, your personal finances are not linked to the business you work for, so its debts are not yours to manage. Legally they are separate.
Managers of legal entities have different levels of responsibility based on the type of organisation it is. Below, you’ll learn that a sole trader has different responsibility to a partnership - for example in terms of liability, ‘sole liability’ means just one person is responsible.
A sole trader is someone self-employed who runs their own business. They are personally liable (responsible) for everything from finances to stock and services, including any losses their business makes. Sole traders can employ staff, it doesn’t always mean they work alone.
There are two types of sole trader:
A sole proprietor usually provides physical products to customers. In construction, this could include electricians, plasterers or plumbers.
A sole practitioner is usually a professionally-qualified person providing services to clients. In construction this might be an architect, or engineer.
These are the similar to sole traders, except two or more people own the business. These get split into three different types of partnerships which we have outlined below. Partnerships can end if there is an official ‘notice of termination’, a document stating its end or if one or more of the partners dies.
The people who own the business have unlimited liability, meaning that any losses or debts are their responsibility.
These partners are in an LLP, a Limited Liability Partnership, meaning the liability for debts is limited to how much they invest in the business.
In this case, the partners will only be liable to debts which are limited to a set cash amount.
A construction company is usually a business that’s run by a lot of different people, but they are not often involved directly with any management. Companies have to be set up to follow national laws and they are of course, legal entities.
The owners are called shareholders as they will hold a number of shares to establish their ownership of the business. Companies come in many forms, but they are roughly separated as follows:
Unlimited companies are similar to a sole trader or partnership, but with many owners and most of these won’t manage the company or be involved in managing it either. This type of company structure is old fashioned, and most unlimited companies have been replaced by limited ones to better benefit the owners.
The typical setup of a limited company is a company that is limited by shares. The debt liability of limited companies is restricted to whatever the company’s stock is valued at. The liability of each individual shareholder is limited to the investment they used to purchase their shares.
Limited companies are also not usually affected by the death of individual shareholders like in partnerships. If a shareholder dies, the company typically continues indefinitely.
This limited liability, plus the ability to raise large amounts of money from many investors, has made limited companies the most common type of organisation across the world.
You may hear the terms incorporated, chartered, or joint stock companies. These do exist, but are old fashioned and only used in very particular instances. An example of an incorporated company is the Royal Institute of British Architects (RIBA). An example of a chartered company is the Royal Institution of Chartered Surveyors (RICS).
Private limited companies
Private limited companies are often smaller than public limited companies. Certain criteria or conditions must be met before individuals can purchase shares. Shareholding is often reserved for members of a family, or only if other shareholders allow new people to join. It means the company is closely monitored and avoids the likelihood of a ‘hostile takeover’.
Public limited companies
PLCs are larger than limited companies. The shares are openly traded on stock exchanges around the world. Anyone can buy shares for a sum set by existing shareholders. The current selling price is made public, but like all stock, prices can change when current events or events in the industry occur.
These are companies which own others in related markets. They might be related by the types of products they make, services they offer, or location. These companies have a legal identity separate from the ones they own, but are generally liable for the debts of those companies.
A conglomerate is similar to a holding company, but the companies it owns will be trading in unrelated markets. Conglomerates are the same as holding companies in that they are legally separate, but responsible for the debt of the companies they own.
An advantage of holding companies and conglomerates is that taxes, for example VAT is not charged on supplies between the members of the group.