External Environment of a Business
The EU has especially focused on policies of protectionism in the agricultural and textile industries whereby companies from EU countries enjoy special privileges over foreign companies to limit competition that would be presented by multicultural companies. This policy has seen the two industries grow at a very speedy rate owing to the incentives afforded to local investors for entering into the sector. In the UK, pressure groups are influential, and determine the passage of laws and legislations through influencing members of parliament and other policy makers to reject some bills and enact others (Pala 2015). The provisions of both the company’s act and the internal rules registered by the registrar during the registration process steer directors and shareholders in their day-to-day operations.
The effect of EU on business in the region is twofold: firstly, in some cases the region has advocated for protectionism policies that have seen enactment of legislations favouring investors from the regions as opposed to foreign investors (Pala 2015). Secondly, the region has also favoured liberalization in some sectors especially in service industries such as financial and telecommunication sectors. An example of a protectionism policy initiated by the EU is the Multi-fibre Arrangements (MFA) that was agreed upon between member states in order to protect the local companies in the textile industry against competition from multinational companies (Badinger 2007).
The EU successfully introduced liberalization in the service industry that enabled multinational companies to enter the market thus stiffening competition in the industry. Initially, member groups were reluctant to embrace liberalization of the service industry but later on, it was adopted following an agreement unanimously reached by all member states. The liberalization of the sector has seen competition grow, and the quality of services delivered have greatly improved due to the entry of the market by foreign companies. Financial institutions in the region have specifically increased leading to the availability of funds for businesses and an increase in firms operating in the region. EU’s influence in telecommunication is also evident due to the liberalization that has enabled foreign companies to operate in the region under similar conditions as the local firms. Initially, each member state had protectionism policies in place that protected their local firm from entering the local market but EU presented an arrangement that saw the sector open up to foreign investors (Wilhelmsson 2006).
A pressure group refers to an organization established by civilians whose objectives are to push the ruling government into adopting certain policies that benefit a specific sector or the public. The groups are non-profit making organizations and are involved in exerting pressure to lawmakers and government officers into enacting legislations that are in favour of the public as opposed to individual interests (Oliveira & Martins 2010). The groups are very influential and may influence the voting pattern of individual in the electioneering period thus politicians, who are the key policy makers, must abide by the groups’ needs in order to earn their support. In the hospitality industry, the groups tend to push for policies that ensure that owners of hospitality businesses are not victimized by the legislations passed by the legislature.
The British Hospitality Association (BHA) is of course one of the largest established lobby groups in the UK and its roles revolve around ensuring that the interest of business owners are protected during the enactment of laws (Pala 2015). The organization seeks to influence the enactment of laws affecting the hospitality industry by influencing Members of Parliament and other public officers to abandon or amend certain legislations to accommodate the interest of hotel and restaurant owners. The organization draws its influence from its large membership that gives it the ability to influence political outcomes leading to pre-election pacts between the group and politicians who are the ultimate lawmakers.
One of the successful endeavours by the BHA was its reversal of a legislation that sought to bar visitors from claiming VAT from the government after spending a night in the high-ranking hotels in the region (Wilhelmsson 2006). The group successfully managed to prevent the passage of the legislation on grounds that the decree was oppressive and would see the number of visitors decrease, thus affecting the profitability of the hospitality industry. The group also opposed the government’s move to increase the licenses paid by hotel owners for television services terming the move as domineering and discriminatory. The lobby groups also influence government policies regarding tax legislations and in various instances such groups have engaged the government in tassels over the VAT charged to hotel owner for rooms.
The UK legal structure is composed of the civil courts and the appellate courts, which have the mandates to handle first time cases and appeal cases respectively.
The UK legislation derives its major components from the Common law that is enforced though judges sitting and determining the decision to issue in a certain case based on their knowledge of law and the precedents set by various reckoned courts across the world (Badinger 2007). Based on this kind of law, cases with similar facts attract similar verdicts though the fact about each case is determined before a decision is delivered by the judges.
This type of legislation is enacted by the legislature and is deemed superior to the basic common law thus judges must shelf the common law in favour of the Statute law in case conflicts arise between the two.
UK being a member of the EU draws some of its legislations from the EU provisions especially on fields of trade and human rights protection. The EU has a set of established legislation under the European Convention on Human Rights (ECHR), which binds every member states and the provisions form the framework of major verdicts revolving around issues of trade and human rights among others (Pala 2015).
Though there are similarities between the two legal systems, differences are also evident in some aspects. One of the major differences between the English and Scottish law is that whereas Acts of Parliament cannot be challenged under the English law, the Scottish law provides for reversal of Parliament Acts even after they have been completed. As opposed to the case of the Scottish law where the common law and the EU law prevails over the Acts of Parliament in cases of conflicts, in the UK, Acts of Parliament are considered superior to other laws and in case a conflict that presents an interpretation of the law, the Acts prevail.
Most of the EU’s policies target the working conditions of the hospitality industry workers and are informed by the fact that the region receives millions of tourists annually thus the need to provide high-quality services to maintain the number. To make certain that the hospitality sector remains one of the best industries in the region; the EU has established guidance regarding the working conditions of hotel workers with imposition of the expected working conditions of all the workers. Issues of minimum wage have heavily affected the industry and employers have opposed such regulations citing that such requirements only serve to increase the operating costs through increased labour costs. In a report submitted to parliament by Hortec, an organization formed by hotel owners in the UK, the employers claimed that regulations requiring them to improve the working conditions of their employees would mean increased cost of labour leading to high cost of services, which may have the effect of reduced competitive advantage (Oliveira & Martins 2010). The EU struggles to convince the employers that such policies are beneficial to the industry in the long run since employees will work industriously when they are well remunerated.
The hospitality sector has also been affected by smoking and alcohol ban policies initiated by the EU in the fight against the consumption of the two substances. The sector recorded a decrease in turnover of the two commodities following legislation passed by EU to bar public smoking and excessive consumption of alcohol. Hortec argues that a reduction in the turnover of such commodities will automatically lead to unemployment since hotels will have to drop some of their employees due to reduced income resulting from diminished turnovers of the listed products.
Another policy that has affected the hospitality industry is the Regulation No. 852/2004 on the hygiene of foodstuffs that was passed in 2007 and revolves around ensuring that the sector maintains the hygiene of its edibles (Wilhelmsson 2006). The rule came in the backdrop of pressure groups insisting that the food labelling policies should be made applicable to restaurants and hotels in the region. Hortec opposed the rules regarding food safety, but the policy makers insisted it was for the benefit of consumers and that it would boost the tourism industry in the long run. The European Employment Strategy (EES) that recently came into force has equivalent effects on the sector since it aims at equipping employees with exceptional skills with the objective of boosting their employability. The effect of the policy is twofold; to begin with, the training offered to employees imparts skills on them that could help boost the hospitality sector through improved services offered by the trained employees. Secondly, the hospitality industry employs low skilled employees and training such employees will mean increased salaries thus reducing the profitability of the sector. This legislation coupled with the one on improving working conditions has had great impacts on the industry and owners of restaurants and hotels have opposed the policies.
Generally, the hospitality industry is made up of different types of business that take the form of companies, partnerships and sole proprietorships. The businesses can, however, be divided into major categories viz. the entertainment and the accommodation businesses depending on the nature of the services they offer (Badinger 2007). One of the major characteristics of the hospitality industry is that the services are offered at a fee determined by the rate provided in different facilities.
This is comprised of clubs and restaurants that offer entertainment services to clients in exchange for a fee. Here, people gather to have fun during certain times of the day and later, they leave for their residence. Under this class of hospitality firms, no accommodation is offered, and visitors only enjoy entertainment services such as dances and a variety of drinks upon ordering for such services.
Hotels in this sector offer accommodation services to clients upon payment of a fee determined by the hotel’s management, and such fee varies from one hotel to the other depending on the nature of services offered. Businesses operating in this category mostly deal with visitors who come for adventure and do not have a residential place in the country. Additional services offered by these hotels vary depending on the class of the hotel whereby in low-level lodgings, the client only enjoys a room with climate control and hot shower bathrooms. In high-level lodgings, the client may also enjoy free internet services both in the sleeping room and all over the hotel premises (Pala 2015).
This is the first step in the formation of a company and revolves around establishing a unique name for the business. The name selected is filed with the registrar of companies for approval and usually, it takes a short period to be approved if all the requirements are met. The name must be candid and should not be the same or too similar to that of another registered enterprise.
After the registrar ascertains that the name forwarded by the promoters is adoptable, the promoters are required to file with the registrar a memorandum of association (MOA) coupled with articles of association (AOA), which are the two major documents outlining the conduct of the business (O’Mahony & Timmer 2009).
The promoters of the company are obliged to file with the registrar an MOA outlining the kind of business the firm plans to indulge in upon its incorporation (Oliveira & Martins 2010). The names of subscribers and the number of shares owned by each subscriber should be indicated in the document along with signatures by each of them.
The AOA, on the other hand, contains the internal rules governing the conduction of business of the firm and is usually presented to the registrar together with the MOA for approval. The document must be well signed by all the subscribers and must contain information regarding the names and the shareholding by each subscriber. The documents must contain information regarding the company’s registered offices, the official address, and information about the directors and their shareholding.
After the registrar is contented that the company has satisfied all the legal requirements for incorporation, he/she will issue a certificate of incorporation that acts as a green light for the commencement of operations. Companies that delay commencement of business for more than 1 year after the certificate has been issued are deregistered and can no longer operate under the name before filing another registration form.
Dissolution of a company can take two different forms viz. voluntary dissolution and dissolution by a court command In both cases, there are certain legal formalities that must be complied with for the process to be ascertained as legal so that member liability is detached. A voluntary dissolution requires a two-third majority resolution by members in an Annual General Meeting while dissolution by a court order follows a suit instituted by a shareholder or other stakeholders of the firm. Under a voluntary dissolution, the directors make an application to the registrar of companies on behalf of the shareholders requiring him to strike the firm’s name from the list of registered businesses. The application will not be valid if the firm has engaged in any of the below listed activities 3 months immediately preceding the presentation of the application to the registrar:
- traded or carried out business
- changed its name
- disposed of stock in trade
- Engaged in any other activity except for the purpose of application for strike off or concluding the affairs of the company
After making the application, the directors must serve all the stakeholders with a copy of the application form within 7 days (Wilhelmsson 2006). The shareholders to be served with a copy of the application form are listed below:
- all shareholders
- all creditors, including all contingent and prospective creditors
- all employees
- Any directors who have not signed the form
After receipt of the application, the registrar of companies is required by the law to strike the name of the company off from the register within 3 months after publishing the dissolution in the Gazette. Upon deregistration of the company, all the assets of the company passes to the appointed liquidator who oversees the dissolution of the company.
Generally, the operation of a company is governed by the company’s internal rules documents that include the Memorandum of association and the AOA, which are registered by the registrar during the registration phase. The shareholders of a firm are the real owners of the company but owing to their large number and their geographical distributions, they cannot be able to run the affairs of the company; thus, they appoint directors to operate the business on their behalf (Badinger 2007). The relationship between the directors and the shareholders is an agency one whereby the directors are obliged to conduct the business in a manner that maximizes the shareholders’ net benefits.
The MOA coupled with the AOA outlines the powers and authority of the appointed directors, which must be observed when conducting the daily operations of the firm. In cases where the internal rules contradict the general company legislations, the decrees prevail, and the internal rules are ignored since the former are only meant to regulate the internal conduct of the daily operations. The directors are under an obligation to act with due care and skills to maximize the shareholders’ gains, thus, in conducting their businesses, they must be guided by both the internal rules and the company legislations stipulated in the constitution and Acts of Parliament. Some of the provisions that must be observed by shareholders and directors are regulations regarding holding an annual general meeting, which brings together shareholders, directors and other interested parties to deliberate on various issues.
In conclusion, the EU policies have had the impact of opening the region to foreign investors that has seen the number of businesses increase and competition stiffen. Pressure groups are actively involved in shaping legislations pertaining to the hospitality industry due to their large membership. Imposition of food safety requirements directly affects the UK hotel businesses since the cost of ensuring such requirements are maintained high causing a price hike in the retail price of food. The name of a business has to be candid and inimitable. The director should undertake their tasks in a way that maximizes the benefits of the shareholders and have to follow the rules and directives of the business.
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Oliveira, T & Martins, M 2010, ‘Firms patterns of e-business adoption: Evidence for the European Union- 27’, The Electronic Journal Information Systems Evaluation, vol. 13, no. 1, pp. 47-56.
O’Mahony, M & Timmer, M 2009, ‘Output, input and productivity measures at the industry level: The EU KLEMS database*’, The Economic Journal, vol. 119, no. 538, pp. 374-403.
Pala, A 2015, ‘EU growth strategy indicators 2020 and economic growth: An empirical investigation for EU-27 countries’, Advances In Business-Related Scientific Research Journal, vol. 6, no. 2, pp. 161-177.
Wilhelmsson, F 2006, ‘Market power and European competition in the Swedish food industry’, Journal of Agricultural & Food Industrial Organization, vol. 4, no