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insurance riskWhere risk factors may normally prevent you from trading with a specific firm, requesting security in the form of a guarantee from third party might perhaps provide an answer. With a sole trader or partnerships, liabilities are infinite; nevertheless their financial standing may be such that some form of security is called for. In the case of a limited company guarantees could be requested from a:

•           parent company
•           subsidiary or associated company
•           director’s personal guarantee

Guarantees can cover both trade and retail finance transactions.

Manufacturer’s warranty

The law states that all goods sold must be of merchantable quality and able safely to carry out the tasks they were manufactured to perform. The British Standards Institute ‘kite mark’ symbol confirms that safety guidelines are adhered to. Any guarantee or warranty offered by a manufacturer cannot infringe on the rights the buyer may have under the Sale of Goods Acts.

Banker’s guarantees

Instruments suitable for trade credit are the first and last listed below. With the last item a customer would use their own cheques, arranging for their bank to certify payment by stamping the cheque and signing it; this certification guarantees payment to the supplier. The first item listed is similar to the other method, except the bank uses its own cheques. Other forms of guarantee offered by banks include:

•          banker’s draft
•           travellers cheques
•           eurocheques
•           cheque guarantee cards
•           certified cheques

Whilst it was an exemplary service, certified cheques are rarely seen today, having been replaced by banker’s drafts.

Other forms of guarantee

Of course insurance is a form of guarantee which you can purchase. Standard policy documents affirm that the insurer will reimburse you against loss when certain previously expressed conditions arise. There are forms of guarantees which include:

•           export finance
•           credit insurance
•           insurance to cover redundancy, accident or sickness

Not until the later part of the 19th century were restrictions lifted which prevented companies trading with limited liabilities.

All limited companies in England and Wales must be registered with the Registrar of Companies at Companies House, Cardiff. Information required to be lodged under the varying Companies Acts can be inspected there or in London. This includes:

•           articles of association
•           formation details
•           annual returns — lists of shareholders and directors
•           annual accounts

Details of companies registered in Scotland and Northern Ireland are filed in Edinburgh and Belfast respectively.

Types of companies

Until the Companies Act of 1967 many small companies were classed as exempt companies, which meant they were not required to file annual accounts. However, this Act removed those privileges, and now all registered companies irrespective of size are obliged to file accounts with their annual returns. Now companies fall into two distinct categories.

Public limited company ( Plc)

Subject to meeting the criteria laid down in the Companies Acts Plcs may invite investment from the public, providing they meet the additional regulations of the Securities and Investment Board, Plc shares can be traded on the stock exchange, via broking houses.

Private limited companies

Shares of these companies cannot be openly traded in the same manner as Plcs, but they can be bought and sold by private treaty sale. The rules governing the accountability of smaller and medium sized limited companies change from time to time, but current regulations are available on application from Companies House.

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