---

Types of Business Organisations

Identify the main features of sole traders

• A business organisation owned and controlled by one person
  • Advantages;
    • Easy to set up. Few legal requirements needed
    • This businesses often require little capital
    • The owner receives all profits from the business
  • Disadvantages;
    • The owner had full-responsibility for running the day-to-day business. This means a lot of hard work and very long hours
    • The owner has unlimited liability
    • Sole traders often lack capital to buy new equipment or expand

Identify the main features of partnerships

• A legal agreement between two or more people to jointly own, finance and run a business, sharing its profits and losses
  • Advantages;
    • Partnerships are easy to set up. Few legal requirements are needed
    • Partners bring new skills and ideas to the business
    • Limited partners have limited liability
  • Disadvantages;
    • Discussions between partners can slow down decision making
    • Problems can arise if one or more partners are lazy, inefficient or dishonest. Causing arguments
    • Most partners will have unlimited liability

Identify the main features of private and public limited companies

• Also known as joint-stock companies or corporation because they sell stocks
• People who invest in these shares become shareholders and receive a share of the profit after taxes are paid. This payment is called a dividend
• Shareholders elect a board of directors with valuable skills to manage their company from day to day. In small companies the directors are the shareholders
• Large corporations have thousands of shareholders and therefore hold an annual general meeting to discuss the business performance and changes.
• There are two types of joint stock companies;
  • Private Limited companies; It only sells shares to private investors known to the existing shareholders
    • Advantages;
      • Shareholders can elect directors to manage the company on their behalf
      • Shareholders have limited liability
      • Good option for family businesses looking to raise capital
    • Disadvantages;
      • They are legally required to keep detailed financial statements of their income, profits and losses. Some countries require these details published
      • Large shareholders can outvote others on important decisions
      • Bad directors may run the company in their own interests rather than the best interests of the company’s shareholders
  • Public Limited companies; It sells shares though a stock exchange
    • Advantages;
      • The public sale of shares  thought the stock market can increase capital
      • Shareholders have limited liability
      • Advertisement for shares can be used
    • Disadvantages;
      • It can be very expensive to form
      • Annual reports need to be published
      • The original owner can lose control of the company unless they keep at least 51%

Identify the main features of franchises

• An agreement by one company with another business organisation to permit the distribution of its goods or services using its trademark or brand name
• Franchisor; The known company with powerful name and brand
  • Advantages;
    • Quick and easy way to expand the business
    • Franchisee are required to buy products from the franchisor
  • Disadvantages;
    • The franchisee keep the most of the profit they make
    • A franchisee that fails to maintain a good quality product can damage the reputation of the entire business
• Franchisee; The company that buys the right
  • Advantages;
    • Selling established products reduces the risk of business failure
    • Banks are more willing to lend money
  • Disadvantages;
    • Fees and ongoing payments can be high
    • There may be regular monitoring from the franchisor

Identify the main features of joint ventures

• A contractual agreement between two or more organisation to share the expertise, investments, costs and risks of running a new business project
  • Advantages;
    • Cost and risks can be shared
    • Each business in the joint venture gains knowledge, technologies and new skills
  • Disadvantages;
    • One of the businesses may disagree on important decisions
    • Profits are shared as well as ideas that could give a competitive advantage in the future

Identify the differences between unincorporated businesses and limited companies

• Sole trader / Partnership
  • Unlimited liability
  • No legal requirements
  • Shared can not be sold
• Limited Company
  • Limited Liability
  • Legal requirements
  • Shares can be sold

Identify the concepts of risk, ownership and limited liability

• Limited liability; The legal responsibility of the owners of a business to repay its debts is limited to the amount of capital they invest in the business
• Unlimited liability; The owners of a business are legally responsible for the full amounts of its debts

Identify the main features of business organizations in the public sector including public corporations

• Public Corporations are business-like organisations created by the national or central government to;
  • Carry out a particular government function
  • Provide essential public services
  • Carry out commercial activities on behalf of the government (Trading Bodies)
• Previously private sector organisations have been nationalized and are now controlled by the government.
  • Advantages;
    • They can safeguard the supply of essential services
    • They can safeguard nationally important industries
    • They can provide social services (public transport)
  • Disadvantages;
    • They may be managed and run inefficiently
    • They face little or no competition so quality of services may decrease

Governments may use them for political purposes (raising taxes)