BUSINESS ORGANISATIONSUnit 6 – Domestic Environment

Class Exercise• Describe the different types of business organisations that

exist.• What are the advantages and disadvantages that exist for

each type of organisation?

Objectives of this topic• To have an understanding of the following

• Sole trader• Partnership• Company • Business Alliance• Franchising• Transnational or multinational company• The state of business• Indigenous firms

Types of Business Organisations

Irish Economy

Private Sector

Sole Traders Companies

Private Limited

Company

Public Limited

Company

Partnership CooperativeOthers

eg Franchise

Public Sector

Public Corporations

Local Authorities

State Services

Sole Trader

Advantages

• Owner keeps all profit• Owner makes all decisions• Independence – freedom and

flexibility• Confidentiality of accounts• Personal service to

customers• Easy to set up

Disadvantages

• Unlimited liability – can lose all assets

• Lack of capital for expansion• Lack of continuity of

existence• Difficulty of raising finance• One person responsible for

all tasks.• A lot of pressure and work

for one person.

• A business owned and controlled by one person

Partnership• A partnership is an agreement between two or more

people to conduct business with a view to making a profit.• Membership of a partnership is between 2 and 20 people.• Partnerships are common among doctors, solicitors,

accountants etc.• Partners draw up a Deed of Partnership: a legal

agreement setting out the rights, responsibilities and duties of each partner.

• A business must register its name with the CRO

Partnership

Advantages

• Extra capital is available• Shared decision-making• Risk and responsibility is

shared• Different skills and

expertise of partners• Confidentiality of accounts• Easy to form

Disadvantages

• Partners have unlimited liability

• Disagreement among partners

• Profit shared among partners

• Decision-making is slow

Private Limited Company• This is a business owned generally by between 1 and 99

shareholders• Shareholders contribute capital to the company.• Shareholders appoint a board of directors to run the

company.• Shareholders have limited liability.• The company has the work ‘Limited’ after its name.• Companies are regulated by the Companies Act.• Profits are distributed to shareholders in the form of

dividends.

Steps in the formation of a PLC

To form a private limited company, the following steps must be taken:

1. Prepare the following documentsa) Memorandum of Association

b) Articles of Association

c) Form A1

2. Send the documents plus the appropriate fee to the Companies Registration Office (CRO).

3. The CRO checks the documentation. If everything is in order they issue a Certificate of Incorporation. This is the birth cert of the company. Trading may begin.

4. The company must hold its first meeting.

Private Limited Company

Advantages

• Limited Liability• Separate legal entity• Access to capital• Continuity• Top management• Low tax rates• Structured

Disadvantages

• Legal formalities• Costs• Regulations • Publish accounts• Shared views• Shared profits

People involved in companies• Shareholders:

• They are individuals or institutions who invest money in a company in return for shares

• Board of Directors:• A board of directors is elected by the shareholders at the company

AGM to run the business.

• Managing Director:• Elected by the board of directors to run the company.

• Auditors:• These are third-party accountants who are appointed to check the

accuracy of the company accounts.

• Secretary:• The company secretary is responsible for administration in the

company.

Co-Operatives• Co-ops are organisations formed by people with a

common interest to establish an enterprise, with the aim of helping each other.

Co-Operative• Co-ops can be formed by seven or more members.• Each member has one vote, irrespective of the number of

shares held.• There is a maximum number of shares that an individual

can hold.• There is no authorised capital. New shares can be issued.• All profits are divided among the members in proportion to

their shareholding.

Types of Co-operative• Producer Co-op

• These co-ops are owned by producers of goods. • The most common type in Ireland are those owned by farmers. E.g.

Dairy co-op.

• Worker Co-op• This is a small local business that is owned by workers. The workers

make all the decisions on how to run the business, they also work in the firm.

• Community Co-op• These are usually set up to provide an important local service for

people in the area. E.g. community water scheme.

• Credit Unions• This is a non-profit making co-op where a group of people save

regularly and lend to each other at a very reasonable rate of interest.

Public Limited Company• A public limited company is a business owned by at least

7 shareholders with no maximum requirement.• Shares are quoted on the stock exchange so they can be

bought and sold by the public.• Shareholders have limited liability.• Every public limited company must have plc after its

name.

Formation and Operation• Company set-up:

• A plc is set up in the same way as a private company – by lodging documentation with the CRO.

• Permission:• The company must get permission from the stock exchange in order to get a

public listing.

• Prospectus:• The company will issue a prospectus as an information guide to prospective

investors.

• Set Selling Price:• The company must decide how much capital it wants to raise and will then set a

selling price for the shares.

• Advertisements:• The shares will be offered for sale through advertisements.

• Stock exchange:• Once the available shares have been sold, trading on the stock exchange

begins.

Public Limited Companies

Advantages

• Shareholders have limited liability

• Access to large amounts of capital.

• Higher credit rating with financial institutions.

• Continuity of existence.• Top-quality management

can be recruited.

Disadvantages

• High formation expenses.• Accounts must be audited

and published.• Many legal requirements

to be followed.• Owners may have little

say in the running of the company.

Formation of a Limited Company

Business Alliance• This is an agreement formed between two or more

businesses to work together in particular commercial matters while at the same time remaining separate entities.

• The alliance involves sharing expertise, skills, costs and risk.• E.g. oneworld alliance of airlines.

Franchise• This is the granting of a licence by the franchisor to the

franchisee, allowing the right to use the franchisor’s trade name, logo and business system, and to sell their product or service.

• The licence is expensive and a percentage of sales/royalties must be paid annually.• E.g. McDonalds, Supermacs, Pizza Hut, Subway

Forms of Business Ownership Exercise

State-Owned Companies• State enterprises are set up, owned, financed and

controlled by the government.• Capital to finance the enterprise is provided by the

government.• Commercial state enterprises produce goods and services

that are sold to the public.

Indigenous Firms• These are firms that are set up in Ireland and owned and

managed by Irish people.• They produce goods and/or provide services in Ireland.

Their principle place of business is Ireland.• Enterprise Ireland is the state agency responsible for the

development of such firms in Ireland.

Transnational Companies• A company with its headquarters in one country and

branches in a number of different countries.• The head office controls the business, while the branches

carry out different jobs.

Transnational Companies

Advantages

• They provide huge employment.

• They provide revenue to the government in the form of corporation tax.

• Export led leads to favourable balance of payments.

• They buy raw materials from Irish businesses.

Disadvantages

• Lack of loyalty.• They provide intense

competition for local firms.• Most of the profits are

repatriated to their head office.• Larger transnationals exert

massive pressure on governments for their own objectives.