Types Bus Org

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tutor2u™

GCSE Business Studies

Revision Presentations 2004

Types of Business

Organisation



tutor2u™ GCSE Business Studies

Things to Think About

What are the different types of business organisation?What are the advantages and disadvantages of each type?

What are the implications of the choice of business

organisation on key issues such as:

Ability to raise finance

Control of the business

Business aims and objectives




Introduction

A business is always owned by someone. his can just beone person! or thousands

A business can have a number of different types of ownership

depending on the aims and objectives of the owners

"urvival is the main aim of businesses when they start

#ost businesses aim to make profit for their owners. $rofits

may not be the major objective! but in order to survive a

business will need make a profit in the long term.

"ome organisations however will be %not&for&profit'! such as

charities or government&run corporations.




Types of Business Organisation

"ole trader $artnership

$rivate (imited Company )*(td+,

$ublic (imited Company )*plc+,

Co&operatives-ranchises

$ublic sector




easuring !i"e of a Business

"everal ways to measure the sie of a business/.g.

0umber of employees

0umber of outlets )e.g. shops,

otal revenues )or *sales+ per year,

$rofit

Capital employed 1 amount invested in business

#arket value

2ften need to consider several measures together

Business sie is *relative+ 1 e.g. how large is a business

compared with its main competitors?




!o#e Traders

A sole trader is a business that is o$ned by one person3t may have one or more employees

he most common form of ownership in the 45

2ften succeed 1 why?

Can offer specia#ist services to customers

Can be sensitive to the needs of custo%ers 1 since they are closer tothe customer and react more 6uickly

Can cater for the needs of #oca# peop#e 1 a small business in a local

area can build up a following in the community due to trust

5ey legal points

&eep proper business accounts and records for the 3nland 7evenue

)who collect the ta8 on profits, and if necessary 9A accounts 'o%p#y $ith #ega# re(uire%ents that concern protection of the

customer )e.g. "ale of oods Act,


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Operating as a !o#e Trader

A;9A0A/" otal control of business by owner

<uicker decision&making

Cheaper and 6uicker to start up

5eep all profit

;3"A;9A0A/" 4nlimited liability

;ifficult to raise finance

#ay be difficult to specialise or enjoy economies of scale

$roblem with continuity if sole trader retires or dies


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)n#i%ited *iabi#ity

An important concept 1 it adds to the risks faced by the soletrader

Business owner responsible for all debts of business

#ay have to sell own possessions to pay creditors

"ole traders may lose personal assets if

their business fails




!o#e Trader for%ing a Partnership

"preads risk across more people$artner may bring money and resources to business

/.g. better premises to work from

$artner may bring other skills and ideas to business

3ncreased credibility with potential customers and suppliers 1

who may see dealing with business as less risky

0early all partnerships also have unlimited liability

1 the risk does not go away




Partnership

2wnership of business shared between partners#ost partnerships have between two and twenty members

though there are e8amples like the major accountancy firms

where there are hundreds of partners

7ules of the partnership described in the +eed of

Partnership. his contains: Amount of capita# each partner should provide

=ow profits or #osses shou#d be shared amongst the partners

=ow many votes each partner has )usually based on proportion

of capital provided,

7ules on how to take on new partners =ow the partnership is brought to an end! or what happens if a

partner leaves>dies




Advantages of Partnership

"preads the risk across more people! so if the business getsinto difficulty then the are more people to share the burden of

debt

$artner may bring money and resources to the business

$artner may bring other skills and ideas to the business!

complementing the work already done by the original partner

3ncreased credibility with potential customers and suppliers 1

who may see dealing with the business as less risky than

trading with just a sole trader




+isadvantages of a Partnership

=ave to share profits(ess control of business for individual

;isputes over workload > roles

$roblems if partners disagree over direction of business

$artnerships are difficult businesses to

run. he partners need to trust each other




*i%ited 'o%pany

Business owned by shareho#ders7un by directors )who may also be shareholders,

(iability is limited )important,




!etting up a *i%ited 'o%pany

7egister with Companies =ouseCompany is a *separate+ legal person so far as the law is

concerned 1 i.e. it is separate from its shareholders

3ssued with a Certificate of 3ncorporation

;ate of incorporation

Company number

e%orandu% of Association & describes what company

has been formed to do

Artic#es of Association & internal rules covering:

What directors can do

9oting rights of shareholders




'ontro#s of a 'o%pany

"hareholders own companyCompany employs directors to control management of

business

he directors may also be shareholders )most are,

;irectors are responsible to shareholders

=ave a duty to act in best interests of shareholders

=ave to account for their decisions and performance

=ave to prepare financial statements and directors report for

shareholders each year

Why /mploy ;irectors?

"hareholders who may not want to get involved in day&to&day

decision&making

"pecial skills and e8perience




I%portance of *i%ited *iabi#ity

(imited liability 1 an important concept"hareholders can only lose money they have invested

/ncourages people to invest in companies 1 lower risk than

operating as a sole trader or partnership

hose who have a claim against company:

7emember 1 the company is a *separate legal person+ 1 you

have to sue the company! not the shareholders

(imited liability means that they can only recover money from

e8isting assets of business

hey cannot claim personal assets of shareholders to recover

amounts owed by company




Private and Pub#ic *i%ited

'o%panies

"hares in a p#c can be traded on "tock /8change and can bebought by members of general public

"hares in a private limited company are not available to

general public

3ssued share capital )initial value of shares put on sale, must

be greater than @! in a plc

A private limited company may have a smaller )or larger,

capital.

$rivate and $ublic (imited Companies are still

both companies he main difference is

concerned with the share capital of the company




!hou#d a Private 'o%pany Beco%e a

,P*'-.

#ost don'tBecoming a $(C is mainly about making it easier to raise

money

"hares in a private company cannot be offered for sale to

general public

7estricts availability of finance! especially if business wants toe8pand

3t is also easier to raise money through other sources of finance

e.g. from banks.

0ote: becoming a *plc+ does not necessarily mean that company

is 6uoted on "tock /8change

o do that! company must do a *flotation+




+isadvantages of Being a P*'

Costly and complicated to set up as a plcCertain financial information must be made available for

everyone! competitors and customers included

3f the $(C offers its shares on the "tock /8change

"hareholders in public companies e8pect a steady stream of

income from dividends 3ncreased threat of takeover

reater public scrutiny and profile )e.g. analyst reports! press

reports,




/#otation

When shares in a *$(C+ are first offered for sale to generalpublic

Company is given a *listing+ on "tock /8change

2pportunity for company to raise substantial funds

Also a chance for e8isting shareholders to *cash in+ by selling

some or all of their shares )e.g. a venture capitalist who may

have invested earlier,

Comple8 and e8pensive process

9isit the (ondon "tock /8change website to find

out more about flotations




Risks faced by !hareho#ders

7emember 1 shareholder's liability is limited=owever! there are still risks in investing:

Company reduces its dividend or pays no dividend

9alue of share falls below price shareholder paid

Company fails and investor loses money invested




/ranchises

/ranchisor 1 a business whose sells the right to anotherbusiness )franchisee, to operate a franchise

-ranchisor may run a number of their own businesses! but also

may want to let others run the business in other parts of the

country

A franchise is bought by the franchisee -ranchisee re(uired to invest 1 often around G! & @!

in ac6uiring the franchise licence and setting up the business

2nce they have purchased the franchise they have to pay a

proportion of their revenues )*commission+, to the franchisor on a

regular basis

-ranchisor usually provides support through training!

management e8pertise and marketing

#ay also supply the raw materials and e6uipment.




hy /ranchising is Popu#ar

An attractive option for businesses that want to grow rapidlybut don't want to invest in opening in lots of different locations

-ranchisee provides most of finance 1 reduces investment in

e8pansion

(ocal entrepreneur with inherited or redundancy money sees

opportunity to set up business with reduced riskBanks like combination of large company and small local

business as a reduced lending risk.

#any people set up as franchisees using

redundancy money or inheritances 1 and run their

own business for the first time




'o3operatives

hree main types of co&operative 7etail co&ops

#arketing or trader co&ops

Workers co&ops

/8amples:

Co&operative 7etail "ociety -armer's co&operatives marketing and distributing food products

"mall business credit unions

Artists' co&operatives sharing studio and e8hibition facilities

he Co&operative movement is no longer a

significant part of the 45 economy. -ranchises

are much more popular




1a%p#es of Pub#ic !ector

Organisations

Current /8amples BBC

$ost 2ffice

0ational =ealth "ervice

$rison "ervice

-ormer $ublic "ector 2rganisations that were *privatised+ British as

British Airways

B$

British Airports Authority




Privatisation

What was it? "ale of public sector organisations to private investors

Why did it happen?

"tate run firms perceived to be inefficient & little incentive to cut

costs or provide high 6uality services because there is no

competition "ome privatised companies were a financial burden on

government )i.e. made losses 1 e.g. British 7ail,

"elling them off raised valuable money for government

;isadvantages

$rivate companies may put prices up Cut jobs and reduce services that are not profitable

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