8/12/2019 typebusiness-110828230047-phpapp02
1/76
The legal forms of business
Introduction
Sole Trader
Partnerships Limited Companies
CO-operatives
Franchising
Multinational Companies
Organisations and the public sectorReturn to beginning
http://localhost/var/www/apps/conversion/My%20Documents/Downloads/business%20studies%20study%20guide%202.ppthttp://localhost/var/www/apps/conversion/My%20Documents/Downloads/business%20studies%20study%20guide%202.ppt8/12/2019 typebusiness-110828230047-phpapp02
2/76
Introduction
A person wanting to set up a business has to
consider what legal form organisation should take.
Factors influencing this decision are:
How many owners the business is going to have?
What is the tax position of the business?
Can the owner take the risk of unlimited ability? Does the owner want all the business profits?
8/12/2019 typebusiness-110828230047-phpapp02
3/76
continued
Is there a complete privacy in the affairs of the
business for the owner?
In the case of the owners illness or death what willhappen to the business?
Return to the main menu
Return to introduction
8/12/2019 typebusiness-110828230047-phpapp02
4/76
Sole Trader
What is a sole trader?
Advantage of being a sole trader
Disadvantages of being a sole trader
Definitions
Return to main menu
8/12/2019 typebusiness-110828230047-phpapp02
5/76
Sole Trader
What is a sole trader?
Sole trader is a person who owns and operates
their own business. They may or may not employ
other people.
It is important to remember that a sole trader isusually a relatively small business with little
capital available for expansion and the capital that
has been invested comes from one source and that
is the owner.
Sole traders are common businesses. Example of
a sole trader business is a hairdresser.
Return to sole trader menu
8/12/2019 typebusiness-110828230047-phpapp02
6/76
Sole TraderThe advantages of being a sole trader are:
Profits - they are kept by the owner. There are no
other shareholders so the profits don't have to be
split. Easy to run- every business is difficult to run
successfully but sole trader is the easiest form of
business
Easy to establish- hardly any complicated forms
or procedures. Some of the other legal forms have
to have legal forms completed before the business
can start.
8/12/2019 typebusiness-110828230047-phpapp02
7/76
Sole Trader
Total control - the owner is in charge of the
business. He/she does not need to discuss their
decisions with any other owners. They have totalcontrol of the business.
Privacy- As there are no shareholders in the
business you only need to inform Inland Revenue
and Customs and Excise in order for them to seehow well the sole proprietor is doing
8/12/2019 typebusiness-110828230047-phpapp02
8/76
Flexibility- very flexible working hours as sole
trader is its own boss e.g. Rather than working onFriday he/she decides to work on Sunday instead.
Return to sole trader menu
Sole Trader
8/12/2019 typebusiness-110828230047-phpapp02
9/76
Sole Trader
Disadvantages of Sole Trader:
Illness- If ill the business might be forced to shut
down stopping the income and profits
Unlimited liability- if the things dont work out as
planned the sole proprietor could lose all its
investment.
Lack of continuity- because the owner is thebusiness there is no guarantee that the business
will carry on running once the owner decided to
stop.
8/12/2019 typebusiness-110828230047-phpapp02
10/76
Sole Trader
Long hours- long hours may be required of the
owner to keep the business afloat.
Difficulty in raising capital- small businesses findit hard to find a start up capital and usually the
owner might have to put his/her house as an
insurance for capital borrowed
8/12/2019 typebusiness-110828230047-phpapp02
11/76
Sole Trader
Limited specialisation- as the owner has to be a
purchaser, lorry driver and accountant there is no
time for this person to specialise in all fields Limited economies of scale- e.g. a small
construction business would have to hire a lorry to
do the required task as this would be cheaper but
larger business would buy its own as this wouldprove to be cheaper due to the fact that lorry is in
continuous use.
Return to sole trader menu
8/12/2019 typebusiness-110828230047-phpapp02
12/76
Sole Trader
Definitions:
Sole Trader-a single owner of the business who
has unlimited liability Unlimited Liability- a legal obligation stating that
the owner must settle all debts of the business. If
the debt of a business is larger than his personal
assets than they may be forced into bankruptcy
Economies of Scale- are the factors that cause
average costs to be lower in large scale operations
than in small scale ones.
8/12/2019 typebusiness-110828230047-phpapp02
13/76
Sole Trader
Economies of Scale- are the factors that cause
average costs to be lower in large scale operations
than in small scale ones.
Return to sole trader menu
8/12/2019 typebusiness-110828230047-phpapp02
14/76
Partnership
What is Partnership?
Decisions regarding partnership
Advantages of partnership
Disadvantages of partnership
Definitions
Return to main menu
8/12/2019 typebusiness-110828230047-phpapp02
15/76
Partnership
What is partnership?
Partnership is a type of business where 2 or more
people agree to to own, run and trade.Partnerships require a high degree of trust and are
very common in fields such as medicine.
Return to partnership menu
8/12/2019 typebusiness-110828230047-phpapp02
16/76
Partnership
When setting up a business a person has to decide
whether to set up a business on their own or with
others.This will depend on:
how much control they want over the business
are they prepared to share the profit
can they raise necessary capital to start up the
business by themselves
8/12/2019 typebusiness-110828230047-phpapp02
17/76
Partnership
There is also a risk factor. Is this person prepared
to accept the risk of unlimited ability?
Return to partnership menu
8/12/2019 typebusiness-110828230047-phpapp02
18/76
Partnership
The advantages of partnership are:
easy to set up
solicitors and accountants are not required to runthe business
profits belong to the partners
privacy. Only tax authorities need to be told howmuch partners are earning and profit of the
business
8/12/2019 typebusiness-110828230047-phpapp02
19/76
Partnership
often good relations between partners
raising capital for the business is easier than that
of sole proprietor different expertise for partners e.g. 1 specialises in
accountancy whilst the other in marketing
Some businesses have sleeping/silent partners.
They play a little role in running day to day basis
of a business but they provide the capital for the
business.
Return to partnership menu
8/12/2019 typebusiness-110828230047-phpapp02
20/76
Partnership
The disadvantages of partnership:
Disagreements between partners, which can be
bad for business some partnerships dont have a deed of
partnership, which can be bad for business
most partnerships are relatively small businesses
e.g. Shops, farms
Return to partnership menu
8/12/2019 typebusiness-110828230047-phpapp02
21/76
Partnership
Definitions:
Ordinary Partnerships- there can be between 2and 20 partners
Deed of Partnership- is the legal contract, which
sets out following:
who the partners are
capital brought into business by each partner
how profits should be shared
8/12/2019 typebusiness-110828230047-phpapp02
22/76
Partnership
how many votes each partner has in any partnership
meeting
what happens if there is a withdrawal of a partner from
the business
Return to partnership menu
8/12/2019 typebusiness-110828230047-phpapp02
23/76
Limited companies
What is a limited company
LTD and PLC companies
Advantages of becoming a PLC company
Disadvantages of becoming a PLC company
Definitions
Return to main menu
8/12/2019 typebusiness-110828230047-phpapp02
24/76
Limited companies
What is a limited company?
Every limited company has a shareholers. The
term limited company refers to the fact that if thecompany goes into debt each shareholder risks
losing only the amount he has invested and his
personal belongings are safe and cant be touched.
8/12/2019 typebusiness-110828230047-phpapp02
25/76
Limited companies
Start up stages of Limited Company
Memorandum of Assiciation Articles
Start trading
Certificate of incorporation
Companies house
Start a limited company
8/12/2019 typebusiness-110828230047-phpapp02
26/76
Limited companies
The owners of the company are called
shareholders
they have limited liabilityTwo documents required by Registrar of
Companies to set up a limited company are:
The articles of association - this is basically the rule
book of how the company must operate. It is agreed bythe people setting up the business. The articles of
association gives details such as voting rights of the
shareholders, how the profit will be distributed, how
decisions will be reached etc.
8/12/2019 typebusiness-110828230047-phpapp02
27/76
Limited companies
The memorandum of association - This is basically the
CV of the company. It tells people what the business
does and where it operates from. In it you could find
the details such as the names of the companies and theaddresses of their headquarters.
8/12/2019 typebusiness-110828230047-phpapp02
28/76
Limited companies
Every year a limited company has to send audited
accounts and various other documents to the
Registrar Of Companies at Company House.Anybody who asks can see them.
Return to LTD companies menu
8/12/2019 typebusiness-110828230047-phpapp02
29/76
Limited companies
Private Limited Companies(LTD) and Public
Limited Companies(PLC)
Difference between PLC and LTD lie in:
Sales of shares- the Public Limited Companys
shares must be tradable on stock exchange
8/12/2019 typebusiness-110828230047-phpapp02
30/76
Limited companies
Share capital- 50,000 in share capital is required
from PLC by the law in order to start up
Size and number of shareholders- the number ofshareholders is likely to be far greater in PLC than
in LTD
Control- LTD is controlled by shareholders in
theory
8/12/2019 typebusiness-110828230047-phpapp02
31/76
Limited companies
Every year shareholders interests are represented
at AGM(Annual General Meeting) of directors
who appoint managers to run their companies
In LTD company the shareholders, the directors
and managers are often same people because the
company is usually small
8/12/2019 typebusiness-110828230047-phpapp02
32/76
Limited companies
In PLC company situation is different. The
managers and the directors are different form
shareholders
Return to LTD companies menu
8/12/2019 typebusiness-110828230047-phpapp02
33/76
Limited companies
The advantages of becoming a PLC company are:
it is easier to attract shareholders to invest money
in the business because of limited liability. Itenables a business to grow and become large
Return to LTD companies menu
8/12/2019 typebusiness-110828230047-phpapp02
34/76
Limited companies
The disadvantages of becoming PLC company are:
general public has the access about the companys
information giving information out is also costly in terms of
administration costs
PLC companies must comply with stock exchange
rules
it has been known that sometimes the only interest
for a shareholder is short term profit
Return to LTD companies menu
8/12/2019 typebusiness-110828230047-phpapp02
35/76
Limited companies
Definitions:
Articles of association- the document, whichgives the details about the relationship between the
company and its shareholders and directors
Directors- people elected by the shareholders to
represent the shareholders interests
8/12/2019 typebusiness-110828230047-phpapp02
36/76
Limited companies
Limited liability- when shareholders of a
company are liable for the debts of a company
only up to the value of their shareholding.
Private Limited Company- a joint stock company
whose shares are not openly traded on a stock
exchange
8/12/2019 typebusiness-110828230047-phpapp02
37/76
Limited companies
Public Limited Company- a joint stock
company whose shares are openly traded on
a stock exchangeShareholders - the owners of a company
The Registrar General- keeps records on all
UK limited companies.
8/12/2019 typebusiness-110828230047-phpapp02
38/76
Limited companies
Divorce of Ownership and Control- this occurs
when there is a disagreement between
shareholders, managers and directors e.g. Amanager of a MNC wants to invest in a country
where a political situation is unstable but he thinks
that the gains outweigh the risks but the
shareholders disagree. If there is a continuosdisagreement between managers and shareholders
than this leads to Divorce of Ownership and
Control
Return to LTD companies menu
8/12/2019 typebusiness-110828230047-phpapp02
39/76
CO-operatives
What Co-operative movement is made up off?
Co-operative today
ProblemsWorker Co-operative
Advantages of Worker Co-operative
Disadvantages of Worker Co-operativeDefinitions
Return to main menu
8/12/2019 typebusiness-110828230047-phpapp02
40/76
CO-operatives
United Norwest Co-operative is a part of the UK
Co-operative movement. It is made up of:
Co-operative retail societies Co-operative wholesale society
and a variety of other Co-operative operations e.g.
banking and travel
Return to Co-operative menu
8/12/2019 typebusiness-110828230047-phpapp02
41/76
CO-operatives
CO-operatives today
largest firm of undertakers in the UK
Co-operative society is based in North West ofEngland
it is the 7th largest tour operator in UK
the largest wholesaler and farmer in UK insurance societies and banks of CO-op are both
very successful
Return to Co-operative menu
8/12/2019 typebusiness-110828230047-phpapp02
42/76
CO-operatives
Problems
Since 1945 they have lost the market share in
grocery business. They are under intensecompetition from supermarket chains such as
Sainsbury and Tesco
Return to Co-operative menu
8/12/2019 typebusiness-110828230047-phpapp02
43/76
CO-operatives
Reasons being:
CO-op have been operating too many small shops
with high costs Sainsbury and Tesco were able were able to open
up bigger shops and buy in bulk, which made
them more competitive
the dividend, which kept customers loyal to CO-
op in the past became less and less important as
buyers found Tesco and Sainsbury to be cheaper
8/12/2019 typebusiness-110828230047-phpapp02
44/76
CO-operatives
Worker CO-operatives
This is different from retail Co-operative. A
Worker Co-operative is a business,which is ownedby its workers.
As the owners are the workers they also make
decisions on how the business is run. Each worker
is entitled to one vote when making a decision andhe also owns one share of the business.
Return to Co-operative menu
8/12/2019 typebusiness-110828230047-phpapp02
45/76
CO-operatives
Advantages of Worker Co-operative are:
it is unlikely to be a conflict of interests between
owners and the workers because profits made bythe business go to the workers or are reinvested
back into a business
the business is likely to be conscious of its place in
community
Return to Co-operative menu
8/12/2019 typebusiness-110828230047-phpapp02
46/76
CO-operatives
Disadvantages of Worker Co-operative are:
difficult to persuade other workers to establish a
worker Co-operative. Partnerships are mucheasier.
new workers usually have to become new owners.
There could be difficulty in raising the capital
required to become the owner
limited companies tend to buy out very successful
worker CO-operatives
8/12/2019 typebusiness-110828230047-phpapp02
47/76
CO-operatives
Expansion can be difficult as as it can not look for
new shareholders to finance expansion
the belief of workers that everybody should bepaid the same
Return to Co-operative menu
8/12/2019 typebusiness-110828230047-phpapp02
48/76
CO-operatives
Problems with Worker CO-operatives
The main problem with worker CO-operatives is
that there are too many managerial tasks so theybring in outsiders to perform these tasks e.g.
Accountancy so soon enough the workers
themselves find themselves bosses around by
other agencies.
Return to Co-operative menu
8/12/2019 typebusiness-110828230047-phpapp02
49/76
CO-operatives
Definitions
Consumer Co-operative - a business organisation
owned by customer shareholders and which aimsto maximise benefits for its customers
Worker Co-operative - a business organisation
owned by its workers who run the business and
share the profit among themselves
Return to Co-operative menu
8/12/2019 typebusiness-110828230047-phpapp02
50/76
Franchising
What is a franchise?
What the franchisor provides?
The cost to the franchiseeAdvantages to franchisee
Disadvantages to franchisee
Advantages to franchisorDoes franchise work?
Definitions
Return to main menu
8/12/2019 typebusiness-110828230047-phpapp02
51/76
Franchising
What is Franchise?
A franchise is a business established by one
person who the buys copyrights of another firm
and is allowed to produce and distribute thatproduct.
Return to franchising menu
8/12/2019 typebusiness-110828230047-phpapp02
52/76
Franchising
What the franchisor provides?
training to start the business
equipment e.g. shop fittings, machinery
materials used for production
finding customers e.g. advertising
back up services e.g. a loan, advice
a brand name e.g, Coca cola,
an exclusive area in which to sell the products
goods or services to sell
Return to franchising menu
8/12/2019 typebusiness-110828230047-phpapp02
53/76
Franchising
The cost to the franchisee
Franchisors tend to charge a fixed sum at the startof the franchise agreement to cover the costs of
starting up a new branch, then they charge a fee or
a percentage of the sales that the business has
made.
Return to franchising menu
8/12/2019 typebusiness-110828230047-phpapp02
54/76
FranchisingAdvantages to franchisee are:
6-7% of franchise businesses fail
franchisor is careful in his/hers selection of
franchisee franchisor sets out at the start how much capital
franchisee will need to start the business
franchise formula has already been tested and ithas been established in the market
franchisor provides ongoing support e.g. Help to
sort out tax problems
Return to franchising menu
8/12/2019 typebusiness-110828230047-phpapp02
55/76
Franchising
Disadvantages to franchisee are:
franchisee has no freedom to manoeuvre, he has to
stick to franchise agreement franchisee can not sell the business without
franchisors permission
franchisor can end the agreement without any
explanation or compensation
if franchisee becomes successful he feel that the
franchisor is profiting from his hard work
Return to franchising menu
8/12/2019 typebusiness-110828230047-phpapp02
56/76
Franchising
Advantages to franchisor are:
due to the fact that the franchisee puts up money
from the start it allows for a faster rate ofexpansion of franchisors business
franchisee will be keen and motivated to make the
business successful and this will help franchisor
Return to franchising menu
8/12/2019 typebusiness-110828230047-phpapp02
57/76
Franchising
Does a franchise work?
Answer: not all the time
If there is a poor business plan this could lead toboth franchisor and franchisee to be out of the
business
also if a franchisee provides poor quality product
this could have disastrous consequences.
Return to franchising menu
8/12/2019 typebusiness-110828230047-phpapp02
58/76
Franchising
Definitions:
Franchise - the right given by one business toanother to sell goods and services using its name
Return to franchising menu
8/12/2019 typebusiness-110828230047-phpapp02
59/76
Multinational companies(MNC)
Company structure
Benefits of becoming a larger size company
Problems facing multinationalsDefinitions
Return to main menu
8/12/2019 typebusiness-110828230047-phpapp02
60/76
MNC
Company structure
Firstly we have a Parent company - that is the
company, which owns and controls othercompanies under its ownership
than we have a subsidiary - these are other
companies that are under ownership of parent
company.
8/12/2019 typebusiness-110828230047-phpapp02
61/76
MNC
Reasons why UK MNCs have subsidiaries in
other countries may be due to the lower taxes,
cheaper materials, cheaper labour and also
subsidiary company will have limited ability.
Return to MNC menu
8/12/2019 typebusiness-110828230047-phpapp02
62/76
MNC
Benefits of becoming a larger size company are:
allows you to compete at higher level lower costs of production
economies of scale
cost effective e.g. where you locate yourproduction
Return to MNC menu
8/12/2019 typebusiness-110828230047-phpapp02
63/76
MNC
Advantages to a host country
they increase employment in specific area.
they educate workforce further improves standards of living
bring in new technology
Return to MNC menu
8/12/2019 typebusiness-110828230047-phpapp02
64/76
MNC
Problems facing multinationals are:
Size- there are a lot of communication problems
as the company has a complex hierarchy. Thesubsidiaries have been known to compete against
each other due to the breakdown of communication
within the its multinational structure.
Law and politics- different countries havedifferent legal and political systems. It is very
important for subsidiary to understand the system
8/12/2019 typebusiness-110828230047-phpapp02
65/76
MNC
Exchange rate fluctuations- MNCs sell theirproducts in several different currencies. It canhave an effect on their profits e.g. If the exchange
rate is BD$ 1=3 in month 1 and month 2 it wasBD$ 1=4 , it would be in parent companies bestinterest in order to maximise profit to withdraw itsmoney on month 1 because they will only be
paying 3 for BD$ 1 where as in second monthprice goes up to 4 for BD$ 1.
Return to MNC menu
8/12/2019 typebusiness-110828230047-phpapp02
66/76
MNC
Disadvantages to a host country
profits exported back to home country
health and safety issues. MNC are know to cutcorners when it comes to health and Safety in
hosting country
they have been know to gain some political power
jobs offered to locals are usually low skilled
Return to MNC menu
8/12/2019 typebusiness-110828230047-phpapp02
67/76
MNC
Definitions:
Multinational company(MNC)- is a businesswhich operates in at least 2 countries usually both
selling products and producing them in these
countries.
Return to MNC menu
8/12/2019 typebusiness-110828230047-phpapp02
68/76
Organisation & Public Sector
Public sector
Public corporation
PrivatisationOther public sector enterprises
Ways in which government affects businesses
DefinitionsReturn to main menu
8/12/2019 typebusiness-110828230047-phpapp02
69/76
Organisation & Public Sector
The public sector is run and owned by the state.
2 most important parts of the state are:
Central Government- controlled from London Local Government- is the government of counties,
districts and parishes throughout UK
The public sector is a provider, producer and
buyer.
8/12/2019 typebusiness-110828230047-phpapp02
70/76
Organisation & Public Sector
Provider- the public sector provides a range of
services e.g. health, police, education
Producer - the public sector produces some of thegoods and provides some of the services e.g.
defence, education and healthcare.
Buyer- the public sector buys the rest of what it
provides from private sector businesses e.g. newroads and places in old peoples homes.
Return to organisations menu
8/12/2019 typebusiness-110828230047-phpapp02
71/76
Organisation & Public Sector
Public Corporation
It is only owned by the central government who isthe only shareholder. The government sets goals
for public corporations to achieve.
It has a board of directors and this type of business
organisation is recognised in law like a publiclimited company or a Co-operative
Return to organisations menu
8/12/2019 typebusiness-110828230047-phpapp02
72/76
Organisation & Public Sector
Privatisation
Privatisation- government selling public
corporations to private buyers. Opposite of this isnationalisation.
Things to consider when it comes to privatisation
are:
costs
prices
the product
Return to organisations menu
8/12/2019 typebusiness-110828230047-phpapp02
73/76
Organisation & Public Sector
Other public sector enterprises are:
local leisure centres cemeteries
airports
market halls trust hospitals
Return to organisations menu
8/12/2019 typebusiness-110828230047-phpapp02
74/76
Organisation & Public Sector
Ways in which government can affect businesses
are:
Deregulation- occurs when the governmentremoves some of these rules
Health and Safety Acts
Trade Description Act
Ending monopoly rights
Return to organisations menu
8/12/2019 typebusiness-110828230047-phpapp02
75/76
Organisation & Public Sector
Definitions:
Contracting out- also known as sub contracting.
The company hire another firms services to do the
task within your firm e.g. Hiring a outside firm todo you cleaning duties
Nationalisation- the purchase by the state of a
private sector business
Public Corporation- a public sector enterprise
owned by the central government
8/12/2019 typebusiness-110828230047-phpapp02
76/76
Organisation & Public Sector
Public sector enterprise- a business owned by the
state, which sells what it produces to the private
sector. This also includes NHS(National Health
Service)
Return to organisations menu
Top Related