different ownership structures.ppt

8/10/2019 Different Ownership structures.ppt

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Different Ownership

structuresOCR National Business Studies

Level 2 /VGCSE Business Studies


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Objectives

To understand the different ownershipstructure of businessesTo understand the advantages anddisadvantages of different structuresTo understand the liability of eachownershipTo be able to give examples of businesseswith different ownership


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Different sectors

PRIVATE PUBLIC Owned by private people Owned by the

Government /state

Sole traders NHS, HospitalsPartnerships SchoolsCompanies The army , the police

etc.. (Ltd and Plc)FranchisesCo-operations


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Sole Traders

Owned by one person.Small size businesses.

Unlimited liability- this means that theowner is liable for all his debts whichmeans that their personal assets can beaffected.The owner keeps all the profit.


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Sole traders- benefitsEasy to setup up as there are no formal procedures tofollow; especially if using their own nameIdeally suited for offering a person service tocustomers.Decisions can be put into effect quickly as there is no-one else to consultThe sole trader is his or own boss and does not takeorders form anyone elseBad (unpaid) debt can be avoided as the ownersusually know the customers and most transactions asmade by cash and not credit.There is minimum paperwork unless the business is

registered for VAT


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Sole traders - disadvantages

Long working hoursIllness and sickness cause problems when thebusiness is closed the owner makes no money.

Highly dependent up in skills and ability of oneperson.Difficult to raise capital to start up or expand thebusiness.

The owner has unlimited liability for any debts.This means that if the business is un successfulthe owner may have to sell personal processionsto pay for any debts. If some of the debts remain

unpaid the owner may be declared bankrupt.


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Some facts about sole traders:

In the eyes o the law the sole trader and theowner are one you would sue the owner ifanything happened; e.g the hairdresser wreckedyour hair. When the owner dies the business

cease to existBanks often reluctant to lend money usually theowner has to pay their own money or borrow formfamily and friends

The sole trader can keep all the profit once theexpenses are paid; the accounts are keep private.Opportunities to grow are limited as difficult toraise extra capital.SMALL SCALE operations and does depend onhow ambitious the owner is.


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Examples of sole traders

Examples include plumbers,hairdressers, beauticians , market traders,Chinese restaurants, catering outlets etc.. They o not need lager amount of money toset up


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PartnershipsWhere 2- 20 people set up a business together.They jointly one the business- the risk and responsibilities areshared by all the partners.Usually setup with people with different skills to offer a wider

range of service.

Sleeping partner are partners which have invested capital notthe business but do not have to involve themselves in the dayto day running of the business; they receive smaller share thanthe active partners,.Sensible to draw up a deed of partnership sets out the detailsfor each partner ; their salary, their share of profits andprocedures t follow if there is a dispute; The deed of partnershipact states that all partners are equally liable for nay debt unlessit is stated differently in the deed.


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Partnerships benefitsProblems can be shared and discussed.New skills and ideas can be introduced.It is usually easier to raise capital as all thepartners contribute.There are obvious benefits t be gained formcombining the skills and knowledge and theexpertise of all the partners.The partners can specialise in their ownparticular area of expertise (e.g in legal practice,one may specialise in family law, another inlitigation, s third in business law, and so on.


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Partnerships drawbacksThe partners may not always agree or contributeequally.The profits must be shared.

All the partners must be consulted before s majordecision can be made.The partners have unlimited liability for any debts, andare therefore personally liable.The actions of one partner are binding on all the otherpartnersThe death of a partner mean that the withdrawal of hisshare of capital must be paid to his/her estate. It istherefore usual to take a life assurance policy on each

partners life.


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Partnerships - factsIn the eyes of the law all the partners are equally responsiblefor any debtPartners share the profits equally, unless different agreementshave been made specify in the Deed of Partnerships.

They all liable to pay income tax on the profits. All the partners have unlimited liability for all the debt and theaccounts are still kept privateIn a limited partnership rare in the UK ; then the sleepingpartner will have limited its debt only to the capital invested into

the business but the there partners will have to have unlimitedliability.Financing the business is easier and raising money for thebusiness as there are more than one owners in the business.Examples include: accountants, solicitors, doctors, dentists,

veterinary surgeons estate agents etc..


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How are companies Formed

There are two types of companiesLTD Private Limited Companies

PLC Public Limited companies


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How are companies formed

Memorandum of association the structure of thenew company its purpose and aims and objectivesArticle of association there rule book of how it

should operate- what the business can and cannot do.This mean the company is issued with a certificate ofincorporation a birth certificate for the company.

Corporation tax is paid on net profits!Easier to borrow money.

All the profit belongs to the shareholders but some isploughed back to be re invested into the business.


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Companies

Has a separate legal identity which meansthat the company has separate legal entityand is known as a corporate body the

company has been incorporated. inc id theabbreviation for this. The company owns theproperty, employs and pays its staff (includingthe directors), take legal action and isresponsible for its debts. In the eyes of the lawit is a separate individual.E.g. in Tesco if you break your ankle you sue

Tesco not the shareholders


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Private limited companies Start out as maybe small sole trader sand or partnership.They form a limited company:Improve the financial security as the owner are calledshareholders and have limited liability which means they arelimited to only the amount invested into the business.

The name Ltd stands for private limited companiesThe company goes into liquidation if the business fails and

there is no bankruptcy.Before lending money to the company they need to be sure thebusiness is financially sound.Ltd provides a better image to their customers as they assumeit is more secure.


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Private Limited Company

LTD each shareholder receives sharesin the business

One share equals one vote

So shareholders with more than half theshares can outvote the othershareholders.


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Ltd Benefits to the owner:Business can stay small- minimum one director and oneshareholderThe owners are the shareholders and have a vestedinterest in the business success and are involve dinrunning the business.

Relatively easy to setup owners may only need to invest100 to 200 poundsShares can be transferred with the agreement of all theshareholders and cannot be sold to the public. This givesthe owners direct control over the business.

Banks are more willing to make loans to a limited company especially if it has a good financial track record.Because of limited liability.The accounts are sill private between the owners, theiraccounts and the Inland Revenue.


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Ltd drawbacksIt is not possible to sell shares to the general public to raiseadditional finance.Limited companies have to comply with more regulations thansole traders or partnerships, for instance they have to register

the Registrar of Companies and have their accounts audited byan accountant. Thy also have to commit to the requirements ofvarious Companies Acts.

A limited company is not allowed to trade under the name of anexisting company as this will lead to confusion between thesuppliers or customers.If the company ceases trading it must be officially wound upand the if the company cannot pay its debts it will go in toliquidation which can be time consuming and a difficult process


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Plc Public Limited CompaniesLargest type of privately owned businesses in the UK.Many started out as privately limited companies and werefloated on the Stock Exchange.Floated means when the public Limited Company is launched.

Any person can buy shares into the business and is identifiedwith the letters PLCThe shareholders are different to the directors. The directorscan choose to own shares in the business or not.

A company must have more than 50,000 before it can gopublic and must have a satisfactory financial record. Also it needs enough people to be interested in buying theshares for it to have a successful floatation


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Plc Benefits

Major benefit is increased capital as many thousandsof people or organisations may buy shares into thecompany. This makes expansion very easy.

Some public limited companies can be quite small-there only needs to be a minimum of two directors andtwo shareholders.Very large companies can often operate cheaply than

small companies on economies of scale. For instance,they can mass-produce goods for sale and buy in bulkto save money.If the company is successful, the shares will increase

the overall value of the company.


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Plc - Drawbacks A public company must be registered as such with theRegistrar of Companies and many external regulationsto comply with.

Any problems the company encounters may becomenews if the press run a story on it.

An annual general meeting (AGM) must be held eachyear and all shareholders must be invited.Shareholders who do not agree with the way the

company is run may raise objections or vote against aproposal made by specific directors.Specific accounts must be prepared each year andthese must be audited. Moreover the accounts mustbe published so tat a problem year cannot be hidden.


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Plc drawbacks 2

Shareholders invest to receive dividend payments inreturn for their investment.They will want the shares to increase in value and if

they decrease in value shareholders will be tempted tosell their shares. In this case their interest is differentto those f directors who may be looking at the longerterm security of the company.

The original owner(s) may lose most of the control of the company, even if they retain substantial numberof the shares. Sir Richard Branson bought hiscompany back from the public ownership because ofthis.


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Some facts about PlcsLegally a public limited company is owned byshareholders- so its ownership may change allthe time as shares are bought and sold all thetime.

A PLC has to comply with Companies acts aswell as abide by the rules set out by the stockexchange.It can choose a variety of source of finance, form

banks to debentures ( loans on the stockexchange by selling additional shares) there islimit on how many shares it can sell dependingon the value of the company.


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Facts about Plc (2) A plc may take over another company by buying upshare in a smaller company just to give it controllingvotes. Or it may merge with another company of similarsize to grow bigger.

The net profit is paid out to the shareholders in the formof a dividend, although the company will put a proportioninto reserves each year. (preference shareholdersreceive a fixed amount each year) The dividend dependupon how much profit is made and how much is required

for reserve.Examples of Plc include; Barclays Bank, Marks andSpencers, Sainsbury etc..


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Ownership of both business

What are they? Ltd or plcWhat is their liability?

How did they become companiesWhat is the advantages/ disadvantages ofbeing a LTD to Bham Airport

Also list the advantages anddisadvantages of lex being a plcUse case study to describe the ownership

different ownership structures.ppt

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