Download - Chapter 4 forms of a business organisation
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UNIT 2: BUSINESS ORGANISATIONS
Chapter 4 –forms of Business Organisation
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Forms of Business OrganizationsYou will learn …………………
The main forms of business organizations in the public and private sectors
The advantages and disadvantages of each form or organization
The appropriateness of each form in different circumstances
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Types of Business Organizations
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Sole Traders
Smallest and Most Common type of Business Organization
Owned and Operated by one person One Man Show\”
Can employ others but the owner is the sole proprietor
Easy to set upFew Legal Regulations
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Sole Traders
Do not require a lot of money to set up
Money usually provided by the owner
They are unincorporated Meaning that legally, the owner and
the business are the sameThey have Unlimited Liability
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Sole Trader Advantages
Few Legal RegulationsControl Own BossFreedom / FlexibilityPersonal Customer ContactDecision MakingProfitSecrecy
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Sole Trader Disadvantages
× Unlimited Liability× Money / Finance× High Costs× Higher Prices× Raising Capital× Long Hours× Lack of Specialists× Health× No continuity
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Sole Traders
See Case Study Page 30 & 31
Instructions Read the case study Group 1 – Discuss Advantages Group 2 – Discuss Disadvantages Group 3 – Discuss Mikes advice
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Partnerships
Usually small businessesTend to be a little larger
than sole tradersTwo or more people run
the business that aims to make a profit
Maximum number of partners is usually 20.
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Partnerships
Money usually provided by the partners
Partnership Agreement or Deed of Partnership maybe used.
They are unincorporated They have Unlimited
Liability
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Partnership Advantages
More CapitalShared ResponsibilitiesShared DecisionsMotivation to work hardLosses shared by all
partnersGreater opportunity for
specializationEasy to set up
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Partnership Advantages
Less money needed by partners to set up
Can be a family run business
Accounts kept private
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Partnership Disadvantages
× Unlimited Liability× Legal Costs for drawing up a “Deed of Partnership”× All partners liable for the debts of the others× No separate legal identity × Partnership dissolved on partners leaving or through
death
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Partnership Disadvantages
× Potential for conflict× Time to consult other partners× Decisions of one partner binding on the rest× Limited access to capital× Limit on the number of partners
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Limited Partnerships
Known as Limited Liability Partnerships (LLP)
These are possible in some countries such as the UK
Offers partners limited liabilities
Shares cannot be bought or sold
Separate Legal Identity
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Sole Traders and Partnerships
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Assignment & Presentation
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Private Limited Company
Separate Legal IdentityDenoted by
“Limited”, “Ltd”, or “Pty Ltd”Shares usually owned by
Original sole trader Family, Relatives, Friends, Employees
Most Important Directors, Majority Shareholders
ContinuityMake ContractsLegal Agreements
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Private Limited Company Advantages
Limited LiabilitySale of SharesSeparate Legal IdentityOriginal Owner Retains
ControlMore Ability to Raise
CapitalContinuityStatus
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Private Limited Company Disadvantages
Legal Formalities Articles of Association
Directors Rights & Duties Rules for Elections Official Meetings Issuing Shares
Memorandum of Association Name Address Contact Details Objectives Amount of Share Capital Number of Shares
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Private Limited Company Disadvantages
Shares Existing shareholders ONLY Transfer needs consent
Less Privacy Accounts sent to the Registrar
of CompaniesRaising Capital for
Expansion
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Public Limited Company
Very Large Businesses Large Supermarket Chains Factories
Private Sector Denoted by
“PLC”, “plc”Selling of Shares to the
general public
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Public Limited Companies
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Public Limited Company Advantages
Limited Liability Incorporated BusinessSeparate Legal UnitContinuityRaise Large Amounts of
Capital
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Public Limited Company Advantages
No Limit on the Number of Shareholders
Easy to Buy, Sell & Transfer Shares
Higher StatusEasy to Attract
Suppliers
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Public Limited Company Disadvantages
× Legal Formalities× Complicated & Confusing
× Regulations & Control× Protect shareholders interest
× Privacy × Publication of Accounts
× Difficult to Control & Manage
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Public Limited Company Disadvantages
× Expense of Selling Shares to the Public× Specialist Bank× Merchant Bank× Prospectus
× Original Owners Loss of Control
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Converting from Private to Public Memorandum of Association
Statement made Public Limited Company
Certain Minimum Amount of Shares must be Issued
Accounts Specific Layout Made Available to the Public
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Converting from a Private to a Public “Stock Exchange”
Apply for a “listing” Easy for buying & selling
shares to shareholders Look carefully at accounts Trading record Ensure it is not poorly
operated
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Converting from a Private to a Public Prospectus
Invitation to the Public Buy Shares in the company Detailed Document Past Records Plans for the future Reasons for raising capital How capital will be spent Full explanation
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Control & OwnershipPublic Limited Company
Shareholders Thousands, Millions
Annual General Meeting (AGM) Election of Company Directors
Directors Professional Managers Responsibility to run the business Make Decisions Appoint Managers
Day-to-day operations
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Control & OwnershipPublic Limited Company
Divorce Between Ownership & Control Shareholders Own Directors & Managers Control
Objectives Increase status Increase growth
Justify their large salaries Reduce Dividends
Expansion Plans Replacing Directors
Inexperience Bad publicity Unstable
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Activity
See Case Study Page 41
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Joint Ventures
Two or more businesses
Work closely together
One project
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Joint Ventures
Setting up a factory to supply components / parts to manufactures
Advantages Shared Risks Reduced Costs Shared Research &
Development costs Possible Profit Sharing
DisadvantagesPolicy &
ManagementDisagreement
sConflictsDisputes
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Co-operatives
Groups of people Agree to work together Pool resources
Features All members have one vote Help in running the business Shared workload Shared decision making Shared Profits Managers Appointed
Larger co-operatives
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Co-operatives
Producer Co-operatives Groups of Workers Design Products Produce Products
Retail Co-operatives Aim to provide members with
good quality consumer goods & services at reasonable prices
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Agriculture Co-operatives
Buy in Bulk
Worker Plants Seeds
Harvests to the Crop
Arranging Selling of Output
Attractive Prices to Large Customers
Economies
OfScale
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Close Corporations
Similar to Private Limited CompaniesQuicker to set upFewer Rules & RegulationsMaximum of 10 peopleSimple Founding Statement
Registrar of CompaniesMembers are ManagersSeparate Legal IdentityLimited Liabilities
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Close Corporation
Disadvantages Limited to 10 people Not suitable for large businesses Disagreements / Conflicts Decision Making Issues
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Franchising
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Franchising
Franchisor Large Business Product / Service Idea Does not want to sell to the
public directlyFranchisee
Use franchisor’s product / service idea
Sells it to the consumer
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Franchising
Franchisor Advantages Franchisee
Pays for Expansion Pays for Shop Purchases License Uses product name
Rapid Expansion Brand Name & Products
Major Source of Profit No Operation of Retail Units
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Franchising
Franchisee Advantages Reduced chance of failure
Well known brand/product Advertising paid for by
Franchisor Supplies from single source Franchisor makes many of the
decisions Fewer decisions to worry about
Training Provided Finance from Banks easier
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Public Sector
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Public Sector
Two Main Types Public Corporations Municipal Enterprises
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Public Corporations
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Public Corporation Objectives
Social Objectives Keep prices low and affordable Keep people in jobs to reduce unemployment Offer public service in ALL areas
Issues Keeping to objectives costs huge amounts of money Often make huge loses “Subsidies” often paid by government
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Public Corporation Objectives
Other Objectives Reduce cost, even at the cost of jobs Increase efficiency Operate like a private sector firm Cut services that make a loss
Some consumers loose outCorporatization
Public corporation running as though it is in the private sector, not public sector
Preparing for “privatization”
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Public Corporation
AdvantagesEssential / Necessary Services
owned & controlled by govt.
Natural Monopolies
Open Business & Secure Jobs
Availability for public use
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Public Corporation
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Public Corporation
DisadvantagesNo ShareholdersNo Profit Motive No Efficiency MotiveSubsidies lead to inefficiency Managers think that government there
for bailout all the timeUnfair
Subsidies not given to private sector
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Public Corporation
DisadvantagesLack of Incentive
Increase consumer choice Increase efficiency
Used for Political Gain Offering more jobs at election
time
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Municipal Enterprises
Operated by Local Government Some Free, Paid by local taxesSome Charged, to at least Break-even
Services include; Street markets Swimming pools Theatres Sporting Areas Waste collection Libraries
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Municipal Enterprises
How do they cut cost?How do they reduce the cost on local
taxpayers?
Increase range of services through privatization
Reducing the role of government in providing goods and services