Download - Introductory Business Concepts Forms of Business Organisation (special thanks to Geoff Leese)
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Introductory Business Concepts
Forms of Business Organisation
(special thanks to Geoff Leese)
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Objectives
• Consider the different types of business organisations operating in the private sector
• Consider the advantages & disadvantages of each type of organisation
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Types of Business Organisations
Private Sector
Sole Trader Partnerships Companies
Private limited companies Public limited companies
Franchise
Cooperatives
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Sole Trader
• Owned financed and controlled by one individual but can employ other staff
• Traditionally common in local building firms, small shops, restaurants, butchers
• Today many people are setting up their own businesses by creating small web-based companies working from home
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Sole Trader
Advantages• Requires little capital• Easy to set up• Personal incentive –
• keep all the profits • make key decisions• high degree of control
• Flexibility• Ability to offer personal service
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Sole Traders
Disadvantages
• Unlimited Liability• Limited access to capital• Potential for long hours• Pressure of being solely responsible• Lack of continuity – business ceases once
owner dies• No cover for illness
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Business Organisations
• Sole traders can overcome these disadvantages by becoming a partnership
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Partnerships
• Owned, financed and controlled by between 2 & 20 partners
• Terms of Partnership agreed through contract
• Bound by the terms of the Partnership Act 1890
• Common in professions – lawyers, accountants, architects, surveyors, estate agents, vets etc
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Partnerships
Advantages
• Each partner contributes capital• Shared responsibility• Greater opportunity for specialisation• Easy to set up
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Partnerships
Disadvantages
• Unlimited Liability (However since 2001, Partnerships can apply to be Limited Partnerships)
• All partners liable for the debts of the others • Partnership dissolved on death of one partner• Potential for conflict• Decisions of one partner binding on the rest• Limited access to capital
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Private limited companies
• Usually small family business• Owned by between 2 and 50
shareholders• Directors elected by shareholders
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Private limited company
• Advantages– Limited liability– Shareholders contribute capital– Protected from takeovers
• Disadvantages– Still limited capital– Limited economies of scale
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Public limited companies
• Owned by minimum of 2 but no maximum number of shareholders
• Example Boots
• Directors elected by shareholders
• Has a separate legal identity – the company can sue and be sued
• Minimum share capital of £50,000
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Public limited companies
• Advantages– Large amount of capital can be raised– Economies of scale
• Disadvantages– Unwanted takeover possible– Can be remote from customers– Potential diseconomies of scale
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Co-operatives
• Controlled by a committee• Ownership, finance and control in hands of
‘members’• Exists for the benefit of ‘members’
– Consumer co-ops – members buy goods in bulk, sell to members, divide profits between members
– Worker co-operatives – workers buy the business and run it – decisions and profits shared by members
– Producer co-operatives – producers organise distribution and sale of products themselves
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Franchises
• Method of Business Organisations backed by established ‘brand’ name
• Franchisee – pays a fee for the purchase of the franchise
• Common franchises – Body Shop, McDonalds, Costa Coffee, Subway
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Franchises
• Advantages– Owner gets to run a business with less ‘risk’– Owner buys the right to use the established
companies name, format products, logos, display units, methods etc.
– Speedy way for business to expand– Become very popular
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Franchises
• Disadvantages– Owner – (Franchisee) responsible for debts– Franchisee pays a royalty to owners of the
brand– Franchisee must adhere to pricing policy of
parent company and so it can be difficult to realise high profits
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Conclusion
• Considered the various types of business organisations
• Considered the advantages & disadvantages of each
• Useful Websites– http://www.thetimes100.co.uk
• Lots of very useful stuff there!