Types of Business Organisations

Types of Business Organisations

Overview

Private sector organisations

Sold trader Partnership Private limited company (ltd) Public limited company (plc) Multinationals Franchises Charities Voluntary organisations Local government Central government Public corporations Privatisation

Voluntary organisations

Public sector organisations

And Questions :D

Private Sector Organisations

These are organisations that are NOT run by the governement and are owned privately. Most of your big companies are in the private sector. The private sector includes:

Sole traders Partnerships Limited companies Franchises

Sole Trader

A sole trader is a 1-owner business. There are no legal requirements to go through before setting up this business. Most small local businesses are sole traders.Advantages Owner keeps all of the profits Complete control over all decisions Choose own hours of work and holiday time 'Personal service' offered to customers Very cheap to set up Disadvantages Unlimited liability (have to pay all the debts on their own) Restricted sources of finance No one to share decisions with/have another opinion Can't share workload with others Business has to shut down if you're ill or go on holiday

Sole Trader (2)

Sources of finance

Owner's savings Retained profits Bank loan Overdrafts Government grants Trade credit Debt factoring

Objectives

We will cover what each of the sources of finance and objectives are in a later powerpoint! :)

Survival Profit maximisation Create a good image Imprive personal circumstances Satisficing

Partnership

A business with 2-20 partners. They have to produce a partnership agreement

Drawn up stating the rights of partners and procedures to be followed upon the death, joining or leaving of a partner Someone who invests in the business but has no control over the way it is run

There can also be a sleeping partner

An advantage of this is that they usually have limited liability and will only loose their investment if the business fails

Partnership (2)Advantages Partners can have different areas of expertise ie. marketing, finance, etc More finance available Can raise finance from lenders more easily than sole traders can Can share the workload Disadvantages Unlimited liability Profits need to be shared between partners Disagreements can occur A new Partnership Agreement has to be drawn up every time a partner dies, joins or leaves

Partnership (3)

Sources of finance

Personal savings Retained profits Inviting new partners to join Bank loans Overdrafts Note: Sole traders and partners are Government grants often referred to as being self-employed as they own the Trade credit business that they also work for. Debt factoring Same as sole trader objectives

Objectives

Private Limited Company

Companies whose shares are owned privately. There is a minimum of 1 shareholder (owner) and a director, although there is more commonly a board of directors who run the business. Company officers are people formally appointed to run the business. It requires at least 1 director and 1 company secretary. The company must produce a Memorandum of Association and Articles of Association that state the details of the company, the responsibilities of its directors and the shareholders rights. They tend to be family businesses Arnold clark is an example

Private Limited Company (2)Advantages Shareholders have limited liability only loose invested capital if business fails More finance can be raised Control of business is not lost to outsiders who have no knowledge Disadvantages Profits shared among more people A legal process has to be followed when setting the company up Shares can't be sold to outsiders makes it more difficult to raise finance Have to abide by Companies Act requirements Annual accounts have to be published

Private Limited Company (3)

Sources of finance

Objectives

Company profit New shareholders Bank loans Overdrafts Government grants Trade credit Debt factoring

Profit maximisation Growth Sales maximisation Status

Public Limited Company

Shares are available to be purchased on the Stock Market. Need at least 2 directors, 1 company secretary and 50,000 of share capital to set one up. Same legal documents required as a private limited company. A board of directors (appointed by shareholders controls the company).

Public Limited Company (2)Advantages Raise massive amounts of financeers Disadvantages A lot of set up costs involves (may have to produce detailed prospectuses and arrange underwriting an insrance against some shares remaining unsold, meaning fees have to be paid to the underwriter) The Companies Act must be adhered to Business has no control over who buys shares Must public annual accounts and make them available to the public on request

Plc's are usually market lead Borrow money easily from lenders due to the size of the business Shareholders have limited liabilities they only loose the amount they invested

Public Limited Company (3)

Sources of finance

Objectives

Retained profits Selling shares to the public Bank loans Overdrafts Debentures Government grants Trade credit Debt factoring

Profit maximisation Growth Maximise sales To be dominant in their market Image

Multinationals

Plc's can be global companies or multinationals.

This is when the company operates all over the world.Advantages Disadvantages Legislation be be restrictive Local currency may be too weak to allow profits Country may be politically unstable Cultural differences make products unpopular

Governments in other countries can offer incentives Lower wage rates = low cost of production Rate of corporation tax may be lower Legislation in other countries may be more relaxed Avoid restrictions on quotas Take advantages of economies of scale buying more products at a lower unit cost

Franchises

A franchise is an agreement which allows an individual or group to use another business' name and sell their goods and services.

The franchisee the individual The franchiser the business selling their name

The franchisee pays the franchiser a small percentage of annual turnover or a fixed sum in return for them letting them use their name and sell their products. Perfect example = McDonalds

Franchises (2)TO THE FRANCHISER Advantages Increase your market share without a great deal of investment Revenue is realiable (set payment or % of profits) Risks are shared TO THE FRANCHISEE Advantages Don't have to do much advertising of their own Disadvantages Have to pay the franchiser a % of profits or a royalty payment Disadvantages Reputation depends on how good the franchisee is

Franchiser may train you in the operations of Franchiser might not renew the franchisee machinery or routine that must be followed after a certain period of time, leaving you without the backing & permission to continue Risk of failing reduced as the business already has built a good reputation Less able to make own decisions

Voluntary Sector Organisations

In the voluntary sector, we will look at 2 types of organisation:

Charities Voluntary Organisations

The main difference between these organisations and what we have looked at so far are the objectives

Private sector organisations usually want profit maximisation, growth, etc whereas in the voluntary sector, they want to provide a service, etc This is a popular exam question!

Charities

A Register of Charities is kept by the government which regulated the activities of charities. They are exempt from paying some taxes and are often run by professionsals who work for the charity. Sources of finace:

Objectives

Private and public donations Government grants Lottery grants Profits from sales in charity shops, raffles, etc

To be recognised as a charity they must have 1 of the following aims:To relieve poverty To advance education To advance religion To carry out activities beneficial to the local community

Voluntary Organisations

Usually run and staffed by volunteers. Examples include the scouts, local youth clubs and some sports clubs. They bring together people with similar interests and are run by a committee of elected volunteers. Sources of finance:

Grants from the lottery, sports council or local authorities Fees payable upon joining or for use of facilities To create a better community, etc

Objectives

Public Sector Organisations

These are organisations that are owned and controlled by local or central government. We will look at 3 types of organisation:

Local government Central government Public Corporations

Local Government Organisations

Local councils provide a range of services including:

They are set up by central government and run by councillors. Sources of finance:

Education Recreation Housing Refuse collection

Objectives:

Central government Business rates Council tax Charges for using services To meet the needs of the local community To make cost-savings To stick to budgets set down by central govt

Central Government Organisations

Services are provided by departments such as the treasury, trade and industry, health, transport and defence. Westminister and the Scottish Parliament are central government organisations. Employ civil servants to run them. Sources of finace:

Taxation

Objectives

To improve society To make best use of funds available to them To manage taxation to protect people who are in a less favourable position

Public Corporations

Companies that are owned by central government. Government ministers appoint a chairperson and board of directors to run them. The BBC is an example. Sources of finance:

Central government The public TV licensing, merchandise, etc. To provide a quality service To manage their funds efficiently To serve the interests of the public To be better than their rivals

Objectives:

Privatisation

The government have been selling off key public corporations as a cost-cutting measure (eg. British Airways). They did this because:

However:

The treasury can receive a huge amount of finance from selling the corporations They were very poorly managed and not profitable and could be profitable if someone else managed them. They wanted to increase ownership and let the public have a chance to benefit from the success of the economy According to business analysts, they were sold off too cheaply because this was the only price though possible and privatising them has not always led to greater competition.

Questions

Discuss the objectives of a plc compared to those of a public sector organisation. (5) Explain the advantages of franchising for a franchiser. (3) Identify 2 sources of funding for a public sector organisation. (2) Describe methods a limited company could use to finance a successful takeover. (4) Explain 3 reasons why an organisation would become a private limited company. (3) Describe 2 strategic objectives of a public sector organisation. (2)