business ownership. types of ownership franchise co-operative public ownership public limited...

BUSINESS OWNERSHIP

TYPES OF OWNERSHIP

Franchise

Co-operative

Public Ownership

Public Limited Company (plc)

Private Limited Company Ltd

Partnership

Sole Trader

LIABILITY

Unlimited Liability

The owners of the business

are responsible for any

debt. They may lose their

personal possessions to pay

any debts the business

might run up.

Limited Liability

The owners are only

responsible for the debt

equal to the value of their

shares. (They will only lose

the amount they invested in

the business)

SOLE TRADER

Business owned by one owner Also known as a proprietor Can employ people but they will not be

involved in control of business Small businesses Has unlimited liability

Examples of sole traders:

Small shops Plumbers Electricians Cleaners

Advantages of setting up as a sole trader Easy to set up – no complicated forms Make decisions quickly – no agreement needed Less capital needed Taxed differently – National Insurance contributions are

lower All profits kept. Can offer personal attention Don’t have to make any information about the company

public They are their own boss.

Disadvantages of setting up as a sole trader Unlimited liability Difficult to raise money – seen as a risk Don’t have economies of scale (buying in

bulk) No one to take over for ill-health or

holidays

Activity:

List all the sole trader businesses that are in your area (Torfaen) ……

PARTNERSHIP

Between 2 – 20 partners Partners = joint owners of the business May do decision making themselves or

employ manager Unlimited liability Profits shared = to capital invested (unless

stated otherwise in Deed of Partnership)

Examples of partnership businesses: Doctors Dentists Accountants Solicitors

Partnership Act of 1890

Lays of rules if Deed of Partnership is not drawn up.

Setting up a partnership

Deed of Partnership. Should include: Names of all the partners Capital invested by each partner How profits & losses will be shared Duties of each partner Procedures for adding new partners Procedures for partners leaving partnership

Sleeping Partners

May want to invest in the business but not be involved in the running of it.

Can register with Registrar of Companies as a limited partner

Have limited liability Must have one partner who has unlimited liability

Advantages of a Partnership

Easy to set up Capital needed = small Easier to raise extra capital Profits go to partners = motivation Smaller = good working relationships No need to make public and information Partners contribute with range of skills Share problems and decisions

Disadvantages of a Partnership

Unlimited liability Partners have disagreements;

Control of business Sharing of profits Withdrawal from the partnership Inviting new partners into the business

If partner dies or becomes bankrupt = partnership is dissolved

Activity:

List all the partnership businesses that are in your area (Torfaen) ……

PRIVATE LIMITED COMPANYLTD

Made up of people who know each other. Buy shares in the company = part owners Shares cannot be bought by the public Owners control who buys the shares Minimum 2 people – no maximum Expany by selling more shares = capital Normally medium sized businesses

Requirements:

Hold AGM (Annual General Meeting) Independently audited copy of company

accounts Registrar of Companies Shareholders need permission to sell their

shares

LIABILITY

Limited liability

Company has its own legal identity, separate from the shareholders.

Shareholders run company themselves or appoint a manager

Examples of LTD businesses:

Eddie Stobart Ltd

Raleigh

Cineworld

Setting up a LTD company

Comply with the Companies Act Register with Registrar of Companies

Documents required: Memorandum of Association Articles of Association

Memorandum or Association

Company’s name Address of its registered office States shareholders have limited liability Amount of share capital to be raised Purpose of the company (main activity)

Articles of Association

Names of directors and their role How profits will be distributed Internal rules for running the business –

rules about meetings & voting rights of shareholders

Procedure to be followed at AGM

MEMORANDUM OF ASSOCIATION

ARTICLES OF ASSOCIATION SENT TO REGISTRAR OF COMPANIES

REGISTRAR ISSUES CERTIFICATE OF INCORPORATION

Advantages:

Limited liability Can raise extra capital by selling more shares – easier to

expand Can employ managers to run business if don’t want to do

it themselves Can continue trading if shareholder dies (unlike

partnership) Has its own legal status – separate from the shareholder

Can sue and be sued Can own property

Disadvantages:

Accounts of the company cannot be kept private Audited each year Copy sent to Registrar of Companies Available for public to see

More difficult and expensive to set up - more administration

Cannot sell shares on stock exchange Limited by Articles of Association As to type of

business it can undertake

Activity:

List all the private limited company (LTD) businesses that are in your area (Torfaen) ……

PUBLIC LIMITED COMPANYPLC

Only 2 people needed to set up – no upper limit People who can buy shares:

Public Businesses Financial institutions

Most shares in a plc owned by organisations rather than individuals Shares bought the Stock Exchange

Share prices printed in national newspapers daily Can expand by selling more shares Limited liability Company has its own legal status Normally start as LTD then become PLC

Setting up a PLC

More rules and regulations Similar to a LTD Draw up a Memorandum of Association & Articles of

Association – send to Registrar of Companies to apply for Certificate of Incorporation = company has registered.

Before COI is issued must raise £50,000 Must be approved by Stock Exchange Council Once COI received the company issues a prospectus =

advertisement inviting public to buy shares in the co. Once shares issued the ROC will draw up Certificate of

Trading.

MEMORANDUM OF ASSOCIATION

ARTICLES OF ASSOCIATION – SENT – REGISTRAR OF COMPANIES

REGISTRAR ISSUES CERTIFICATE OF INCORPORATION

COMPANY ISSUES PROSPECTUS

SHARES ARE ISSUED

ROC DRAWS UP CERTIFICATE OF TRADING

COMPANY BEGINS TRADING

Advantages:

Limited Liability Easy to raise capital – issue more shares Banks more willing to lend money to a

large well-established company – less risk Easier to grow and expand Shareholders will appoint specialists to

manage and run the company for them

Disadvantages:

Expensive a lot administrative work (paper work) Raise at least £50,000

Issue more information about itself – expensive to produce

Has to prepare Annual Accounts – printed and sent to all shareholders

Also make them available for general public and competitors to see.

Activity:

List all the public limited company (PLC) businesses that are in your area (Torfaen) ……

FRANCHISE

Where a small business owner buys the rights to sell the goods and services of a large, well-established company.

Franchisee = small business buying the rights.

Franchisor = large business selling the rights

Examples of types of businesses:

Body Shop British School of Motoring (BSM) KFC McDonalds Burger King

Setting up a Franchise

Franchisor sets out the rules for the running of the business - ensure quality and standards are maintained.

In return, the franchisor will: Give a well-known name to the new business Provide advice on running of business Provide training to start the business Organise the advertising campaigns Supply the materials used fro the goods or services Proved equipment, eg; shop fittings so that all look the same and

same standards

Small business has to pay for the privilege of a stake in the large owner’s business.

It has to pay: Start-up fee – for licence from franchisor to

run business Royalty – in form of a percentage of annual

profits to the franchisor

Advantages:

The franchisor chooses the franchisees carefully – knows what characteristic that make a successful franchisee

The franchisor decides how much money the franchisee must invest in the business

The franchisor provides support – management advice & training – help franchisee solve problems.

Disadvantages:

Franchisee’s do not have freedom of running their own business;

Bound by rules e.g. Can’t vary product or price Franchisee cannot sell the business without

franchisors permission Franchisor can end franchise without consulting

franchisee Franchisee pays percentage of profits in

royalties Franchisee will never own the business outright

Activity:

List all the Franchise businesses that are in your area (Torfaen) ……

CO-OPERATIVES

Worker co-operatives are businesses owned by all the workers in the business.

Each worker has shares based on how much he or she has invested in the business

All workers are involved in making the decisions Each worker has one vote Votes are not related to number of shares they own Unless it is a limited company = one vote per share

All share in the profits All must contribute to the running of the business No limit to the number of members

Types of businesses

Fruit growers Play groups

Advantages:

Fewer disagreements because workers are the owners

All have interest in making business successful, improving morale and productivity

Increases in profits are share equally among all the workers

Disadvantages:

New workers have to buy shares and become part owners

New employees may find it difficult to raise money to buy shares when they first start work

Successful worker co-operatives are often pressured to sell the business – lose all the freedoms they have

To expand – find new workers willing to invest in business

All workers are paid the same. In other businesses the managers are paid more.

Difficult to recruit best managers due to pay limitations

Activity:

List all the co-operative businesses that are in your area (Torfaen) ……

PUBLIC OWNERSHIP

Some enterprises in the UK are owned or controlled by the state such as government departments and organisations funded by the government.They include: Government departments Local authorities Health trusts Public corporations Charities and voluntary organisations

Government departments

Deals with different matters at national level. These include:

NHS Social security benefits Defence Police Prison service Environmental issues and concerns Major road building programmes Collection of taxes

Local Authorities

Provide services for the local community. These vary, depending upon the area, so that the services in a rural community are different from those offered in a city.

The range of services offered:

ProbationService

EconomicDevelopment

Fire Service

EnvironmentalHealth

Libraries

Police

Recreation & Tourism

RefuseCollection

Road Maintenance

Schools

Social Services

Magistrate Courts

LocalCouncil

Health Trusts

Receive money from the government to deliver health care without making a profit

Public Corporations

Are government owned businesses, such as the BBC and the Royal Mail service. These businesses are expected to operate profitably, just like private organisations.

Charities and voluntary organisations

Many staff are work voluntarily (don’t get paid)

Also called not-for-profit organisations because they focus on using their income to provide a service to those in need.

How charities raise their money

Other, 14%

Street/door-to-door collections, 8%

Raffle/lottery tickets, 5%

Charity Shops, 8%

Sponsorship, 12%

Charity Events, 8%

Appeals by letter/phone/press/TV/

radio, 9%, 9%

Collection at work/pubs, 6%

Buying goods (at sales/from

shops/catalogues), 9%

Activity:

List all the public sector businesses that are in your area (Torfaen) ……