Forms of Business Forms of Business OrganisationOrganisation

Business Organisations: The Business Organisations: The Private SectorPrivate Sector

Sole tradersSole traders PartnershipsPartnerships Private limited Private limited

companiescompanies Public limited Public limited

companiescompanies Co-operativesCo-operatives Close corporationsClose corporations Joint venturesJoint ventures FranchisesFranchises

Business Organisations: The Business Organisations: The Public SectorPublic Sector

Public corporationsPublic corporations Municipal Municipal

enterprisesenterprises

Sole TradersSole Traders

The most common The most common form of business form of business organisation.organisation.

Owned and Owned and operated by operated by oneone personperson

Very few legal Very few legal requirements for requirements for setting it up.setting it up.

Sole Traders: AdvantagesSole Traders: Advantages

Few legal requirements in Few legal requirements in setting up the business.setting up the business.

Owner has Owner has completecomplete control control over the business.over the business.

Close contact with Close contact with customers.customers.

Incentive to work hard – do Incentive to work hard – do not have to share profits.not have to share profits.

Secrecy of business matters.Secrecy of business matters.

Sole Trader: DisadvantagesSole Trader: Disadvantages

No shared ideas / decision makingNo shared ideas / decision making Unlimited liability – business not a Unlimited liability – business not a

separate legal entity, therefore owner separate legal entity, therefore owner is fully responsible for the debts of the is fully responsible for the debts of the business. business.

Limited access to capital – hard to Limited access to capital – hard to growgrow

Limited skillsLimited skills Hard to take leaveHard to take leave

PartnershipsPartnerships

Group of 2 – 20 people.Group of 2 – 20 people. Each partner contributed Each partner contributed

capital.capital. Each partner takes part in the Each partner takes part in the

running of the business.running of the business. Each partner gets a share of Each partner gets a share of

the profits.the profits. A Deed of Partnership / A Deed of Partnership /

Partnership Agreement sets Partnership Agreement sets out the rights and out the rights and responsibilities of the partners.responsibilities of the partners.

Partnership AgreementsPartnership Agreements

Partnership agreements usually Partnership agreements usually include:include:

The amount of capital invested The amount of capital invested by partners;by partners;

The tasks to be undertaken by The tasks to be undertaken by each partner;each partner;

How profits are to be shared;How profits are to be shared; The lifespan of the partnership;The lifespan of the partnership; Arrangements for absences;Arrangements for absences; Arrangements for retirement and Arrangements for retirement and

new partners being admitted.new partners being admitted.

Partnership: AdvantagesPartnership: Advantages

More capital (than More capital (than sole trader).sole trader).

Responsibilities Responsibilities can be shared.can be shared.

Losses are shared.Losses are shared. Easier to take Easier to take

leave.leave. Increased skills.Increased skills.

Partnership: DisadvantagesPartnership: Disadvantages

Unlimited liabilityUnlimited liability Unlimited life – if one partner dies, Unlimited life – if one partner dies,

the partnership ends.the partnership ends. Decision-making can be difficult Decision-making can be difficult

when there are disagreements.when there are disagreements. One incompetent / dishonest partner One incompetent / dishonest partner

could cause other partners to suffer.could cause other partners to suffer. Limited to capital of 20 people.Limited to capital of 20 people.

Private Limited Company Private Limited Company (Ltd)(Ltd)

Separate legal entity from owners.Separate legal entity from owners. ShareholdersShareholders are the owners – they are the owners – they

buy buy sharesshares in the company. in the company. Shares sold to a small group of Shares sold to a small group of

people – not through the stock people – not through the stock exchange.exchange.

The shareholders appoint directors to The shareholders appoint directors to run the company.run the company.

Private Limited Company: Private Limited Company: AdvantagesAdvantages

Shares can be sold to a large number Shares can be sold to a large number of people.of people.

Limited liability – shareholders are Limited liability – shareholders are not personally responsible for the not personally responsible for the debts of the business.debts of the business.

The main shareholders can keep The main shareholders can keep relative control of the company.relative control of the company.

Private Limited Company: Private Limited Company: DisadvantagesDisadvantages

Significant legal requirements when Significant legal requirements when setting up.setting up.

Shares cannot be sold / transferred Shares cannot be sold / transferred without the agreement of other without the agreement of other shareholders.shareholders.

Accounts are much less private than Accounts are much less private than sole trader / partnership.sole trader / partnership.

Cannot sell shares on stock Cannot sell shares on stock exchange – limits expansion.exchange – limits expansion.

Public Limited Company Public Limited Company (PLC)(PLC)

Suitable for very Suitable for very large businesses.large businesses.

Owned by private Owned by private individuals – don’t individuals – don’t mistakenly think it mistakenly think it is government is government owned.owned.

Shares sold on the Shares sold on the stock exchange.stock exchange.

Public Limited Company: Public Limited Company: AdvantagesAdvantages

Limited liability to shareholders.Limited liability to shareholders. Continuity should a shareholder die.Continuity should a shareholder die. Opportunity to raise very large sums Opportunity to raise very large sums

of capital.of capital. No restrictions on the buying, selling No restrictions on the buying, selling

and transfer of shares.and transfer of shares. Usually has a high statusUsually has a high status

Public Limited Company: Public Limited Company: DisadvantagesDisadvantages

Complicated and time Complicated and time consuming legal consuming legal formalities in setting up.formalities in setting up.

More regulations and More regulations and controls.controls.

Is costly to sell shares Is costly to sell shares to the public.to the public.

Shareholders have little Shareholders have little control over the running control over the running of the company.of the company.

Co-operativesCo-operatives

Groups of people who agree Groups of people who agree to work together and pool to work together and pool their resources.their resources.

All members have one vote.All members have one vote. All members help in running All members help in running

the businessthe business Profits are shared equally Profits are shared equally

among members.among members. Types: producer co-ops, Types: producer co-ops,

retail co-ops, worker co-ops.retail co-ops, worker co-ops.

Close CorporationsClose Corporations

Similar to Private limited company Similar to Private limited company but quicker to set up.but quicker to set up.

Fewer rules and regulations.Fewer rules and regulations. Limited to maximum of 10 people.Limited to maximum of 10 people. Members are also managersMembers are also managers Separate legal entities – unlimited Separate legal entities – unlimited

liability and continuity.liability and continuity.

Joint VenturesJoint Ventures

Two or more businesses agree to Two or more businesses agree to start a new project together.start a new project together.

Common in the research and Common in the research and development of new products.development of new products.

Spread costs and reduce risks.Spread costs and reduce risks. Can lead to disagreements and Can lead to disagreements and

disputes over policy and disputes over policy and management of the venture.management of the venture.

FranchisingFranchising A A franchisorfranchisor is a business with a product / is a business with a product /

service idea that does not want to sell to service idea that does not want to sell to customers directly.customers directly.

The The franchiseefranchisee is the person who buys the idea is the person who buys the idea from the franchisor and sells it to the public.from the franchisor and sells it to the public.

The franchisee pays the franchisor an initial The franchisee pays the franchisor an initial fee, then monthly fees to cover advertising fee, then monthly fees to cover advertising etc.etc.

The franchisee pays the franchisor a The franchisee pays the franchisor a percentage of their profits.percentage of their profits.

Examples: The Body Shop, McDonalds.Examples: The Body Shop, McDonalds.

Franchising: Advantages to Franchising: Advantages to FranchisorFranchisor

Expansion is paid for by Expansion is paid for by franchisee.franchisee.

Expansion is fast and Expansion is fast and effective.effective.

Franchisor can make Franchisor can make large profits via large profits via franchisees.franchisees.

Franchisor does not have Franchisor does not have management problems of management problems of the individual retail the individual retail stores.stores.

Franchising: Advantages to Franchising: Advantages to FranchiseeFranchisee

Reduced chance of failure.Reduced chance of failure. Advertising is paid for by franchisor.Advertising is paid for by franchisor. All supplies come from a single source – All supplies come from a single source –

the franchisor.the franchisor. Many decisions have already been made Many decisions have already been made

for them.for them. Franchisor provides training for staff.Franchisor provides training for staff. Banks more willing to loan money to Banks more willing to loan money to

franchises.franchises.

Public CorporationsPublic Corporations Wholly owned by the state or Wholly owned by the state or

central government.central government. Usually businesses that have Usually businesses that have

been nationalised (sold by been nationalised (sold by private individuals to the private individuals to the government).government).

The government appoints a The government appoints a Board of Directors to run the Board of Directors to run the organisation.organisation.

The Board of Directors runs the The Board of Directors runs the organisation according to the organisation according to the objectives set by the objectives set by the government.government.

Public Corporations: Public Corporations: ObjectivesObjectives

Traditionally, objectives of publicTraditionally, objectives of publiccorporations included:corporations included: To keep prices low so that To keep prices low so that

everyone can afford the service.everyone can afford the service. To keep people in jobs.To keep people in jobs. To offer a service to all areas of To offer a service to all areas of

the country.the country.This often led to public This often led to public

corporationscorporationsmaking hugemaking hugelosses, which had to be subsidisedlosses, which had to be subsidisedout of taxes.out of taxes.

Public Corporations: Public Corporations: ObjectivesObjectives

Today, the objectives have become:Today, the objectives have become: To reduce costs (this may include reducing To reduce costs (this may include reducing

the number of workers).the number of workers). To increase efficiencyTo increase efficiency To close loss-making services (even if this To close loss-making services (even if this

means some consumers are not provided means some consumers are not provided the service).the service).

This way of running public sectorThis way of running public sector

organisations is called organisations is called corporatisationcorporatisation..

Public Corporations: Public Corporations: AdvantagesAdvantages

Some industries are so Some industries are so important they need to be important they need to be government owned e.g. government owned e.g. electricity supply.electricity supply.

Ensures consumers are not Ensures consumers are not taken advantage of by privately taken advantage of by privately owned monopolists.owned monopolists.

Government can nationalise Government can nationalise important businesses that are important businesses that are failing to get them on their feet failing to get them on their feet again. again.

Non-profit but important Non-profit but important services can still be offered to services can still be offered to consumers.consumers.

Public Corporations: Public Corporations: DisadvantagesDisadvantages Lack of profit motive may cause Lack of profit motive may cause

inefficiency.inefficiency. Subsidies can further reduce Subsidies can further reduce

efficiency.efficiency. Usually no close competition – Usually no close competition –

lack of motive to increase lack of motive to increase consumer choice and efficiency.consumer choice and efficiency.

Public corporations could be Public corporations could be used for political reasons e.g. used for political reasons e.g. creating jobs to win votes creating jobs to win votes before elections.before elections.

Municipal EnterprisesMunicipal Enterprises Services offered by local Services offered by local

government authorities.government authorities. Some services are free to Some services are free to

the user and paid for out of the user and paid for out of taxes e.g. street lighting.taxes e.g. street lighting.

Some services are charged Some services are charged for to cover costs e.g. for to cover costs e.g. public swimming pools.public swimming pools.

These local services are These local services are increasingly being increasingly being privatised.privatised.

Key TermsKey Terms

Sole traderSole trader Unlimited liabilityUnlimited liability PartnershipPartnership Separate legal Separate legal

entityentity Partnership Partnership

AgreementAgreement Private limited Private limited

company (Ltd)company (Ltd)

Public limited Public limited company (PLC)company (PLC)

CooperativeCooperative FranchiseFranchise Public CorporationPublic Corporation CorporatisationCorporatisation NationalisationNationalisation Municipal Municipal

enterprisesenterprises