1.4 Types of Business organisation

sole trader

• a business owned by one person

limited liability

• the liability of shareholders in a company is limited to only the amount they invested

unlimited liability

• the owners of a business can be held responsible for the debts of the business that they own

• their liability is not limited to the investment they made in the business

partnership

• a form of business in which two or more people agree to jointy own a business

a partnership agreement

• the written and legal agreement between business partners

unincorporated business

• one that does not have a separate legal identity

incorporated business

• a company that has separate legal status from their owners

shareholders

• the owners of a limited company

• they buy shares which represent part-ownership of the company

private limited companies

• businesses owned by shareholders but they cannot sell shares to the public

public limited companies

• businesses owned by shareholders but they can sell shares to the public and their shares are tradeable on the Stock Exchange

annual general meeting

• a legal requirement for all companies

• shareholders may attend and vote on who they want to be on the on the Board of Directors for the coming year

dividends

• payments made to shareholders from the profits (after tax) of a company

• they are the return to shareholders for investing in the company

franchise

• a business based upon the use of the brand names, promotional logos and trading methods of an existing successful business

• the franchisee buys the license to operate this business from the franchisor

joint venture

• where two or more businesses start a new project together, sharing capital, risks and profits

public corporation

• a business in the public sector that is owned and controlled by the state (government)

unincorporated business - legal identity

• unlimited liability

• greater risk

incorporated business - legal identity

• limited liability

• less risk

sole trader - advantages

• few regulations, easy to set up

• complete control

• flexible working time

• ability to respond quickly to the needs and wants of customers all profit goes to the owner

• complete secrecy in business matters

sole trader - disadvantages

• decisions can be hard to make

• no separate legal identity, unlimited liability

• may not be able to raise funds to expand business

• may have to work long hours

• difficult to compete with large firms

• may not have proper skills to run a business

contents of a partnership agreement

• amount of capital invested by all partners

• tasks to be done by each partner

• the way profits are shared out

• how long partnership will last for

• arrangements for absence, retirement, and how partners could be let known

partnership - advantages

• easy to setup up a deed of partnership

• greater access to funds

• shared decision making

• shared management and workload

partnership - disadvantages

• unlimited liability

• share the profit

• business ceases to exist if one partner leaves

• decisions binding on all partners

• difficult to raise finance

private limited company - advantages

• raise capital from the sale of shares

• limited liability for shareholders

• separate legal identity

• continuity

private limited company - disadvantages

• cannot sell shares to the public

• legal formalities

• accounts are available for public to see

• not easy to transfer shares

public limited company - advantages

• can sell shares to the public

• limited liability

• rapid expansion possible

• continuity

public limited company - disadvantages

• legal formalities

• disclosure of accounts and other sensitive information

• owners may lose control of the business

• expensive to go public

franchisor

• the company that allows another company to conduct business using the company's name and brand

advantages to the franchisor

• franchisee buys the license, source of finance

• expansion is faster

• management is the responsibility of the franchisee

• percentage of sales revenue is given to the franchisor every year

disadvantages to the franchisor

• bad reputation if one branch has poor management

• the franchise keeps some profit

• training and advertising are paid by the franchisor

franchisee

• company that received permission to conduct business using the company’s name and brand

advantages to the franchisee

• chances of business failure are reduced

• franchisor pays for advertising

• fewer decisions to make

• franchisor provides training for staff and management

• banks are often willing to lend because of low risk

disadvantages to the franchisee

• less independence, unable to make decisions that suits the local area

• franchisor has the power to withdraw from the agreement and can prevent the use of premises

joint venture - advantages

• sharing of costs

• sharing of knowledge and experience

• shared risks

joint venture - disadvantages

• shared profits

• conflicts in decision making

• different methods of running business can create conflicts

public corporations - advantages

• government ownership may be essential to some countries’ industries, such as water supply and electricity generation

• ensure consumers are not taken advantage of

• reduce wasteful competitiors

• can help stablise failing businesses to create job opportunities

• important public services

public corporations - disadvantages

• profit objective is not as powerful or important as in private-secotr industries

• ineffciencies because managers rely too much on government

• can be unfair to private sector if subsidies provided

• lack of close competition can decrease many activities

• can be used for politicial reasons