Aat level 3 Chapter 1

BUAW - chapter 1 The business organisation

Different organisation types

• Partnerships

• Soletraders

• Limited liability companies → public & private

Examples of not for profit organisations

• Government departments

• Schools

• Hospitals

• Clubs

• Charities → private schools mostly fall under charities.

Public sector vs private sector

Public sector

• Provides basic government services

• Controlled by government organisations ( profit & not)

• E. g. Police, military, public transport, primary education & healthcare

Private sector

• Run by private individuals & groups

• Can be both for & not for profit

• E.g. Businesses, charities & clubs

What is a NGO?

• Stands for 'Non-Govermental Organisations’

• Will not have profit as a primary goal

• Not directly linked with government

• Often promote political, social, environmental change within their countries

Sources of funding

• Public sector tend to raise money from the central government

• Private sector will more likely have to raise funds from their owners

• Charities are usually funded by donations

What is Short and long-term finance

The classic rule for financing is that short-term needs should be financed by short-term funds.

short term funds

• Working capital

Long-term funds

• Debt & equity → often used to finance long term assets

• Debt → bank loans

• Equity → issuing more shares or share capital

Advantages & disadvantages of debt

Advantages

• Interest payable is allowable against tax

• No ownership change of organisation

• Often cheaper than equity due to the security against company assets & takes priority over equity in the event of the business being liquidated

Disadvantages

• Interest repayment are mandatory and often costly

Advantages and disadvantages of equity

Advantages

• There is no minimum level of dividends that must be paid to shareholders

• Banks will normally require a security on the companies assets before offering a loan. Some companies may lack quality assets to offer making equity more attractive as it does not require this security.

Disadvantages

• The dilution of ownership

• Paying dividends may work out more expensive than debt