Unit 1.2 (IB Business Management)

Charity

Non-profit social enterprise that provide voluntary support for good causes

Cooperatives

For-profit social enterprises set up, owned and run by their members, who might be employees and/or customers.

Deed of partnership

Legal contract signed by owners of a partnership

Incorporation

A legal difference between the owners of a company and the business itself. (This ensures owners are protected from any loss made by the company)

Initial Public Offering (IPO)

when a business sells all or part of its business to shareholders on a stock exchange for the first time

Limited Liability

a restriction on the amount of money that owners can lose if their business goes bankrupt

Microfinance

A type of financial service aimed at entrepreneurs of small businesses, especially females and those on low incomes.

non-governmental organization (NGO)

private sector not-for-profit social enterprises that operate for the benefit of others rather than primarily aiming to make a profit

Partnership

Type of private sector business owned by partners

Private Limited Company

A business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public.

Private Sector

Part of economy run by private individuals and businesses, rather than by government

public limited company (plc)

Incorporated business that allows the general public to buy and sell shares in the company via stock exchange

Public-private partnership (PPP)

When government works together with the private sector to jointly provide certain goods or services

Public sector

part of the economy controlled by the government

Sole trader

revenue-generating business with social objectives at the core of their operations

State-owned enterprises

organizations wholly owned by the government

Stock exchange

market place for trading stocks and shares of public limited companies

unlimited liability

feature of sole traders and ordinary partnerships who are legally liable for all monies owed to their creditors, even if this means that they have to sell their personal possessions to pay for their debts`

Advantages of Sole Proprietorship

Few legal formalities (Sole traders are quite easy to set up and start-up costs are usually much lower in comparison to starting other types of business organizations); Profit taking (The sole trader is the only owner and therefore receives all of any profits made by the business. This gives the sole trader an incentive to work hard and to become successful.); Being your own boss (Sole traders do not take orders from anyone, have flexibility in decision-making. Decisions are also made quicker.); Personalized Service (Sole traders can provide a personalised service to customers. Larger firms might not have the time to get to know all their customers so their services often become impersonal.); Privacy (Unlike other types of business ownership, sole traders enjoy privacy as they do not have to make their financial records available to the public)

Disadvantages of Sole Proprietorship

Unlimited Liability (As an unincorporated business, there is no limit to the amount of debts that a sole trader is legally responsible for if the business fails); Limited sources of income (Sole traders often find it difficult to secure any funds beyond their personal savings. Trying to expand can also be problematic due to the lack of sources of finance available to sole traders.); Workload and Stress (Owners often have to do their own accounts, marketing and human resource management. The sole trader is unlikely to be equally effective in these different roles, so there is added workload and stress.); Limited economies of scale (A sole trader is not able to exploit the benefits of a larger scale production, so their prices might be less competitive compared with those of larger rivals. This tends to reduce the competitiveness and profits for sole trader); Lack of continuity

Silent Partner (Sleeping Partner)

partner who do not actively take part in the running of the partnership but have a financial stake in it.

Advantages of Partnership

Financial Strength (Partnerships have more financial strength than sole proprietorships as there are more owners who can invest in the business, yet they are still fairly easy to set up. In general, it is also easier to secure external sources of finance in partnerships than sole proprietorships due to the lower risks.); Specialization and Division of Labour (Unlike sole traders, partners can benefit from shared expertise, shared workload and moral support. For example, a law firm might have partners who specialise in corporate law, divorce law and criminal law. As a result, its client base is likely to be much larger.); Financial Privacy (Like sole traders, partnerships do not have to publicise their financial records. Therefore they enjoy a fair degree of financial privacy.); Cost-effective (Partnerships can be more cost-effective than sole traders as each partner specialises in certain aspects of their business, thus raising productivity.)

Disadvantages of partnership

Unlimited liability (Legally, partnerships are responsible for their debts 'wholly or severally' meaning the debts can be repaid by either one partner or shared among the partners. The rare exception is with limited liability partners who have been elected to have limited liability.); Lack of continuity; Prolonged decision-making (In comparison to sole traders, decision-making is likely to take longer as there are more owners involved. Disagreements and conflicts might occur); Lack of harmony (Disagreements and conflict within partnerships are common, but there must also be mutual trust. Each partner is legally and financially answerable to the others, so a mistake made by one person can reduce the profits for all other partners)

Board of Directors (BOD)

elected by shareholders to run the company on their behalf

Two Documents Needed Before Companies Can Begin Trading

Memorandum of Association; Articles of Association (Longer than MOA)

Memorandum of Association

a relatively brief document outlining the fundamental details of the company

Articles of Association

document stipulating the internal regulations and procedures of the company

Stock Exchange

market place for trading stocks and shares of public limited companies

Advantages of Cooperation

Limited liability; Continuity; Productivity; Tax Benefits

Disadvantages of Cooperation

Communication problems (As the company gets larger, services and relationships can become impersonal); Compliance costs (For plc, the high costs of complying with the rules and regulations of the stock exchange adds to their running costs.); Loss of control (Whilst sole traders and partnerships retain control of their businesses, public limited companies face the potential threat of a takeover by a rival company that purchases a majority stake in the business)

Social enterprises

revenue-generating businesses with social objectives at the core of their operations

Main Types of Cooperatives

Consumer cooperatives; Worker cooperatives; Producer Cooperatives

Advantages of cooperatives

Incentives to work (Employees have a key stake in the cooperative so are more interested in how it performs.This can enhance staff motivation and labour productivity.); Decision-making power (Employees also have a say in how the business is run. There is a democratic system of members having equal voting rights)

Disadvantages of cooperatives

Disincentive effects (There might be inefficient managers and employees as cooperatives do not pay high salaries and bonuses as incentives to work.); Slower decision-making (Decisions are likely to be slowed down as all members of the cooperative work in a democratic way and are involved in the decision-making process.)

Advantages of Microfinance

Accessibility (Microfinance helps those in poverty to become financially independent, whereas banks do not typically lend such small amounts and to this particular market segment.); Job Creation (The effective use of microfinance can help create new job opportunities, with beneficial effects on society as a whole.)

Disadvantages of Microfinance

Limited Finance (Microfinance schemes only offer small amounts of money to borrowers given the high risk of default - failure to repay loans); Limited eligibility (Not all poor individuals qualify for microfinance. As a for-profit organization, microfinance providers have to minimise their own risks by ensuring borrowers have the ability to repay their loans.)

Advantages of charities

Tax exemptions for NPOs; Limited liability; Public recognition and trust

Disadvantages of charities

Disincentive effects (The lack of a profit motive can cause problems. Even salaried workers are likely to be paid far less than what they could earn in for-profit organizations.); Limited sources of finance (Most charities survive solely on one source of finance - donations. With the huge number of rival charities and limited funds from donors, especially during an economic downturn, they have to constantly compete for donations.)

Advantages of a Private Limited Company (Ltd)

• Owners have limited liability.

• Control remains with a small group of shareholders.

• Can raise capital privately without public scrutiny.

• More flexibility in management decisions.

Q: Disadvantages of a Private Limited Company (Ltd)

• Greater regulatory and reporting requirements.

• Control can be diluted due to many shareholders.

• Risk of hostile takeovers if shares are widely held.

• Profit-sharing may be large due to dividends to many shareholders.

Q: Disadvantages of a Public Limited Company (PLC)

A: A company that can sell shares to the public via a stock exchange. Owners have limited liability.

Q: Advantages of a Public Limited Company (PLC)

• Can raise large amounts of capital by selling shares publicly.

• Limited liability for shareholders.

• Higher profile and credibility in the market.

• Ownership can be transferred easily via share sales.