Understanding business- Types of business organisations

private sector

- sole traders
- partnerships
- private limited companies
- public limited companies
- multinationals

sole traders

a business run by one person (e.g. a hairdressers)

ownership: one person
control: owner makes all decisions
finance: owners savings

sole traders advantages/disadvantages

advantages:
- easy and cheap to set up
- owner makes all decisions
- owner keeps all profits

disadvantages:
- unlimited liability
- harder to get loans from banks
- long hours with few holidays
- sole responsibility
- issues if owner becomes ill

partnerships

a business owned by 2-20 people (e.g. law firm)

ownership: 2-20 partners
control: partners decide (e.g. 50/50)
finance: partners capital

a deed of partnership is agreed so each partner knows who owns/ is responsible for what

partnerships advantages/disadvantages

advantages:
- shared workload
- partners specialising in different areas
- more money invested into the business

disadvantages:
- unlimited liability
- possible arguments
- shared profits
- partners may leave, disrupting the business

private limited company (Ltd)

a company whose shares are sold privately, and are not available on the stock market with a minimum of one shareholder.

ownership: shareholders
control: board of directors
finance: share capital

they must produce a memorandum and articles association

private limited company advantages/disadvantages

advantages:
- control not lost to outsiders
- more finance raised from shareholders and lenders
- board of directors bring experience into decision making
- limited liability

disadvantages:
- profits shared among more people
- shares cannot be sold to the general public
- must abide by the companies act

public limited company (Plc)

a company whose shares are made available for purchase to the public on the stock market.
minimum of two shareholders.

ownership: shareholders
control: board of directors
finance: share capital

must produce a memorandum and articles of association.

public limited company advantages/disadvantages

advantages:
- huge amounts of finance raised from selling shares
- dominate the market
- easy to borrow money due to large size
- limited liability

disadvantages:
- high set up costs
- no control over who buys shares
- must publish annual accounts
- must abide by the companies act

franchise

a business agreement which allows the use of an established business to sell their products/services.

a franchise is not a type of business, but a way a business can be run. (e.g. a sole trader can have a burger king franchise)

franchisor + advantages/disadvantages

a franchisor is who sells the right to use a business idea in a particular location

advantages:
- fast way of expanding without large investment
- provides a steady cash flow from royalty payments
- shared risk between franchisor and franchisee

disadvantages:
- only receives a share of the profits
- poor franchisee can damage reputation
- a weak franchisee may not return much profit

franchisee + advantages/disadvantages

a franchisee buys the rights from the franchisor to copy a business format

advantages:
- reduced marketing costs
- reduced risk as brand is already established
- franchisor may produce training and administration duties

disadvantages:
- products, prices and layout of store may be dictated
- a royalty payment must be paid (% of revenue)
- initial cost in expensive

multinational organisations

a company with its headquarters in one country and an assembly or production facilities in other countries (e.g. coca cola)

reasons to become a multinational:
- to increase market share
- to secure cheaper premises and labour
- to avoid tax or trade barriers
- government grants

multinational organisations advantages/disadvantages

advantages:
- creating jobs (boosting local economy and employing more workers who contribute to tax)
- bring expertise and improve skills or workforce (introducing IT in developing countries)
- benefiting from economies of scale (cost per unit lowered through specialisation, large workforce means work divided and jobs done well)
- gaining technical economies with automated equipment
- achieving purchasing economies (buying in bulk for cheaper)

disadvantages:
accusations of...
- relying on deskilled jobs (low paid, repetitive assembly line work)
- not keeping profits in host country
- cutting corners (overlooking social responsibility)
- exploiting the workforce and environment
- exerting political muscle (may threaten to leave a country if deals aren't made on workforce or overheads)

Public sector

- UK government
- Scottish government
- Local government

UK government

Anything involving the reserved matters (e.g. economic policy, defence, international relations)

Scottish government

Anything involving the devolved matters (e.g. health, education, police, transport)

Local government

Scotland has 32 local authorities (councils) which are allocated budgets from the Scottish government. they control areas such as housing, libraries, schools and bin collection/recycling

third sector

- charities and community groups
- social enterprises

charity

a charity is an organisation supporting a specific cause. (e.g. Oxfam, Save the Children, Cancer Research UK)

control: trustees
finance: grants from fund raising organisations/sales/donations

community groups

provide a service for people, all profits are reinvested into the business (e.g. rugby clubs, golf clubs)

ownership: volunteers
control: volunteers
finance: retained profits

social enterprise

an organisation with a clear goal to help the community but runs like a business, with all profits reinvested (e.g. street soccer Scotland, Social Bite)

ownership: individual
control: volunteers
finance: reinvested profits