Types of business organisation

5 types of business ownership

Public limited companies

Private limited companies

Nationalised corporations

Social enterprises

Co operatives and partnerships

What are PLCs

Public limited companies - they are listed and traded on a stock market

Features of Plcs

• Limited liability

• Capital and shareholders

• Publicly traded

• Regulatory requirements

Limited liability - meaning

Shareholders liability is limited to the amount they have invested in the company. Their personal assets aren’t at risk for the company’s debts or obligations

Capital and shareholders- explain

They raise capital by issuing shares to the public

What regulatory requirements are plcs subject to?

Financial reporting disclosure and corporate governance standards

What are private limited companies

They are privately held and traded

Nationalised business - what are they

State owned industry which is owned and operate by the government

They provide goods or services that are of strategic importance or in the public interest

Network rail - what is it

A state owned not for profit company which has no shareholders and reinvests profits into the rail network

National Air Traffic Services (NATS): what are they

A public private partnership between government and private consortium. They are funded by charges made by airlines and are responsible for air traffic control in UK airspace

What are cooperatives, examples?

Run and owned by their members, e.g. Coop, Arla Foods, John Lewis and Partners

What are social enterprises ? Example?

They are set up to achieve social missions and fund projects

eg Eden project promotes sustainable living

What is divorce of ownership and control

When the ownership of a company (shareholders) is separate from control over the company’s operations, made by management or executives

Principle agent problem, what is it?

When’s there’s a divergence of interests between the principal (owner) and agent (managers)

The incentives of the two parties may not align completely leading to conflict of interests

eg Managers may prioritise their earnings or job security over wants of their shareholders

How to overcome principle agent problem

1. Performance based incentives

2. Stock options and equity ownership

3. Effective corporate governance - a strong board of directors to oversee managements actions