Chapter-4 Types of Business Organisation
Business organisations: the private sector There are several main forms of business organisation in the private sector. These are: » sole traders » partnerships » private limited companies » public limited companies » franchises » joint ventures.
Sole Trader-
It is a business owned and operated by just one person – the owner is the sole proprietor.
| Advantage | Disadvantage |
|---|---|
| Easy to set up, do not require a lot of money to set up | Capital is usually provided by owner, hard to get capital to expand firm |
| They are their own boss, has the freedom to choose their own holidays, work hours, prices, who to employ | They have unlimited liability (responsible for any debts of the business, bank can take away possessions to pay back) |
| Close relationship with customers | Business is likely to remain small |
| Does not have to share profits | No one to discuss business matters with |
| Does not have to give information about the business | They are unincorporated (business has same identity as the owner). So, business ends when owner dies |
Partnerships
- is a group or association of at least two people who agree to own and run a business together.
| Advantage | Disadvantage |
|---|---|
| Easy to set up, do not require a lot of money | More capital invested (more expansion) |
| Capital is usually provided by partners | Partners have unlimited liability |
| Partners are motivated because any losses are shared by the partners | Partners can disagree on decisions. If one of the partners is inefficient, they all lose money |
| Responsibilities are shared (focused on different parts of business) | They are unincorporated. If one of the partner dies, the partnership ends |
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Private Limited Company (LTD)
***-***a company exists separately from the owners and will continue to exist if one of the owners should die
Company must be owned by at least 2 shareholders \n o Ashareholder buys shares of an LTD company which
represent part ownership of the company \n oDividend is the amount of profit each shareholder gets
- Shares are sold privately to friends and family
- Has separate identity from owners, incorporated, so
company accounts are separate from the owners’Must have: Articles of Association and Memorandum of Association
• Article of Association – must contain the RULESin which the company will be managed. Contains:o Rules for shareholder meetings \n o List of directors and their jobs \n o Voting rights of shareholders \n o Details of how accounts are recorded
• Memorandum of Association– must contain important information about the company: \n o Company name, address \n o What the business does
| Advantages | Disadvantages |
|---|---|
| Shares can be sold to lots of people. More capital to expand | Difficult to set up (legal formalities). |
| Owners are able to keep control of company as long as they don’t sell too many shares | Shares are difficult transfer. Requires other shareholders to agree |
| All shareholders have limited liability (bank can only take amount of money invested) | Accounts are less secret than other forms of business |
| Company continue after a shareholders died | Company cannot offers shares to the public |
Public Limited Company (PLC)
businesses owned by shareholders but they can sell shares to the public and their shares are trade able on the Stock Exchange.
| Advantages (in addition to those in LTDs) | Disadvantages |
|---|---|
| Opportunity to raise high capital sums | Difficult to set up (legal formalities) & accounts are even more public |
| No restriction of buying, selling or transferring shares | Danger of business being taken over due to public shares |
| Selling shares to public is |
Joint Venture
A joint venture is when two or more businesses start a project together sharing capital risks, and profits
| Advantage | Disadvantage |
|---|---|
| Risks are shared | Different methods of running business |
| Shared knowledge of two businesses | Profits have to be shared if project is successful |
| Costs are shared, good for expensive projects | Might have disagreements over important decisions Different methods of running business |