Types of organisations

Types of Organisations

1. Sole Traders & Partnerships

Sole Traders

• Definition: A business owned by a single individual who makes all decisions and retains all profits.

• Characteristics:

  • Simplest form of ownership, often small-scale.

  • Common in the tertiary sector (e.g., tutoring, taxi driving).

• Liability: Unlimited liability (owner responsible for all business debts).

Advantages of Sole Traders:

• Easy and inexpensive to set up.

• Full control over the business decisions.

• All profits go to the owner.

• Simple tax arrangements.

• Flexibility in services provided.

Disadvantages of Sole Traders:

• Unlimited liability (risk of bankruptcy).

• Limited access to finance.

• Owner's limited skill set may hinder growth.

• Long hours and high responsibility.

• Business continuity issues upon owner's death.

Partnerships

• Definition: A business with two or more owners.

• Characteristics:

  • Easy setup with few legal formalities.

  • Partners can have a deed of partnership outlining capital contributions, profit-sharing, and decision-making.

• Liability: Unlimited liability for partners.

Advantages of Partnerships:

• Shared responsibilities among partners.

• Greater skillset and knowledge among partners.

• Easier access to finance.

Disadvantages of Partnerships:

• Unlimited liability for all partners.

• Possible disputes among partners.

• Profits may be shared equally, regardless of contribution.

2. Private & Public Limited Companies

Private Limited Companies (Ltd)

• Definition: Owned by shareholders whose liability is limited to their investment in shares.

• Characteristics:

  • Shares sold to family or friends, not publicly traded.

  • Shareholders are often also directors.

• Liability: Limited liability.

Advantages of Private Limited Companies:

• Limited liability protects personal assets.

• Easier access to finance due to perceived stability.

• Continuity as business doesn’t cease with the owner’s death.

Disadvantages of Private Limited Companies:

• More costly and complex to set up compared to sole traders.

• Annual reporting and auditing required.

Public Limited Companies (PLC)

• Definition: Large businesses that sell shares publicly on the stock exchange.

• Characteristics:

  • Suffix 'PLC' denotes public trading.

  • Flotation allows raising of significant capital.

• Liability: Limited liability for shareholders.

Advantages of Public Limited Companies:

• Significant capital can be raised through share sales.

• Shares easily bought and sold on the stock market.

• Expert management through external board members.

Disadvantages of Public Limited Companies:

• High costs for legal compliance and flotation.

• Vulnerability to hostile takeovers.

• Management may prioritize short-term profits over long-term growth.

3. Public Corporations

• Definition: Owned and managed by the government, funded through taxes and revenue from services.

• Examples:

  • Healthcare: Sistema Único de Saúde (Brazil)

  • Transport: TCDD (Turkey)

  • Broadcasting: CBC (Canada)

• Pros: Government control over essential services and jobs.

• Cons: Inefficiency and political interference.

4. Characteristics of Businesses

Small Businesses

• Characterisation:

  • Employ fewer than 50 people (micro: <10, small: 10-49).

  • Most common business type globally; e.g., 5.5 million in the UK (2022).

Large Businesses

• Characterisation:

  • Employ 250+ workers and dominate revenue generation.

  • Easier to obtain finance, seen as less risky.

5. Other Forms of Business Organisation

Franchises

• Definition: Franchisee buys rights to operate a business model from a franchisor.

• Characteristics:

  • Operate as private limited companies.

  • Advantages include brand recognition and training.

  • Disadvantages: ongoing fees and limited operational freedom.

Social Enterprises

• Purpose: To create impact alongside profits (social, environmental).

• Example: Butterfly Books focuses on gender stereotypes.

Multinationals

• Definition: Companies registered in one country with operations in others (e.g., Starbucks).

• Influenced by globalization for cost advantages and market access.

6. Choosing Appropriate Business Ownership

• For small businesses needing low capital: Sole trader or partnership.

• For businesses needing significant capital or facing high risk: Private limited company.

• Larger businesses may opt for public limited company status for maximum capital, while maintaining requirements for compliance.

• Factors include ownership goals, liability concerns, and operational risks.

Types of Organisations

1. Sole Traders & PartnershipsSole Traders

   • Business owned by one individual with unlimited liability.

   • Advantages: Easy setup, full control, all profits, tax simplicity, flexibility.

   • Disadvantages: Unlimited liability, limited finance access, long hours, continuity issues.

   Partnerships

   • Business with two or more owners, also with unlimited liability.

   • Advantages: Shared responsibilities, greater knowledge, easier finance access.

   • Disadvantages: Unlimited liability, potential disputes, profit sharing issues.

2. Private & Public Limited CompaniesPrivate Limited Companies (Ltd)

   • Owned by shareholders whose liability is limited to their investment.

   • Advantages: Protect personal assets, easier access to finance, continuity.

   • Disadvantages: Costly, complex setup, reporting requirements.

   Public Limited Companies (PLC)

   • Large businesses that sell shares publicly with limited liability.

   • Advantages: Can raise significant capital, shares easily traded, expert management.

   • Disadvantages: High legal costs, takeover vulnerability, short-term profit focus.

3. Public Corporations

   • Government-owned, funded by taxes.

   • Pros: Control over essential services.

   • Cons: Inefficiency, political interference.

4. Characteristics of Businesses

   • Small Businesses: <50 employees; most common worldwide.

   • Large Businesses: 250+ employees; dominate revenue and easier finance access.

5. Other Forms of Business Organisation

   • Franchises: Franchisee operates franchisor's model; advantages include brand recognition.

   • Social Enterprises: Focus on social impact alongside profits (e.g., Butterfly Books).

   • Multinationals: Companies operating in multiple countries, affected by globalization.

6. Choosing Appropriate Business Ownership

   • Small businesses needing low capital: Sole trader or partnership.

   • High capital needs: Private limited company.

   • Larger businesses: Public limited company for maximum capital.