forms of business organisation

1. UNIT 2: BUSINESS
ORGANISATIONS
Chapter 4 –forms of Business
Organisation

2. Forms of Business Organizations
You will learn …………………
 The main forms of business organizations in the public and
private sectors
 The advantages and disadvantages of each form or
organization
 The appropriateness of each form in different circumstances

3. Types of Business Organizations

5. Sole Traders
 Smallest and Most Common type of
Business Organization
 Owned and Operated by one
person
 One Man Show”
 Can employ others but the owner is
the sole proprietor
 Easy to set up
 Few Legal Regulations

6. Sole Traders
 Do not require a lot of money to set up
 Money usually provided by the owner
 They are unincorporated
 Meaning that legally, the owner and the
business are the same
 They have Unlimited Liability

7. Sole Trader Advantages
 Few Legal Regulations
 Control
 Own Boss
 Freedom / Flexibility
 Personal Customer Contact
 Decision Making
 Profit
 Secrecy

8. Sole Trader Disadvantages
× Unlimited Liability
× Money / Finance
× High Costs
× Higher Prices
× Raising Capital
× Long Hours
× Lack of Specialists
× Health
× No continuity

9. Sole Traders
 See Case Study
 Page 30 & 31
 Instructions
 Read the case study
 Group 1 – Discuss Advantages
 Group 2 – Discuss Disadvantages
 Group 3 – Discuss Mikes advice

10. Partnerships
 Usually small businesses
 Tend to be a little larger than
sole traders
 Two or more people run the
business that aims to make a
profit
 Maximum number of partners
is usually 20.

11. Partnerships
 Money usually provided by
the partners
 Partnership Agreement or
Deed of Partnership maybe
used.
 They are unincorporated
 They have Unlimited
Liability

12. Partnership Advantages
 More Capital
 Shared Responsibilities
 Shared Decisions
 Motivation to work hard
 Losses shared by all partners
 Greater opportunity for
specialization
 Easy to set up

13. Partnership Advantages
 Less money needed by partners
to set up
 Can be a family run business
 Accounts kept private

14. Partnership Disadvantages
× Unlimited Liability
× Legal Costs for drawing up a “Deed of Partnership”
× All partners liable for the debts of the others
× No separate legal identity
× Partnership dissolved on partners leaving or through
death

15. Partnership Disadvantages
× Potential for conflict
× Time to consult other partners
× Decisions of one partner binding on the rest
× Limited access to capital
× Limit on the number of partners

16. Limited Partnerships
 Known as Limited Liability
Partnerships (LLP)
 These are possible in some
countries such as the UK
 Offers partners limited
liabilities
 Shares cannot be bought or
sold
 Separate Legal Identity

17. Sole Traders and Partnerships

18. Assignment & Presentation

19. Private Limited Company
 Separate Legal Identity
 Denoted by
 “Limited”, “Ltd”, or “Pty Ltd”
 Shares usually owned by
 Original sole trader
 Family, Relatives, Friends, Employees
 Most Important
 Directors, Majority Shareholders
 Continuity
 Make Contracts
 Legal Agreements

20. Private Limited Company Advantages
 Limited Liability
 Sale of Shares
 Separate Legal Identity
 Original Owner Retains Control
 More Ability to Raise Capital
 Continuity
 Status

21. Private Limited Company Disadvantages
 Legal Formalities
 Articles of Association
 Directors Rights & Duties
 Rules for Elections
 Official Meetings
 Issuing Shares
 Memorandum of Association
 Name
 Address
 Contact Details
 Objectives
 Amount of Share Capital
 Number of Shares

22. Private Limited Company Disadvantages
 Shares
 Existing shareholders ONLY
 Transfer needs consent
 Less Privacy
 Accounts sent to the Registrar of
Companies
 Raising Capital for Expansion

23. Public Limited Company
 Very Large Businesses
 Large Supermarket Chains
 Factories
 Private Sector
 Denoted by
 “PLC”, “plc”
 Selling of Shares to the
general public

24. Public Limited Companies

25. Public Limited Company Advantages
 Limited Liability
 Incorporated Business
 Separate Legal Unit
 Continuity
 Raise Large Amounts of Capital

26. Public Limited Company Advantages
 No Limit on the Number of
Shareholders
 Easy to Buy, Sell & Transfer
Shares
 Higher Status
 Easy to Attract Suppliers

27. Public Limited Company Disadvantages
× Legal Formalities
× Complicated & Confusing
× Regulations & Control
× Protect shareholders interest
× Privacy
× Publication of Accounts
× Difficult to Control & Manage

28. Public Limited Company Disadvantages
× Expense of Selling Shares to
the Public
× Specialist Bank
× Merchant Bank
× Prospectus
× Original Owners Loss of
Control

29. Converting from Private to Public
 Memorandum of Association
 Statement made
 Public Limited Company
 Certain Minimum Amount of
Shares must be Issued
 Accounts
 Specific Layout
 Made Available to the Public

30. Converting from a Private to a Public
 “Stock Exchange”
 Apply for a “listing”
 Easy for buying & selling shares
to shareholders
 Look carefully at accounts
 Trading record
 Ensure it is not poorly operated

31. Converting from a Private to a Public
 Prospectus
 Invitation to the Public
 Buy Shares in the company
 Detailed Document
 Past Records
 Plans for the future
 Reasons for raising capital
 How capital will be spent
 Full explanation

32. Control & Ownership
Public Limited Company
 Shareholders
 Thousands, Millions
 Annual General Meeting
(AGM)
 Election of Company Directors
 Directors
 Professional Managers
 Responsibility to run the business
 Make Decisions
 Appoint Managers
 Day-to-day operations

33. Control & Ownership
Public Limited Company
 Divorce Between Ownership & Control
 Shareholders Own
 Directors & Managers Control
 Objectives
 Increase status
 Increase growth
 Justify their large salaries
 Reduce Dividends
 Expansion Plans
 Replacing Directors
 Inexperience
 Bad publicity
 Unstable

34. Activity
See Case Study Page 41

35. Joint Ventures
 Two or more businesses
 Work closely together
 One project

36. Joint Ventures
 Setting up a factory to
supply components /
parts to manufactures
 Advantages
 Shared Risks
 Reduced Costs
 Shared Research &
Development costs
 Possible Profit Sharing
 Disadvantages
 Policy &
Management
 Disagreements
 Conflicts
 Disputes

37. Co-operatives
 Groups of people
 Agree to work together
 Pool resources
 Features
 All members have one vote
 Help in running the business
 Shared workload
 Shared decision making
 Shared Profits
 Managers Appointed
 Larger co-operatives

38. Co-operatives
 Producer Co-operatives
 Groups of Workers
 Design Products
 Produce Products
 Retail Co-operatives
 Aim to provide members with good
quality consumer goods & services at
reasonable prices

39. Agriculture Co-operatives
Buy in Bulk
Worker Plants Seeds
Harvests to the Crop
Arranging
Selling
of Output
Attractive Prices to Large Customers
Economies
Of
Scale

40. Close Corporations
 Similar to Private Limited Companies
 Quicker to set up
 Fewer Rules & Regulations
 Maximum of 10 people
 Simple Founding Statement
 Registrar of Companies
 Members are Managers
 Separate Legal Identity
 Limited Liabilities

41. Close Corporation
 Disadvantages
 Limited to 10 people
 Not suitable for large businesses
 Disagreements / Conflicts
 Decision Making Issues

42. Franchising

43. Franchising
 Franchisor
 Large Business
 Product / Service Idea
 Does not want to sell to the public
directly
 Franchisee
 Use franchisor’s product / service idea
 Sells it to the consumer

44. Franchising
 Franchisor Advantages
 Franchisee
 Pays for Expansion
 Pays for Shop
 Purchases License
 Uses product name
 Rapid Expansion
 Brand Name & Products
Major Source of Profit
 No Operation of Retail Units

45. Franchising
 Franchisee Advantages
 Reduced chance of failure
 Well known brand/product
 Advertising paid for by Franchisor
 Supplies from single source
 Franchisor makes many of the
decisions
 Fewer decisions to worry about
 Training Provided
 Finance from Banks easier

46. Public Sector

47. Public Sector
 Two Main Types
 Public Corporations
 Municipal Enterprises

48. Public Corporations

49. Public Corporation Objectives
 Social Objectives
 Keep prices low and affordable
 Keep people in jobs to reduce unemployment
 Offer public service in ALL areas
 Issues
 Keeping to objectives costs huge amounts of money
 Often make huge loses
 “Subsidies” often paid by government

50. Public Corporation Objectives
 Other Objectives
 Reduce cost, even at the cost of jobs
 Increase efficiency
 Operate like a private sector firm
 Cut services that make a loss
 Some consumers loose out
 Corporatization
 Public corporation running as though it is in the private sector,
not public sector
 Preparing for “privatization”

51. Public Corporation
Advantages
 Essential / Necessary Services
owned & controlled by govt.
 Natural Monopolies
 Open Business & Secure Jobs
 Availability for public use

52. Public Corporation

53. Public Corporation
Disadvantages
 No Shareholders
 No Profit Motive
 No Efficiency Motive
 Subsidies lead to inefficiency
 Managers think that government there for
bailout all the time
 Unfair
 Subsidies not given to private sector

54. Public Corporation
Disadvantages
 Lack of Incentive
 Increase consumer choice
 Increase efficiency
 Used for Political Gain
 Offering more jobs at election time

55. Municipal Enterprises
 Operated by Local Government
 Some Free, Paid by local taxes
 Some Charged, to at least Break-even
 Services include;
 Street markets
 Swimming pools
 Theatres
 Sporting Areas
 Waste collection
 Libraries

56. Municipal Enterprises
 How do they cut cost?
 How do they reduce the cost on local taxpayers?
 Increase range of
services through
privatization
 Reducing the role of
government in
providing goods and
services