Chapter 3 –forms of Business Organisation

1. Unit 2: Business Organisations Chapter 3 –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 • Own Boss • Control • 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. PartnershipAdvantages • More Capital • Shared Responsibilities • Shared Decisions • Motivation to work hard • Losses shared by all partners • Greater opportunity for specialization • Easy to set up

13. PartnershipAdvantages • 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 CompanyDisadvantages • 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 CompanyDisadvantages • 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 to 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 to 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 & OwnershipPublic 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 & OwnershipPublic 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. Disadvantages • Policy & Management • Disagreements • Conflicts • Disputes Joint Ventures • Setting up a factory to supply components / parts to manufactures • Advantages • Shared Risks • Reduced Costs • Shared Research & Development costs • Possible Profit Sharing

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 Economies Of Scale Arranging Selling of Output Attractive Prices to Large Customers

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”