22 October 2015© easilyinteractive.com 2007-101 Types of business organisation The private sector...

20 April 2023 © easilyinteractive.com 2007-10 1

Types of business organisation

The private sector

Business Organisation Bingo

Business Organisation worksheet


Types of business organisationBusiness

Organisations

Private Public

Unincorporated

Incorporated

Sole trader

Partnership

Private Limited

Company

Public Limited

Company

PublicCorporations

Local and Central

Government

Co-operative



Organisations

Private Public

Unincorporated

Incorporated

Sole trader

Partnership

Private Limited

Company

Public Limited

Company

PublicCorporations

Local and Central

Government

Co-operative


Business organisations in the private sectorUnincorporated business: No legal

difference between the owners and their business

Incorporated business: Has a separate legal identity to its owners

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Sole trader



Organisations

Private Public

Unincorporated

Incorporated

Sole trader

Partnership

Private Limited

Company

Public Limited

Company

PublicCorporations

Local and Central

Government

Co-operative


Forms of business organisation

Who controls it?

Is liability limited?

Where might the finance come from?

Who keeps the profits?(or bears the losses)

What are the key disadvantages?

What are the key advantages?

What are its main aims?

Who owns it?

Local examples?Sole trader

Complete this spider diagram for homework, using your textbook to help you

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Sole traders (sole proprietors)

Most common form of business Owned by just one person but may employ

many people Their strength lies in the direct, personal

interest of the proprietor Found in all sectors of the economy

Primary: E.g. farming and fishing Secondary: E.g. Small manufacturers and builders Tertiary: E.g. Hairdressers, restaurants

Tend to be small businesses

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Advantages of sole traders

Lack of legal restrictions – relatively simple and cheap to set up and run

All profit after tax is kept by the owner The owner is in complete control of decision-

making Can give a personal service to customers May receive government support

E.g. Enterprise Allowance Scheme

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Disadvantages of sole traders

Unlimited liability: The owners are personally responsible for all the debts of the business

Cannot share decision-making Long hours and few holidays - owner cannot

afford to be ill/injured Difficult to raise capital No continuity - Business is wound up on

death of owner

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Sole traders (sole proprietors)

A common mistake is to think that a sole trader is a ‘one man band’

A sole trader has one owner but may employ many workers

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Partnership



Organisations

Private Public

Unincorporated

Incorporated

Sole trader

Partnership

Private Limited

Company

Public Limited

Company

PublicCorporations

Local and Central

Government

Co-operative


Partnerships

Similar to sole traders but with more than one owner

The joint owners share responsibility for the running of the business

Often found in the professional services E.g. doctors, dentists, accountants and solicitors

Partners often specialise in different aspects of the business

A Deed of Partnership may be drawn up…

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Deed of Partnership

Sets out: How much capital each partner will

contribute How profits (and losses) will be shared

amongst the partners How much control each partner has – votes What happens if any of the partners wants to

withdraw Rules for taking on new partners

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Who controls it?







Who owns it?

Local examples?Partnership


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Advantages of partnerships

Lack of legal restrictionsPartners are able to specialise moreMore finance can be invested than with

a sole traderPartners can share the workload and

decision making

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Disadvantages of partnerships

The individual partners have unlimited liability Partners can be sued on behalf of the business

since partnerships are unincorporated Profits have to be shared amongst more

owners Partners may disagree The size of the partnership is usually limited to

20 partners No continuity – Partnership ends when one

partner dies Any decision made by one partner on behalf of

the business is legally binding on the others

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Limited partnerships

Limited partnership: Some of the partners provide capital but take no part in the running of the business

These sleeping partners have limited liability for the business’s debts

There must always be at least one partner with unlimited liability

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Incorporated businesses



Organisations

Private Public

Unincorporated

Incorporated

Sole trader

Partnership

Private Limited

Company

Public Limited

Company

PublicCorporations

Local and Central

Government

Co-operative


Incorporated businesses

Unlike an unincorporated business, a company has ‘separate legal identity’ from its owners

i.e. They are able to do things in their own right. E.g.: sue and be sued employ people

They also have limited liability If they go into debt, the owners only lose what

they put into the business. Less risk Companies pay Corporation Tax on profits

(unincorporated businesses pay income tax)*


Two important documents:

Articles of AssociationMemorandum of Association

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Articles of Association (Articles):

Contains the rules under which a company is to be managed

E.g. the duties of all directors election of directors the procedure for issuing shares

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Note the terrible way to remember what the Articles contain – ARTICLES nearly spells the word RULES!!!


Memorandum of Association (Memo): Contains information about the

company and its directors. e.g.

company name address of its registered office company objectives the authorised share capital

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Articles and memoexamplesExamples of Articles and Memo

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Incorporated businessesrecord keepingThe Registrar of Companies maintains

certain records such as the Articles, Memo and annual accounts of all limited companies at Companies House Search for free company information

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http://www.companieshouse.gov.uk/

http://wck2.companieshouse.gov.uk/65aa1c8295a982e5fd4994a38a65fe15/wcframe?name=accessCompanyInfo


Ownership of companies (1)

The capital of a limited company is divided into shares

Each shareholder owns a number of these shares

Shareholders are the joint owners of the company

They can vote at the Annual General Meeting (AGM)

They take a share of the profit (dividends)

continued…*


Ownership of companies (2)

There is no limit to the number of shareholders

Continuity: If a shareholder dies, their shares are passed onto their heirs

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Control of companies (1)

Limited companies are run by directors who are appointed by the shareholders

The board of directors, headed by the chairperson, is accountable to the shareholders and should run the company as the shareholders wish

Directors may be ‘voted out’ by shareholders at an AGM if the shareholders are unhappy with performance

* continued…


Control of companies (2)

Company secretary: Company official with responsibility for organising AGMs, dealing with shareholders etc.

Divorce between ownership and control Shareholders are the owners of funds and

managers are the users of funds Divergence of interests may arise

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Private limited companies



Organisations

Private Public

Unincorporated

Incorporated

Sole trader

Partnership

Private Limited

Company

Public Limited

Company

PublicCorporations

Local and Central

Government

Co-operative



Who controls it?







Who owns it?

Local examples? PrivateLimited

Company


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Private Limited Companies

Business name must end in ‘Limited’ or ‘Ltd’ Usually small – Many private limited

companies are family businesses with shareholders as directors

Could have only one shareholder who is also the only director

Shares can only be transferred privately. Any current shareholders may prevent the transfer

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Advantages of private limited companiesShares can be transferred from one

owner to another without affecting the running of the company

Shares cannot be sold without the agreement of other shareholders so control of the company cannot easily be lost to outsiders

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Disadvantages of private limited companies Setting up the business is time-consuming

and expensive Firms are not allowed to sell shares to the

public. This restricts the amount of capital raised

Financial information filed with the Registrar of Companies is made public

If a shareholder decides to sell their shares it may take time to find another buyer

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Public limited companies

Imag

e by

Jur

vets

on. U

sed

with

per

miss

ion



Organisations

Private Public

Unincorporated

Incorporated

Sole trader

Partnership

Private Limited

Company

Public Limited

Company

PublicCorporations

Local and Central

Government

Co-operative



Who controls it?







Who owns it?

Local examples? PublicLimited

Company


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Public limited companies

Business name must end in ‘Plc’Shares can be bought and sold very

easily by the public on the stock exchange

Must have at least two directorsMust have at least £50,000 of share

capital

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Advantages of public limited companiesHuge amounts of money can be raised

from the sale of shares to the publicProduction costs may be lower as firms

may gain economies of scalePrestige

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Disadvantages of public limited companies (1)

Very expensive to set up Possible for an outside interest to take control

of the company (takeover) The company’s accounts can be inspected by

members of the public – PLCs have to publish more information than private limited companies

Because of their size they are not able to deal with customers at a personal level

* continued…


Disadvantages of public limited companies (2)Divorce of ownership and control which

can lead to a conflict of interests between shareholders and directors

Can become inflexible due to their sizeCommunication problems

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Summary questions and tasks


Incorporated businessessummary questions

Give 2 advantages of incorporated businesses over unincorporated businesses

Give 2 advantages of a private limited company over a public limited company

Give 2 advantages of a public limited company over a private limited company

What is the minimum share capital that a public limited company must have?*


Ownership of businessestask 1

1. Choose a number between 1 and 62. Open the telephone book (not the Yellow Pages)

at a random page somewhere in the business section

3. Select a column from 1 – 6 depending on stage 1 above

4. Draw up a frequency table of unincorporated businesses, Ltds, Plcs and public sector businesses

5. Draw a pie chart from your frequency table6. Which is the most common form of business

ownership and why?*


Incorporated businessestask 2

Look up some businesses in your local area onYell.com or BT.co.uk(alternatively use your local phone book!)

Can you tell if what form of ownership they have? Do businesses in certain industries tend do have the

same form of ownership? Make a list of names using the table below…

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Sole trader Partnership Ltd PLC


Flotation


Flotation (not floatation)

A private limited company (Ltd) can ‘go public’, or ‘float’ on the stock exchange provided that it meets the requirements for a plc. i.e. Over £50,000 of share capital Produce a prospectus to sell shares to the public

Why? Raise capital on the stock market Sounds more prestigious

De-listing: The reverse of flotation i.e. from Plc to Ltd Note: This is NOT called privatisation

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Business Organisation Bingo!taskTest your knowledge

and understanding of this topic with Bingo!

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Ownership and control of businessFranchising

22 October 2015© easilyinteractive.com 2007-101 Types of business organisation The private sector...

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