Business Administration

1.1 Identify the features of different types of business organisations

Charities

Semi-State Bodies

Co-operatives Partnerships

Public Limited Companies

Private Limited Companies

Sole trader

Types of Organisations

Sole Trader

• Definition: This is a business that is run and owned by one person.

Formation

• Can be started immediately if operated under the person’s own name.

• If a different name is been used it must be registered with the Registrar of Business Names.(Dublin Castle)

• They must apply for any license required by law (pub) and must register and pay/collect any tax – PRSI, VAT.

Formation

• Under the Health, Saftey and welfare act the respnosibility is put on the owner – To put in place satety measures– By carrying out saftey measures of risks and

hazzards– A safety programme much then be written down

in a from of a Safety Statement

Features

• Usually small, family run business.• Are the most common type of ownership.• Are common in retail shops and other small

business.

Benefits of a Sole Trader Business

• Speedy decision making.• Flexible hours.• The owner gets to keep all the profits themselves.• They have a high level of privacy about the affairs of

the business.• They have more control of the business.• No Industrial Relations.• Suits small families.• Customer friendly

Drawbacks of a Sole Trader Business

• The owner takes all the risks of the business.• The owner has unlimited liability for the debts

owed and may lose their house or other possessions to pay for those debts

• Higher trade prices• Larger capital requirement is necessary• The business dies with the sole trader

Sources of Finance

• Loans from banks and institutes• Personal savings• Hire Purchases• Good credit terms

PARTNERSHIP

• Definition: This is a business that is run by between 2 and 50 people

Formation

• Can be started immediately if the business is going to operate under the partners own names.

• If a they trade under a different name, then this name must be registered with the Registrar of Business Names.

• They do not have to make a written agreement when they go into partnership but it is best that they do.

Formation• A written partnership agreement is called a

Deed of Partnership and sets out–How the partnership will be run–How profits will be divided–And how decisions will be make

• There can be four types of partners– Active Partner– Sleeping Partner– Quasi Partner– Limited Partner

Formation

• On dissolution of a partnership the following procedures are followed– All assets are revalued and sold– Creditors are paid off– Quasi partners loans are paid off– Capital is repaid to the partners– If there is any profit left it is divided according to

the profit sharing ratios

Active Partner

• This is a partner who participated fully in the business

Sleeping Partner

• This is a partner who invests money into the business but doesn’t taske an active part in the running of the business

Quasi Partner

• This is a partner who leaves their money in the business as a loan when they retire

• They are then earn interest on the loan once the profits have been calculated

Limited Partner

• This is a partners who debt is limited to the amount of capital which they have invested ( Limited partnership Act 1994)

• There must be one limited partner in a partnership

Features

• General partner have unlimited liability for the debts and can be sued as result of the actions of the business.

• Partnerships are commonly formed by – Architect– Solicitors– Accountants ect but anyone can form a

partnership

Benefits of a partnership:

• Partnerships are easy and inexpensive to form• Risks are shared• Different partners can bring different expertise to the

business• They partnership can get capital from a number of

owners• Partnerships are subjects to few regulations• Accounts can remain confidential

Drawbacks of Partnerships:

• The partners have unlimited liability for the debts of the business

• If a partner dies a new partnership must be formed• Disagreements can arise• Decision making can be slow• Personal guarantees form the partners may be

needed to secure bank loans

PRIVATE LIMITED COMPANIES (Ltd)

Definition: This is a business that has up to 50 owners (shareholders) who operate the business with the benefit of having limited liability.

Formation:

• To form a Private Limited Company the following steps must be followed

Step 1

• All of the necessary documents must be prepared, such as – The Memorandum of Association – sets out how

the company will related to the outside world– The Articles of Association – sets out the internal

rules for running the business

• Form A1– The company’s registered address–A Statement of the authorised and Issued

share capital–A list of directors of the company– The written consent of each of the directors

to act as the director–A signed statement that the company will

comply with the provisions of the Companies Act 1963-1999

Step 2

• Step 2 - The documentation with the relevant fee is submitted to the Companies Registration Offices (CRO) (75 euro – online registeracompany .ie)

Step 3

• The CRO checks that all the documents are in order and then issues a Certificate of Incorporation for the new company

Step 4 • The Company must hold its first Statutory Meeting at

which– The Articles and Memorandum of Association are

presented– Share certificates are given to the share holders– The directors of the company are appointed– A firms accountant is selected to audit the company’s

accounts– Authority is given to open a bank accounts in the

company’s name

Step 5

• The new company can now start trading as a legal entity separate from the owners of the business

The Memorandum of Association

• This document shows information of a company for any individual who wishes to know about the company. It shows the following

• The name of the company including the word ‘Limited’ at the end

• The registered address of the Company• The objective for which the company has limited

liability• Details of the authoried shares capital• The signature of each subscriber which is witnessed

The Articles of Association

• This Documents sets out the internal rules for the running of the company. Such as

• The share capital structure of the company• How meeting of the company are to be conducted• The voting rights of the shareholders• How additional share will be issued of existing share

transferred• How directors will be appointed and what their

duties and powers are• How the company can be wound up

Features

• The Ltd is a separate legal entity from its owners and it can sue and be sued in its own name

• Capital is invested through the purchase of shares which represents part ownership of the business

• Ownership is limited to 50 shareholders• The company has the word Limited added to its name• The owners of the business are called shared holders• The shareholders have limited liability or the debts

(only lose the money invested in the shares if the business fails)

Features• Shareholders make major decisions by voting at the AGM

(Annual General Meeting) They have one vote for each share owned

• The share holders elect a Board of Directors who take on the running of the business. They must act within the objective set out in the Memorandum of Association. If they do not they are acting Ultra Vires (outside their powers)

• The Board of Directors elect a Chief Executive Officer (CEO) or a Managing Director (MD) to manage the day-to-day running of the business

• Limited Companies are regulated by the Companies Acts 1963-1999

• The company’s accounts must be audited annually – they must be certified by an auditor (external accountant)

Benefits of a Private Limited Company:

• The company becomes a separate legal entity from the owners

• The share holders have limited liability• More capital can be raised• A better credit rating means that the company

will find it easier to get loans from the bank• The continuity of the business is assured• The company has the ability to expand

through borrowing and additional share capital

Drawbacks of a Private Limited Company:

• There are a lot of formalities in setting up a Ltd• There are costs involved in setting up and running a

Ltd• Accounts and annual reports must be sent to the

CRO each year which are available to view by the public

• The company must apply with many regulation• Shares can’t be sold freely to the general public• Creditors are exposed of not been paid it the

company closes down• They may be conflict between the shareholder (who

own the business) and the board of directors (who run the business)

PUBLIC LIMITED COMPANIES (PLC)

• Definition: This is a company that has at least 7 share holders and whose share can be bought and sold freely (stock exchange)

Formation:• The business gets a certificate of incorporation form

the CRO to form itself into a limited company• It then applies to the CRO to form a PLC by

submitting a statutory declaration of the amount of share capital being issued

• At least 7 shareholders must be willing to invest• The CRO issues a trading certificate• The company may also apply to the stock exchange

for a quotation/listing.

Features of a PLC:

• The letters PLC are placed after the name of the company

• There is no limit to the number of shareholders in the company

• The Plc are subject to many regulation – Companies Act 1963-199 and also requirements of the stock exchange (if listed)

• Annual returns must be made to the CRO and the annual accounts must be published

Benefits of a Public Limited Company:

• The company has unlimited access to finance for expansion• The company can raise finance internationally• Getting a stock exchange listing is a major boast to the image

of the company• PLC can attract the best managers (status)• Free publicity (media)• PLC can reward and motivate top managers (share options)• The company can use its shares as a form of payment when

taking over another company• PLC usually have good credit ratings

Drawbacks of a Public Limited Company:

• The cost of setting up or floating a PLC is very high• The cost of running a PLC can be high• The company must make a lot of information about

its activities public and publish their accounts• They may be conflict between the shareholder (who

own the business) and the board of directors (who run the business)

• PLC are targets for takeovers by other firms.

COOPERATIVE SOCITIES

• Definition: This is a business that is run democratically by at least 7 owners who share a common interest – Farmers, Credit union

Formation:

• Certain procedures must be followed• An application to form a co-op must be made

to the register of Friendly Societies• At least 7 members are required each

subscribing capital• On receiving the permission of the register of

friendly societies the co-op can start trading

Features of a Co-op• Co-ops are regulated under the industrial and Provident Societies Act• Annual returns must be made to the register of Friendly Societies• Co-ops are democratically run with each member having one vote only at

the AGM• The members elect a management committee to run the business and

make important decisions• The members have limited liability• Profits are distributed to members on a proportionate basis• The member of the co-op may be suppliers/customers or workers in the

co-op and can influence the success of the business

Benefits of Co-operatives

• As members have common interests there is a high commitment to the success of the business

• The business is run on a democratic basis – everyone is equal

• Co-op have a good credit rating with banks• The members have protection of limited liability

Drawbacks of Co-operatives

• They are subject to a lot of rules and regulations• Annual returns and audited accounts are required by the

register of Friendly Societies• There are a lot of formalities in setting up a Co-op• Members of a co-op find it hard to get a market for their

shares if they need to raise capital• It may be hard to find new members with the same interests

which results in limiting finance for expansion

CHARTIES

• Definition: Is a non-profit organisation that must be constituted and operated for a charty purpose

• Under charitable law the organisations objectives must be percise and not in broad or vauge terms

Formation

• There is no legal framework for registeration of charties in ireland

• However the Office of the Revenue Commissioners (Charties section) keeps a database of Organisations who have tax exemptions

• A CHY reference number ie then allocated to the charity

Features

• These organisation usually take three legal forms– An unincorporated association with a constitution

or rules– A charitable trust established by a trust– A company Governed by a Memorandum and

Articles of accociation

Features

• Caring Groups are also not-for-profit organisations

• Their services also consist of advice and counselling given by qualified trained volunteers

These organisations rely on funding from donations and rasied through activities and events