IGCSE Business Studies

2.1.2 Types of Business Organisation

Learning Outcomes• Describe the main features of sole traders,

partnerships, limited companies • Understanding the differences between sole

traders and partnerships• Understand the differences between

unincorporated businesses and limited companies• Recommend suitable forms of business

organisation to the owners and managers in a given situation

Reminder……Types of Organisations

Ownership Types

Private Sector Public Sector

Unincorporated

•Sole Trader

•Partnership

Incorporated

•Private Limited Company

•Public Limited Company

• Public Corporations

• Public Services

• Local Authorities

Profit Non-Profit

• Charities• Trade Unions• NGOs• Social

Organisations• Advocacy Orgs

Incorporation….. What does it mean?

• Incorporation is the forming of a new corporation (a corporation being a legal entity that is effectively recognised as a person under the law).

The Process of Incorporation

Legal BenefitsProtection of personal assets (Limited Liability)

Continuity (ownership can be transferred)

Profits taxed at corporate rates

Option to raise funds by selling shares

Company has a separate credit rating

Company can have a bank account

Why would each of these be useful?

Obligations of Incorporated Businesses

• To have at least one shareholder and at least one director

• To inform if there are any changes to the details of the company

• File company accounts and company tax return yearly

• To keep detailed financial records for at least 6 years after each financial year (or be fined)

• To file an annual return each year (currently costs £40)

UNINCORPORATED BUSINESSES

Let’s assume the business has decided against incorporation..

Incorporated V

Your options…..

If you want to own a business on your own you will be a SOLE TRADER

If you want to own a business with other people you will be aPARTNERSHIP

Owners of these types of business have UNLIMITED LIABILITY

Task…. 5 mins

• In pairs discuss and write 2 lists.

Reasons why someone would prefer to set up a business on their own….

Reasons why someone would prefer to set up a business with other people….

The benefits of being unincorporated

• Very easy to set up• Register as being self employed and you’re good

to go• None of the paperwork and associated costs of

setting up as a company

Rules of Partnerships….

• Can have 2-20 owners• At least 1 partner must have

UNLIMITED LIABILITY• Has the option of drawing up a

DEED OF PARTNERSHIP

Question….

• Why should someone be extremely cautious when entering into a partnership?

Homework TaskConstruct a Deed of Partnership for the business including the following sections:•name of the business and details of its activities•names of partners and their duties and responsibilities (give reasons)•amount of capital provided by each partner•how the profits and losses will be shared out•explanation of how decisions will be made and any voting rights•arrangement for retirement, death or change of partners•Your challenge is to be interesting, not realistic!

INCORPORATED BUSINESSES

Let’s assume the answer is YES!

Incorporated V

Types of Companies

As a new business you could be a PRIVATE LIMITED COMPANY (LTD)

Later on you may decide to become a PUBLIC LIMITED COMPANY

Limited Companies

• Are Incorporated• Have Shareholders rather than

owners• May have from 1 up to thousands of

Shareholders• Have a Board of Directors

Task – 5 mins

• Using your textbook and/or the internet

• Find out the differences between Private Limited Companies and Public Limited Companies

BECOMING A PUBLIC LIMITED COMPANY

Key Questions…..

• Why would a Private Limited Company want to become a Public Limited Company?

• Can any Ltd become a Plc?• What process would they have to go through to

become one?• Are there any cons of being a Public Limited

Company (as opposed to remaining a Ltd?)

A word from the lovely Richard Branson

Fortunately we're not a public company - we're a private group of companies, and I can do what I want.

What does he mean by this?

Task – Dell Delisting

• Open and read the article “Dell wins back his company’

• Answer the following questions....

• What is meant by the term delist?• Why have Dell and their competitors struggled in

recent years?• How does Michael Dell plan to turn the company

around?• Why does Michael Dell want to delist?• Why is there opposition to the delisting?

Task - Double Bubbles

• Complete the double bubble diagram comparing Sole traders and Partnerships

Homework: Complete the other two double bubble diagrams

Sole Trader

Partnership

Partnership Private Limited Company

Private Limited Company

Public Limited Company

CHOOSING AND RECOMMENDING A BUSINESS STRUCTURE

• http://topics.nytimes.com/top/news/business/small-business/case-studies/index.html