Introductory Business Concepts Forms of Business Organisation special

Introductory Business Concepts Forms of Business Organisation (special thanks to Geoff Leese)

Objectives • Consider the different types of business organisations operating in the private sector • Consider the advantages & disadvantages of each type of organisation

Types of Business Organisations Private Sector Franchise Sole Trader Partnerships Companies Private limited companies Cooperatives Public limited companies

Sole Trader • Owned financed and controlled by one individual but can employ other staff • Traditionally common in local building firms, small shops, restaurants, butchers • Today many people are setting up their own businesses by creating small webbased companies working from home

Sole Trader Advantages • Requires little capital • Easy to set up • Personal incentive – • keep all the profits • make key decisions • high degree of control • Flexibility • Ability to offer personal service

Sole Traders Disadvantages • • • Unlimited Liability Limited access to capital Potential for long hours Pressure of being solely responsible Lack of continuity – business ceases once owner dies • No cover for illness

Business Organisations • Sole traders can overcome these disadvantages by becoming a partnership

Partnerships • Owned, financed and controlled by between 2 & 20 partners • Terms of Partnership agreed through contract • Bound by the terms of the Partnership Act 1890 • Common in professions – lawyers, accountants, architects, surveyors, estate agents, vets etc

Partnerships Advantages • • Each partner contributes capital Shared responsibility Greater opportunity for specialisation Easy to set up

Partnerships Disadvantages • Unlimited Liability • • • (However since 2001, Partnerships can apply to be Limited Partnerships) All partners liable for the debts of the others Partnership dissolved on death of one partner Potential for conflict Decisions of one partner binding on the rest Limited access to capital

Private limited companies • Usually small family business • Owned by between 2 and 50 shareholders • Directors elected by shareholders

Private limited company • Advantages – Limited liability – Shareholders contribute capital – Protected from takeovers • Disadvantages – Still limited capital – Limited economies of scale

Public limited companies • Owned by minimum of 2 but no maximum number of shareholders • Example Boots • Directors elected by shareholders • Has a separate legal identity – the company can sue and be sued • Minimum share capital of £ 50, 000

Public limited companies • Advantages – Large amount of capital can be raised – Economies of scale • Disadvantages – Unwanted takeover possible – Can be remote from customers – Potential diseconomies of scale

Co-operatives • Controlled by a committee • Ownership, finance and control in hands of ‘members’ • Exists for the benefit of ‘members’ – Consumer co-ops – members buy goods in bulk, sell to members, divide profits between members – Worker co-operatives – workers buy the business and run it – decisions and profits shared by members – Producer co-operatives – producers organise distribution and sale of products themselves

Franchises • Method of Business Organisations backed by established ‘brand’ name • Franchisee – pays a fee for the purchase of the franchise • Common franchises – Body Shop, Mc. Donalds, Costa Coffee, Subway

Franchises • Advantages – Owner gets to run a business with less ‘risk’ – Owner buys the right to use the established companies name, format products, logos, display units, methods etc. – Speedy way for business to expand – Become very popular

Franchises • Disadvantages – Owner – (Franchisee) responsible for debts – Franchisee pays a royalty to owners of the brand – Franchisee must adhere to pricing policy of parent company and so it can be difficult to realise high profits

Conclusion • Considered the various types of business organisations • Considered the advantages & disadvantages of each • Useful Websites – http: //www. thetimes 100. co. uk • Lots of very useful stuff there!