Types of Business

Organisations
 Types of Business
Organisations
● Overview
– Private sector organisations
● Sold trader
● Partnership
● Private limited company (ltd)
● Public limited company (plc)
● Multinationals
● Franchises
– Voluntary organisations
● Charities
● Voluntary organisations
– Public sector organisations
● Local government And Questions :D
● Central government
● Public corporations
● Privatisation
 Private Sector Organisations
● These are organisations that are NOT run by
the governement and are owned privately.
● Most of your big companies are in the private
sector.
● The private sector includes:
– Sole traders
– Partnerships
– Limited companies
– Franchises
 Sole Trader
● A sole trader is a 1-owner business.
● There are no legal requirements to go
through before setting up this business.
● Most small local businesses are sole traders.
Advantages
Owner keeps all of the profits
Complete control over all decisions
Choose own hours of work and holiday
time
'Personal service' offered to customers
Very cheap to set up
Disadvantages
Unlimited liability (have to pay all the
debts on their own)
Restricted sources of finance
No one to share decisions with/have
another opinion
Can't share workload with others
Business has to shut down if you're ill
or go on holiday
 Sole Trader (2)
● Sources of finance
– Owner's savings
– Retained profits
– Bank loan
– Overdrafts
– Government grants We will cover what each
– Trade credit of the sources of finance
– Debt factoring and objectives are
in a later powerpoint! :)
● Objectives
– Survival
– Profit maximisation
– Create a good image
– Imprive personal circumstances
– Satisficing
 Partnership
● A business with 2-20 partners.
● They have to produce a partnership
agreement
– Drawn up stating the rights of partners and
procedures to be followed upon the death,
joining or leaving of a partner
● There can also be a “sleeping partner”
– Someone who invests in the business but has no
control over the way it is run
● An advantage of this is that they usually have limited
liability and will only loose their investment if the
business fails
 Partnership (2)
Advantages
Partners can have different areas of
expertise – ie. marketing, finance, etc
More finance available
Can raise finance from lenders more
easily than sole traders can
Can share the workload
Disadvantages
Unlimited liability
Profits need to be shared between
partners
Disagreements can occur
A new Partnership Agreement has to
be drawn up every time a partner dies,
joins or leaves
 Partnership (3)
● Sources of finance
– Personal savings
– Retained profits
– Inviting new partners to join
– Bank loans
– Overdrafts Note: Sole traders and partners are
– Government grants often referred to as being
self-employed as they own the
– Trade credit business that they also
– Debt factoring work for.
● Objectives
– Same as sole trader objectives
 Private Limited Company
● Companies whose shares are owned privately. There is a
minimum of 1 shareholder (owner) and a director, although there
is more commonly a board of directors who run the business.
● Company officers are people formally appointed to run the
business.
● It requires at least 1 director and 1 company secretary.
● The company must produce a Memorandum of Association and
Articles of Association that state the details of the company, the
responsibilities of its directors and the shareholders rights.
● They tend to be family businesses
● Arnold clark is an example
 Private Limited Company (2)
Advantages
Shareholders have limited liability – only
loose invested capital if business fails
More finance can be raised
Control of business is not lost to outsiders
who have no knowledge
Disadvantages
Profits shared among more people
A legal process has to be followed when
setting the company up
Shares can't be sold to outsiders – makes
it more difficult to raise finance
Have to abide by Companies Act
requirements
Annual accounts have to be published
 Private Limited Company (3)
● Sources of finance ● Objectives
– Company profit – Profit maximisation
– New shareholders – Growth
– Bank loans – Sales maximisation
– Overdrafts – Status
– Government grants
– Trade credit
– Debt factoring
 Public Limited Company
● Shares are available to be purchased on the
Stock Market.
● Need at least 2 directors, 1 company
secretary and £50,000 of share capital to set
one up.
● Same legal documents required as a private
limited company.
● A board of directors (appointed by
shareholders controls the company).
 Public Limited Company (2)
Advantages
Raise massive amounts of financeers
Plc's are usually market lead
Borrow money easily from lenders due to
the size of the business
Shareholders have limited liabilities – they
only loose the amount they invested
Disadvantages
A lot of set up costs involves (may have to
produce detailed prospectuses and arrange
underwriting – an insrance against some
shares remaining unsold, meaning fees
have to be paid to the underwriter)
The Companies Act must be adhered to
Business has no control over who buys
shares
Must public annual accounts and make them
available to the public on request
 Public Limited Company (3)
● Sources of finance ● Objectives
– Retained profits – Profit maximisation
– Selling shares to the – Growth
public – Maximise sales
– Bank loans – To be dominant in
– Overdrafts their market
– Debentures – Image
– Government grants
– Trade credit
– Debt factoring
 Multinationals
● Plc's can be global companies or
multinationals.
– This is when the company operates all over the
world.
Advantages Disadvantages
Governments in other countries can offer Legislation be be restrictive
incentives
Lower wage rates = low cost of production Local currency may be too weak to allow
profits
Rate of corporation tax may be lower Country may be politically unstable
Legislation in other countries may be more Cultural differences make products
relaxed unpopular
Avoid restrictions on quotas
Take advantages of economies of scale –
buying more products at a lower unit cost
 Franchises
● A franchise is an agreement which allows an
individual or group to use another business'
name and sell their goods and services.
– The franchisee – the individual
– The franchiser – the business selling their
name
● The franchisee pays the franchiser a small
percentage of annual turnover or a fixed sum
in return for them letting them use their
name and sell their products.
● Perfect example = McDonalds
 Franchises (2)
TO THE FRANCHISER
Advantages Disadvantages
Increase your market share without a great Reputation depends on how good the
deal of investment franchisee is
Revenue is realiable (set payment or % of
profits)
Risks are shared

TO THE FRANCHISEE
Advantages Disadvantages
Don't have to do much advertising of their Have to pay the franchiser a % of profits or a
own royalty payment
Franchiser may train you in the operations of Franchiser might not renew the franchisee
machinery or routine that must be followed after a certain period of time, leaving you
without the backing & permission to continue
Risk of failing reduced as the business Less able to make own decisions
already has built a good reputation
Voluntary Sector Organisations
● In the voluntary sector, we will look at 2 types
of organisation:
– Charities
– Voluntary Organisations
● The main difference between these
organisations and what we have looked at so
far are the objectives
– Private sector organisations usually want profit
maximisation, growth, etc whereas in the
voluntary sector, they want to provide a service,
etc
– This is a popular exam question!
 Charities
● A Register of Charities is kept by the government which
regulated the activities of charities.
● They are exempt from paying some taxes and are often
run by professionsals who work for the charity.
● Sources of finace:
– Private and public donations
– Government grants
– Lottery grants
– Profits from sales in charity shops, raffles, etc
● Objectives
– To be recognised as a charity they must have 1 of the
following aims:
● To relieve poverty
● To advance education
● To advance religion
●
To carry out activities beneficial to the local community
 Voluntary Organisations
● Usually run and staffed by volunteers.
● Examples include the scouts, local youth
clubs and some sports clubs.
● They bring together people with similar
interests and are run by a committee of
elected volunteers.
● Sources of finance:
– Grants from the lottery, sports council or local
authorities
– Fees payable upon joining or for use of facilities
● Objectives
– To create a better community, etc
 Public Sector Organisations
● These are organisations that are owned and
controlled by local or central government.
● We will look at 3 types of organisation:
– Local government
– Central government
– Public Corporations
 Local Government
Organisations
● Local councils provide a range of services including:
– Education
– Recreation
– Housing
– Refuse collection
● They are set up by central government and run by
councillors.
●
Sources of finance:
– Central government
– Business rates
– Council tax
– Charges for using services
● Objectives:
– To meet the needs of the local community
– To make cost-savings
– To stick to budgets set down by central govt
 Central Government
Organisations
● Services are provided by departments such as
the treasury, trade and industry, health,
transport and defence.
● Westminister and the Scottish Parliament are
central government organisations.
● Employ civil servants to run them.
● Sources of finace:
– Taxation
● Objectives
– To improve society
– To make best use of funds available to them
– To manage taxation to protect people who are in a
less favourable position
 Public Corporations
● Companies that are owned by central
government. Government ministers appoint a
chairperson and board of directors to run
them. The BBC is an example.
● Sources of finance:
– Central government
– The public – TV licensing, merchandise, etc.
● Objectives:
– To provide a quality service
– To manage their funds efficiently
– To serve the interests of the public
– To be better than their rivals
 Privatisation
● The government have been selling off key public
corporations as a cost-cutting measure (eg. British
Airways).
● They did this because:
– The treasury can receive a huge amount of finance from
selling the corporations
– They were very poorly managed and not profitable and
could be profitable if someone else managed them.
– They wanted to increase ownership and let the public have
a chance to benefit from the success of the economy
● However:
– According to business analysts, they were sold off too
cheaply because this was the only price though possible
and privatising them has not always led to greater
competition.
 Questions
● Discuss the objectives of a plc compared to
those of a public sector organisation. (5)
● Explain the advantages of franchising for a
franchiser. (3)
● Identify 2 sources of funding for a public
sector organisation. (2)
● Describe methods a limited company could
use to finance a successful takeover. (4)
● Explain 3 reasons why an organisation would
become a private limited company. (3)
● Describe 2 strategic objectives of a public
sector organisation. (2)