© Boardworks Ltd 2009 1 of 27 Icons key: For more detailed instructions, see the Getting Started presentation Teacher’s notes included in the Notes PageFlash

© Boardworks Ltd 20091 of 27

Icons key: For more detailed instructions, see the Getting Started presentation

Teacher’s notes included in the Notes PageFlash activity

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Large Business OwnershipUnit 1: Investigating Business

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Learning objectives

What are limited companies? What decisions and responsibilities are involved in their ownership?

How do some types of large business ownership compare to others?

What are franchises and co-operatives? What is involved for the people who own and work in them?

What is the difference between large business ownership in the public and private sector?


Large business types

Along a typical high street there will be many different types of large businesses and organizations, including franchises, limited companies, co-operatives and businesses in the public sector.

Each of these large business types involve different responsibilities and involvement for the owners.


Limited companies

Limited companies are very different from partnerships and sole proprietorships. In these latter business types, the owners are the business.

A limited company is therefore set up as a separate body from its owners.

owned by shareholders – people who invest money in shares of the company

run by directors – people appointed by shareholders to control and make the strategic decisions for that company.

In contrast, limited companies are:


Limited liability

Owners and shareholders in a limited company are protected by limited liability.

This means that they have limited responsibility for the business debts.

How is this different from the responsibilities in sole proprietorships and partnerships?

For this reason, setting up a limited company is relatively low risk.

They cannot lose any more money than they have invested in the company, and cannot have their personal assets claimed in order to pay back debts that are owed.


Setting up a limited company

Unlike sole proprietorships and partnerships, which aresimple to set up, limited companies must produce paperwork and follow certain procedures when setting up.

In addition, a limited company must produce:a Memorandum of Association, which states who they are, where they are based and what they doan Articles of Association – an internal ‘rulebook’, which sets out how the business will be run.

All limited companies in the UK have to register with the Registrar of Companies at Companies House. In return, they are issued with a Certificate of Incorporation. This is an official document which shows that the company has come into existence.


Documentation


Types of limited companies

Have you ever seen the letters ‘Ltd’ or ‘PLC’ after a company’s name? Do you know what they stand for?

Do you know what the difference between them is?

‘Ltd’ or ‘Limited’ after a company’s name tells you it is a private limited business

‘PLC’ after a company’s name tells you it is public limited.

There are two types of limited company:


Types of limited companies

The difference between a private and public limited companylies in the ownership of their shares.

A private limited company can start up with as little as £2 in share capital, whereas a public limited company must have at least £50,000 worth of shares to begin trading.

Shares in public limited companies are sold on the London Stock Exchange and can be bought by members of the general public.

In a private limited company there is restricted ownership. Shares in the company can only be sold if all the shareholders agree to it.


Private limited companies

Why might people setting up a business decide to become a private limited company rather than

form a partnership?

Private limited companies tend to be smaller than public limited companies. The main shareholders in a private limited company are often also the directors of the company.

Private limited companies typically include recruitment consultants, building firms, estate agents and caterers. Many private limited companies are family-run businesses.


Private limited pros and cons


Public limited companies

With a greater number of shareholders, public limited companies are able to grow at a faster rate than companies which remain private. However, because shares can be bought by anyone, public limited companies are vulnerable to takeovers.

Private limited companies become public by floating their shares on the stock market, to be bought and sold by the public. They do this in order to raise capital for expansion.

The majority of large British companies, including Tesco, Boots, Marks and Spencer and Barclays are public limited companies.


Public limited companies

As there are many more of them, shareholders in a publiclimited company tend to have less influence over the company than shareholders in a private limited company.

However, all public limited companies must hold Annual General Meetings (AGMs) where shareholders are given the opportunity to put questions to the board of directors, and take votes on company decisions. Shareholders will usually be entitled to one vote per share owned.


Public limited pros and cons


Large business anagrams


Co-operatives

consumer co-operatives – owned by their customersworkers’ co-operatives – owned and run by their workers.

Co-operatives are businesses which have important objectives other than simply making a profit. They will usuallyaim to support the wider community in some way, and encourage ethical business practices.

The Co-operative Group is the biggest consumer co-operative business in the UK, comprising of shops, banks and pharmacies, as well as other services. It is owned by its members, who invest in the Group, and in return receive a share of the profits and are able to have a say in how the organization is run.

There are two main types of co-operative business ownership:


Case study: Suma

What are two ways in which Suma is different from a limited company?

Suma is a wholefoods company and one of the largest workers’ co-operatives in the UK. It is organized and run in linewith typical co-operative principles.

Like all co-operative businesses, Suma has ethical business principles. The company imports fair-trade goods, and refuses to trade with countries where human rights are abused.

It has 120 employees, all of whom own the business, and manage it by democratic consensus. All Suma employees receive equal wages and share job roles.


Workers’ co-operatives pros and cons


Franchises

A franchise is an arrangement in which an established business name is sold to an individual or company, who can then start trading under that name. Many fast food restaurants such as KFC and Pizza Hut operate franchises.

the franchisor: the business selling the right to trade its product or service;

the franchisee: the company or person

buying the franchise.

There are two parties involved in a franchise:


Franchise advantages and disadvantages

Franchisees often pay a substantial fee to trade under a well-known business name, and in return will receive training, advice and on-going support.

The franchisor receives a percentage of the profits made by the franchisee, and benefits from a bigger market share without taking on extra work. However, a badly-run franchise may damage the franchisor’s reputation.

McDonald’s is the world’s largest franchising company in the world. 70% of all its restaurants are run by independent entrepreneurs.

However, the franchisee has limited freedom to make business decisions, and can only sell the franchisor’s products.


Publicly owned organizations

All businesses or organizations, whether large or small, belong to either the private sector or the public sector.

Sole traders, partnerships, limited companies, co-operatives and franchises are in the private sector. This is because they are all owned by private individuals or companies.

Most UK business are in the private sector. However, the public sector is still a very large employer.

Organizations in the public sector tend to be service providers.Local sports centres, libraries, Jobcentres and state schools are all public sector organizations.


Publicly owned organizations

Public sector organizations are owned and run by central government or local authorities.

However, unlike private sector businesses, public sector organizations:

do not usually operate to generate a profitare funded from taxes such as council tax, rather than from shareholders.

They have much in common with private businesses in the way that they operate on a day-to-day basis. For example, they are run by managers who make decisions on behalf of the organization.


Public corporations

The government does own and operate some profit-seeking organizations, including the BBC and the Royal Mail.

These public corporations were set up to provide the public with a service. Any profit they make goes back into the organization or to the government to fund things such as schools and the National Health Service (NHS).

How is a change from public to private ownership likely to affect the running of an organization?

Some companies such as British Telecom (BT), British Gas and British Rail were once government-owned, but over the years have been sold or privatized, i.e. moved from the public sector into the private sector.


Public sector or private sector?


1.What is the difference between a private limited company and a public limited company?

2.What does it mean to have ‘limited liability’? Which types of business ownership involve limited liability?

3.Think of one advantage and one disadvantage for a franchisee in a franchise arrangement.

4.In what ways are private sector businesses and public sector organizations similar? In what ways are they different?

Question time


Who wants to be an A* student?


Glossary

Documents

© Boardworks Ltd 2009 1 of 27 Icons key: For more detailed instructions, see the Getting Started presentation Teacher’s notes included in the Notes PageFlash