BM Unit 1 - LO1 1

Topic 2 – Types of Business Organisation

Learning IntentionUnderstanding different

business types

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Homework Task

Read the business section of a

national newspaper and find a

business article that interests

Bring the article (or business

section) in for

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Organisations

Types of Organisation

Private Sector

Profit-making Non-profit-making(voluntary sector)

Public Sector

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Private v Public Sector

PRIVATE SECTOR

Organisations run by private individuals or groups usually to make profits, to raise funds or to provide services e.g. a charity

PUBLIC SECTOR

Organisations set up by the Government to provide services to UK residents. Main aim is not to make profits, but to keep within budget allocated whilst providing the best service possible

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Private SectorOrganisations

Profit-making

Sole Traders (1 owner) Partnerships (2 – 20 owners) Private Limited Companies (50) Public Limited Companies (no limit) Franchises Co-operatives

Non Profit-making

Charities and Clubs

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PRIVATE SECTOR ORGANISATIONS

Read pages 6 – 9 from blue Pupil Notes book

Also pages 9 - 11 in the Leckie & Leckie book

Also pages 7 – 9 in the Business Management book

In jotter, take notes on the following

Sole Trader

Partnership

Private Limited Company (Ltd)

Public Limited Company (PLC)

Definition, Advantages and Disadvantages in your own words and abbreviated!

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Sole Trader

DEFINITION - Owned and managed by one person (the owner)

Simple to set up without many legal formalities

Owner makes all the decisions and has complete control

Owner keeps all the profits – no need to share!

Borrowing from bank can be difficult or more costly

Unlimited liability if business fails – can lose house etc

Lack of help and support or even cover during holidays

Examples – self-employed builders, hairdressers, local shop owners

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Partnerships

DEFINITION - Owned and controlled by partners between 2 and 20 people. Common for doctors, lawyers etc.

Share responsibilities

Partners can specialise

Allows more money to be put into business

Unlimited liability if business fails – can lose

Fall out between partners

Disruption when partners leave and new ones join

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Limited Companies

DEFINITION - Owned by shareholders and

commonly run on a day-to-day basis by paid

employees (Board of Directors)

PUBLIC LIMITED COMPANIES (PLC) – Can

sell shares to the general public on the Stock

Exchange

PRIVATE LIMITED COMPANIES (Ltd) – Can

only sell shares to individuals on the

agreement of all existing shareholders (no

more than 50 shareholders)

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How to Set up a Limited Company

REGISTER – with Companies Registrar

LEGAL DOCUMENTS – Prepare the Memorandum of Association and Articles of Association which lays out rules and objectives of company

LIMITED LIABILITY – company has a separate legal identity and shareholders cannot be forced to pay company debts if it fails

DIVIDENDS – Share of profits paid to shareholders on the basis of number of shares owned

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Private Limited Companies (Ltd)

Shareholders have limited liability

responsibilities

Still a measure of privacy - Ltds do not need to

publish their annual accounts.

Need to disclose some financial information than

Bigger organisations are difficult to manage

More difficult to keep staff motivated

Set up costs and running costs (e.g.

accountants to complete PAYE returns)

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Public Limited Companies (PLCs)

Shareholders have limited liability responsibilities

Shareholders can re-sell shares on Stock Market if they need to raise cash

PLCs can raise money for new projects easily

Need to disclose financial information

Bigger organisations are more difficult to manage than partnership or sole trader

More difficult to keep staff motivated if they feel distant from Board of Directors

Legal set up costs most expensive of all business organisations

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Multinationals

Receive tax concessions

Lower wage costs

Legislation may help cheaper production

costs

Lower taxation rates

May be political unrest or a weak currency

May be lack of expertise

Large businesses who produce in different countries

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Voluntary Sector

DEFINITION – Exist to raise money for good causes or to provide a service which would otherwise be left unsatisfied

Must be registered with the Charity Commissioners who oversee their activities

Examples?

Oxfam

Local football team

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Public SectorOrganisations

Public Corporations

BBC and Royal Mail

Local Authority Services

Education, Housing, Police, Social Services

Government-funded Service ProvidersNHS, Social Security, Defence