Type of Business

Organisation

Success criteria:

To introduce pupils to the different business organisation types in the UK and World-wide (international).

Learning Intentions:

You should be able to:

• identify who owns, controls and finances different types of businesses

•describe and give examples of different types

•justify reasons for these business organisations existence.

Organisations

Types of Organisation

Private Sector

Profit-making Non-profit-making

Public Sector

Types of ownership Sole trader Partnership Private limited company Public limited company Franchise Co-operative Charity

Private Sector

Sole trader One man/woman business. Sole trader owns business. Owner

and business are the same. Owner provides own capital (savings

and borrowings). Profits go to the owner (but also

responsible for losses). Owner controls business, all decisions

are theirs.

Sole traderPositives Easy to set up Can make decisions

quickly Personal attention to

business Profits are not shared Can cater for local

needs Business affairs kept

private

Negatives Limited capital Unlimited

liability Commitment

(long hours, every day)

New ideas may be limited

Partnership A business owned by several people 2–20.

Deed of partnership – contract dealing with share of profits, roles and duties, capital contributed, dispute procedures.

Owned jointly but not always equally. Partnership is an extension of sole trader. Capital provided by partners. Profit goes to partners, not always equally. All partners entitled to participate in

management (unless silent partners).

Partnership

Positives More capital than

sole traders Excessive hours

can be cut down More ideas may be

generated Specialisation can

occur

Negatives Actions of one

partner binds all More discussion

and consultation Limitation on

number of partners

Unlimited liability Partnership ends

if a partner dies

Private limited company (Ltd) Organisation owned by a group of

individuals (2+ shareholders). Memorandum/Articles of Association. Owned by shareholders (often family)

whose main function is to elect board of directors.

Money raised by share issue or borrowing.

Ordinary shares and preference shares. Profit shared between shareholders or

retained by company.

Private limited companyPositives More capital than

partnerships Limited liability Owner can retain

control Company does not

die if owners die

Negatives Must be registered

with Registrar of Companies

Harder to motivate and control workers

High set-up costs (legal and administrative)

Diseconomies of scale

Public limited company (plc)

Organisation owned by a group of individuals; has plc after name.

Certificate of Incorporation approved by Registrar of Companies.

Shareholders – 2+; shares sold on stock exchange; prospectus prepared to attract shareholders. Capital raised by share issue or borrowing. Profits shared between shareholders or

retained by company. Board of directors = divorce of ownership

and management.

Public limited companyPositives More capital than

private limited companies

Employ specialists Limited liability Company does not

die if owners die Shares can be

issued through stock exchange

Negatives Formation expensive

(legal and administrative costs)

Must publish accounts May become too large

to manage effectively Decisions more

difficult to arrive at Diseconomies of scale

Franchise

A business/individual buys a license to operate a well-known firm.

Owned by franchiser. Franchisee pays franchiser to get

license as well as a royalty. Franchisees runs business on

franchiser’s guidelines.

Click for clip

FranchisePositives Franchiser

provides a lot of support: training to start business, equipment, materials, advice, brand name

Take over a successful, winning formula

Negatives Franchisee

doesn’t have complete freedom

May not agree with decisions made by franchiser

Royalties paid to franchiser

Co-operative Organisation set up to benefit workers

or consumers. Retail – owned by workers and

shoppers. Producer – owned by workers. Retail – every pound spent receives

dividend or voucher. Producer – money comes from workers,

who share profits and share a salary. Board of directors (who may also be

workers).

Co-operative

Positives Less conflict

between workers and managers 

Workers should be more motivated

Negatives Difficult to grow

and find additional capital 

New workers may not be able to raise capital needed to join co-operative

MultinationalWhat is a multinational?

A company with HQ in one country but with bases, manufacturing or assembly plants in others.

A multinational operates in more than one country. It will normally have a headquarters based in one country known as the ‘home country’.

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Multinationals

Why become a multinational?

Companies may become multinationals to:

increase market share secure cheaper premises and labour avoid tax or trade barriers take advantage of government grants.

Economies of Scale Legislation (relaxed) Taxation or Grant incentives Increased sales/less chance of takeover Lower wage rates Higher skilled workforce Can operate competitively (locally) Save on costs of transportation Avoiding Trade Barriers

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Multinationals: Benefits

Legislation may be too restrictive Cultural difficulties Lack of technical expertise Poor infrastructure Political Instability Exploitation (e.g. low wages) Forcing local businesses out

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Multinationals: Costs

Governments sold these companies because:◦ Huge amounts of income for the Treasury◦ Some public corporations were poorly managed

and not profitable◦ Wanted to increase share ownership and make

public interested in the success of companies/the economy

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Privatisation

However: Public corporations were often sold off too

cheaply Privatisation has not always led to greater

competition

Examples are refuse collection and school meals

Firms are invited to submit bids (competitive tendering) to provide these services

Cost effective? Private Sector organisations have an incentive to keep costs low

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Contracting Out

Third Sector

Non-profit making organisations such as charities and voluntary organisations are set up to support specific causes

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Third Sector

Charities • Oxfam, Cancer Research• Owned and controlled by a board of trustees• They will fundraise to raise finance (TV appeals,

collections, selling products)

Voluntary Organisations

• Youth Clubs, Sports Clubs• Provide a service without the profit making

motive• Raise funds through donations, memberships,

fundraising events

◦ www.socialenterprisescotland.org.uk◦ http://Se100.net/index

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Third SectorSocial Enterprises

• Trade in all markets selling goods/services• They have a social/environmental aim rather

than profit making• Run like a business• All of the profits must be invested in to

meeting their social aim.• Less regulated by Govt than charities

Example • Wooden Spoon Catering – provide job and education opportunities for women in vulnerable positions

Charity An organisation formed to raise money

for underprivileged people. Trustees. Charities raise money through shops,

donations and lottery money. Surplus after costs goes to the ‘needy’. Board of managers.

CharityPositives If charity has

status of charitable trust it doesn’t pay tax 

Looks after less privileged and the environment

Negatives Less money may

be donated due to introduction of the National Lottery

Relies on voluntary workers, who are usually not paid for work

TASK TIME

Answer a question

Explain three reasons why an organisation would become a private limited company.(3 marks) 2009

You have 3 marks to achieve, the command word is explain – remember this means a good expansion for each mark.

You have 6 minutes.

Peer marking

You are going to swap answers.

Has your partner answered well? Does the answer make sense? Is it worth a mark?

Solution Owners of a private limited company (Ltd)

have limited liability to others, which reduces the risk of personal loss.

A private limited company is a larger organisation and this allows the business to attract finance more easily.

Control of a private limited company is still not lost to complete outsiders, so owners can still make decisions and decide on the direction of the business.

Experience and skills can be gained from shareholders, and can be used to improve the performance of the business.

Introduction – Reasons why an organisation would become a private limited company (LTD) are as follows: Owners of a private limited company (Ltd)

have limited liability to others, which reduces the risk of personal loss.

A private limited company is a larger organisation and this allows the business to attract finance more easily.

Control of a private limited company is still not lost to complete outsiders, so owners can still make decisions and decide on the direction of the business.

Experience and skills can be gained from shareholders, and can be used to improve the performance of the business.

Expansion point

Public Sector

Public sector organisations Businesses set up by an Act of

Parliament. Government provides capital through

the Treasury. Government appoints chairman and

board. May be natural monopolies. May be unattractive to private sector

due to enormous capital investment.

Public CorporationsBBC and Royal Mail (prior to selling on stock market), Bank of England

Local Authority ServicesEducation, Housing, Police, Social Services

Central Government DepartmentsTreasury, Defence, Health, Employment, Social Services, Environment, Transport

Public SectorOrganisations

Public corporationsReasons for being set-up: to avoid wasteful duplication and

confusion to set up and run important non-

profitable services to prevent exploitation of consumers to protect jobs and key industries.

Privatisation Is ‘the selling off of public corporations

to the private sector’.

British Gas, British Telecom and British Steel are examples of nationalised industries that were sold off under the Conservative government of Margaret Thatcher (Prime Minister 1979–1990).

Why privatise?

Makes industries more competitive and efficient.

Privatisation raises huge monies for government.

The public are more willing to invest on the Stock Exchange than before.

Success Criteria:

Introduction to the different types of

BUSINESS OBJECTIVES

Learning Intentions:

By the end of these lessons you should be able to:

• identify

•describe and give examples

•To allocate to specific types of organisations of Business Objectives

Business objectives• Survival• Maximising profits• Growth• Increasing market share/leader• Good reputation/social responsibility• Maximising sales• Satisficing• Providing a service/quality service• Managerial objectives• Customer satisfaction

+Objectives

Objective Description Justification

Survival To continue trading Need to survive or the business would not exist

Maximise Profit To have a higher income than costs

Allows the business to improve/expand

Customer Satisfaction

Make customers happy

Customer loyalty, new customers

Market Leader Biggest business in a market

More customers than competitors

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+Objectives

Objective Description Justification

Social Responsibility

Behaving in an ethical and responsible way (marketing & operations unit)

Improves the organisations reputation

Satisficing Ensuring that your business operates to a satisfactory position

Not always possible to reach perfection (limited resources etc.)

Managerial Objectives

Their own internal objectives e.g. bonuses

Motivational for the manager to do well

Growth Making the organisation increase in size

Increases sales/profits/reputation/economies of scale

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Objectives by business sector

Type of business Aims/objectives

Private sector Survival, profit maximisation, growth, increase returns to shareholders, increase market share, maximising sales, managerial objectives, image and social responsibility

Voluntary sector Help others, maximise cash collections, offer a service to the community

Public sector Help people, improve quality of service, cut costs/efficiency, raise revenue, provide a service,

TASK TIME

Objectives in exams

Explain internal factors that could be taken into account prior to an organisation setting strategic objectives. (4 marks)

A difficult question – what do you think it means?

Meaning

What areas of the business would be looked at by management before they make an important decision about the direction of the business?

Hint – size of the business.

Can you expand and get 4 marks?

Marking…

Size of the organisation would be considered - smaller firms’ strategic objectives will be of a smaller nature than those of multinational companies.

Company policy on, for example social and ethical responsibility, are the company products & activities following this policy?

Consider shareholders’ points of view. Consider whether a private or public

sector organisation. Consider internal financial situation. Consider technological factors.