Business forms

1
Business forms

• Types of Organisations
• Profit non-profit and non-governmental
• Sole Trader/Proprietors
• Partnerships
• Companies/Corporations
• Charities
• Cooperatives
• Franchises
• Private Sector and Public Sector

2
Learning Outcome

• Analyse local organisations of different types
  and identify their main features.
• Explain the advantages and disadvantages of each
  type of organisation identified.
• Relate each type of ownership to the degree of
  control.
• Distinguish between organisations in the Private
  and Public Sectors.

3
Context

• If you walk down any high street, you will notice
  that many of the shops display their names for
  all to see. It may be Robinson the butcher,
  Brown, Macy and Brown solicitors, as well as
  known chain stores such as Marks and Spencer plc
  or Hodson's Limited. All are businesses, but each
  with a different status in terms of how is
  operated, who the owner is and how any profit is
  shared.

4
The Private and Public Sectors of the Economy

• The Private Sector comprises businesses owned and
  controlled by individuals or groups of
  individuals. In every country, most business
  activity is in the private sector.
• The Public Sector comprises Organisations
  accountable to and controlled by central or local
  government. These usually include
• Health and education services
• Defense
• Law and order
• Some strategic industries.
  
  

THE ECONOMY
Private Sector
Public Sector
5
The Private Sector Legal Structure
Private Sector Businesses
Cooperatives
Sole Trader
Limited Companies
Partnership
Public LTD
Private LTD
6
Limited Liability What does it mean?

• It all comes down to the responsibility for the
  debts of the business
• Owners can be held responsible for all the debts
  of the firm
• The owners of the business can only be held
  responsible up to the value of their investment
  in the business

7
The Sole Trader/Proprietor

• This is the most common form of business
  organisation. One person provides the finances
  and in return, has full control of the business
  and is able to keep all the profits.

8
The Sole Trader/Proprietor

• Advantages
• Easy to set up-no legal formalities.
• Owner has complete control not answerable to
  anybody else.
• Owner keeps all profits.
• Able to choose times and patterns of working.
• Able to establish close personal relationships
  with staff (if any are employed) and customers.
• The business can be based on the interest and
  skills of the owner rather than working as an
  employee for a larger business.

• Disadvantages
• Unlimited liability all of the owners a assets
  are potentially at risk.
• Often faces intense competition from bigger
  firms, for example, food retailing.
• Owner is unable to specialise in areas of the
  business that are most interesting it is
  responsible for all aspects of management.
• Difficult to raise additional capital.
• Long hours often necessary to make business pay.
• Lack of continuity- as the business does not have
  separate legal status, when the owner dies, the
  business ends too.

9
Partnership

• Partnerships are agreements between two or more
  people carry on a business together, usually with
  a view of making a profit.
• The Deed Of partnership establishes the rights
  and privileges of the partners. This document
  includes issues such as voting rights,
  distribution of profits, The management role of
  each partner and who has the authority to sign
  contracts.

10
Partnership

• Advantages
• Partners may specialise in different areas of
  business management.
• Shared decision making.
• Additional capital injected by each partner.
• Business losses shared between the partners.
• Greater privacy and fewer legal formalities that
  corporate Organisations (companies)

• Disadvantages
• Unlimited Liability for all partners.
• Profits are shared.
• There is, as with sole traders, no continuity and
  the partnership will have to be reformed in the
  event of the death of one partner.
• Al partners are bound by the decision of any one
  of them.
• Not possible to raise capital from selling
  shares.
• A sole trader, taking on partners will loose
  independence of decision making.

11
Limited Companies

• Characteristics of Limited Companies
• Limited Liability
• Legal personality
• Continuity
• Capital is divided into shares
• Companies are run by directors
• Question Discuss the characteristics of a
  limited company and how these differ from the
  Sole Trader and Partnership forms of businesses.
• Distinguish between the ownership and control of
  a Limited Company.

12
How Private Limited Companies are Formed
Memorandum of Association Article of Association
Registrar of Companies
Certificate of Incorporation
Trading Begins
13
The Memorandum of Association

• Name of the company
• Name and address of the companys registered
  office
• The objectives of the company and scope of its
  activities
• The liability of members
• The amount of capital to be raised and the number
  of shares to be issued
• Note A limited company must have a minimum of
  two members.

14
Article of Association

• The rights of shareholders
• The procedure for appointing directors and scope
  of their powers
• The length of time directors should serve before
  reelection
• The timing and frequency of company meetings
• The arrangement for auditing company accounts

15
The Private Limited Companies Characteristics

• Tend to be relatively small companies.
• Their business name ends in Limited or Ltd.
• Shares can only be transferred privately and all
  shareholders must agree to the transfer.
• Private Limited Companies are often family
  businesses owned by members of the family or
  close friends.
• The directors of these companies tend to be
  shareholders and are involved in the running of
  the business.
• Many manufacturing firms are Private Limited
  Companies rather than Sole Traders or
  Partnerships
• List the names of five (5) Private Limited
  Companies in your community?

16
Private Limited Companies

• Advantages
• Shareholders have limited liability.
• More capital can be raised as there are no limits
  on the number of shareholders.
• Control of companies cannot be lost to outsiders.
• The business will continue even if one of the
  owners dies.

• Disadvantages
• Profits have to be shared out amongst a much
  larger number of members.
• There is a legal procedure to set up the
  business. This takes time and costs money.
• Firms are not allowed to sell shares to the
  public This restricts the amount of capital that
  can be raised.
• Financial information filed with the Registrar
  can be inspected by any member of the public.
  Competitors could use this to their advantage.

17
Formation of Public Limited Companies
Memorandum of Association Article of
Association Statutory Declaration
Registrar of Companies
Certificate of Incorporation
Publish of Prospectus
FLOTATION
18
Public Limited Companies

• A plc cannot begin trading until it has completed
  these tasks and has received at least 25 payment
  for the value of shares.
• It will then receive a Trading Certificate and
  can begin operating.
• The shares will be quoted on the Stock Exchange
  or the Alternative Investment Market (AIM).
• The Stock Exchange is a market where second hand
  shares are bought and sold. A full Stock Exchange
  listing means that the company must comply with
  the rules and regulations laid down by the Stock
  Exchange.
• The Alternative Investment Market (AIM) is
  designed for companies which want to avoid some
  of the high costs of a full listing.

19
Public Limited Companies

• Disadvantages
• Setting up costs can be very expensive.
• Since anyone can buy shares, its possible for an
  outside interest to take control of the company.
• All company accounts can be inspected by member
  of the public.
• Because of their size they cannot deal with
  customers at a personal level.
• The way they operate is controlled by various
  company acts which aims to protect shareholders.
• There is divorce of ownership and control which
  might lead to the interest of owners being
  ignored to some extent.
• Plcs inflexible due to their size.

• Advantages
• Huge amounts of money can be raised from the sale
  of shares to the public.
• Production costs may be lower as firms gain
  economies scale.
• Because of their size, plc can often dominate
  the market.
• It becomes easier to raise finance as financial
  institutions are more willing l to lend to plcs.

Questions What are the limitations of being a
limited company in a highly competitive market?
20
Cooperatives

• This is a common form of business organisation in
  some countries, especially in agriculture and
  retailing.
• Features
• All members can contribute to the running of the
  business, sharing the work load, responsibilities
  and decision making.
• All members have one vote at important meetings.
• Profits are shared equally among members.

21
Cooperatives

• Advantages
• Buying in bulk.
• Working together to solve problems and make
  decisions.
• Good motivation of all members to work hard as
  they will benefit from shared profits.

• Disadvantages
• Poor management skills unless professionals are
  employed.
• Capital shortages because no sale of shares to
  the non-member general public is allowed.
• Slow decision making if all members are to be
  consulted

22
Franchises

• This is a contract between two firms. The
  contract allows one of them, the franchisee, to
  use the name, logo and marketing methods of the
  other, the franchiser.
• The franchisee can separately, then decide which
  form of legal structure to adopt.

23
Factors Affecting the choice of Organisations

• Age Many businesses change their legal status as
  they become older.
• The Need for finance A change in legal status
  may be forced on the business.
• Size The size of a business operation is likely
  to affect its legal status.
• Limited Liability Owners can protect their own
  personal financial position if the business is a
  Limited Liability company.
• Degree of control Owners may consider retaining
  control of the business as important.
• The Nature of the Business The type of business
  activity may influence the choice of legal
  status.

24
Public Sector Organisations

• The Public Sector is made up or organisations
  which are owned and controlled by central or
  local government or public corporations. They are
  funded by government and in some cases from their
  own trading surplus or profit.
• Public Sector businesses still have important
  roles to play in certain areas of business
  activity.

25
Which Goods and Services Does the Public Sector
Provide?
Public Goods
Non- Excludable
Non- Rivalry
Consumption of the good/Service by one individual
does not reduce the Amount available for others
It is impossible to exclude others From
benefiting from their use
26
Merit Goods

• These are services which people thing should be
  provided in greater quantities
• Examples of merit goods are
• Education, Health Services, Public Libraries
• If the individual is left to decide whether or
  not to pay for these goods, some may choose not
  to, or may not be able to.