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20 April 2023 © easilyinteractive.com 2007-10 1
Types of business organisation
The private sector
Business Organisation Bingo
Business Organisation worksheet
20 April 2023 © easilyinteractive.com 2007-10 5
Types of business organisationBusiness
Organisations
Private Public
Unincorporated
Incorporated
Sole trader
Partnership
Private Limited
Company
Public Limited
Company
PublicCorporations
Local and Central
Government
Co-operative
20 April 2023 © easilyinteractive.com 2007-10 6
Types of business organisationBusiness
Organisations
Private Public
Unincorporated
Incorporated
Sole trader
Partnership
Private Limited
Company
Public Limited
Company
PublicCorporations
Local and Central
Government
Co-operative
20 April 2023 © easilyinteractive.com 2007-10 7
Business organisations in the private sectorUnincorporated business: No legal
difference between the owners and their business
Incorporated business: Has a separate legal identity to its owners
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20 April 2023 © easilyinteractive.com 2007-10 9
Types of business organisationBusiness
Organisations
Private Public
Unincorporated
Incorporated
Sole trader
Partnership
Private Limited
Company
Public Limited
Company
PublicCorporations
Local and Central
Government
Co-operative
20 April 2023 © easilyinteractive.com 2007-10 10
Forms of business organisation
Who controls it?
Is liability limited?
Where might the finance come from?
Who keeps the profits?(or bears the losses)
What are the key disadvantages?
What are the key advantages?
What are its main aims?
Who owns it?
Local examples?Sole trader
Complete this spider diagram for homework, using your textbook to help you
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20 April 2023 © easilyinteractive.com 2007-10 11
Sole traders (sole proprietors)
Most common form of business Owned by just one person but may employ
many people Their strength lies in the direct, personal
interest of the proprietor Found in all sectors of the economy
Primary: E.g. farming and fishing Secondary: E.g. Small manufacturers and builders Tertiary: E.g. Hairdressers, restaurants
Tend to be small businesses
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Advantages of sole traders
Lack of legal restrictions – relatively simple and cheap to set up and run
All profit after tax is kept by the owner The owner is in complete control of decision-
making Can give a personal service to customers May receive government support
E.g. Enterprise Allowance Scheme
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Disadvantages of sole traders
Unlimited liability: The owners are personally responsible for all the debts of the business
Cannot share decision-making Long hours and few holidays - owner cannot
afford to be ill/injured Difficult to raise capital No continuity - Business is wound up on
death of owner
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20 April 2023 © easilyinteractive.com 2007-10 14
Sole traders (sole proprietors)
A common mistake is to think that a sole trader is a ‘one man band’
A sole trader has one owner but may employ many workers
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20 April 2023 © easilyinteractive.com 2007-10 16
Types of business organisationBusiness
Organisations
Private Public
Unincorporated
Incorporated
Sole trader
Partnership
Private Limited
Company
Public Limited
Company
PublicCorporations
Local and Central
Government
Co-operative
20 April 2023 © easilyinteractive.com 2007-10 17
Partnerships
Similar to sole traders but with more than one owner
The joint owners share responsibility for the running of the business
Often found in the professional services E.g. doctors, dentists, accountants and solicitors
Partners often specialise in different aspects of the business
A Deed of Partnership may be drawn up…
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Deed of Partnership
Sets out: How much capital each partner will
contribute How profits (and losses) will be shared
amongst the partners How much control each partner has – votes What happens if any of the partners wants to
withdraw Rules for taking on new partners
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Forms of business organisation
Who controls it?
Is liability limited?
Where might the finance come from?
Who keeps the profits?(or bears the losses)
What are the key disadvantages?
What are the key advantages?
What are its main aims?
Who owns it?
Local examples?Partnership
Complete this spider diagram for homework, using your textbook to help you
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20 April 2023 © easilyinteractive.com 2007-10 20
Advantages of partnerships
Lack of legal restrictionsPartners are able to specialise moreMore finance can be invested than with
a sole traderPartners can share the workload and
decision making
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Disadvantages of partnerships
The individual partners have unlimited liability Partners can be sued on behalf of the business
since partnerships are unincorporated Profits have to be shared amongst more
owners Partners may disagree The size of the partnership is usually limited to
20 partners No continuity – Partnership ends when one
partner dies Any decision made by one partner on behalf of
the business is legally binding on the others
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Limited partnerships
Limited partnership: Some of the partners provide capital but take no part in the running of the business
These sleeping partners have limited liability for the business’s debts
There must always be at least one partner with unlimited liability
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20 April 2023 © easilyinteractive.com 2007-10 23
Types of business organisation
Incorporated businesses
20 April 2023 © easilyinteractive.com 2007-10 24
Types of business organisationBusiness
Organisations
Private Public
Unincorporated
Incorporated
Sole trader
Partnership
Private Limited
Company
Public Limited
Company
PublicCorporations
Local and Central
Government
Co-operative
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Incorporated businesses
Unlike an unincorporated business, a company has ‘separate legal identity’ from its owners
i.e. They are able to do things in their own right. E.g.: sue and be sued employ people
They also have limited liability If they go into debt, the owners only lose what
they put into the business. Less risk Companies pay Corporation Tax on profits
(unincorporated businesses pay income tax)*
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Two important documents:
Articles of AssociationMemorandum of Association
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Articles of Association (Articles):
Contains the rules under which a company is to be managed
E.g. the duties of all directors election of directors the procedure for issuing shares
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Note the terrible way to remember what the Articles contain – ARTICLES nearly spells the word RULES!!!
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Memorandum of Association (Memo): Contains information about the
company and its directors. e.g.
company name address of its registered office company objectives the authorised share capital
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Articles and memoexamplesExamples of Articles and Memo
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Incorporated businessesrecord keepingThe Registrar of Companies maintains
certain records such as the Articles, Memo and annual accounts of all limited companies at Companies House Search for free company information
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Ownership of companies (1)
The capital of a limited company is divided into shares
Each shareholder owns a number of these shares
Shareholders are the joint owners of the company
They can vote at the Annual General Meeting (AGM)
They take a share of the profit (dividends)
continued…*
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Ownership of companies (2)
There is no limit to the number of shareholders
Continuity: If a shareholder dies, their shares are passed onto their heirs
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Control of companies (1)
Limited companies are run by directors who are appointed by the shareholders
The board of directors, headed by the chairperson, is accountable to the shareholders and should run the company as the shareholders wish
Directors may be ‘voted out’ by shareholders at an AGM if the shareholders are unhappy with performance
* continued…
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Control of companies (2)
Company secretary: Company official with responsibility for organising AGMs, dealing with shareholders etc.
Divorce between ownership and control Shareholders are the owners of funds and
managers are the users of funds Divergence of interests may arise
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Types of business organisation
Private limited companies
20 April 2023 © easilyinteractive.com 2007-10 36
Types of business organisationBusiness
Organisations
Private Public
Unincorporated
Incorporated
Sole trader
Partnership
Private Limited
Company
Public Limited
Company
PublicCorporations
Local and Central
Government
Co-operative
20 April 2023 © easilyinteractive.com 2007-10 37
Forms of business organisation
Who controls it?
Is liability limited?
Where might the finance come from?
Who keeps the profits?(or bears the losses)
What are the key disadvantages?
What are the key advantages?
What are its main aims?
Who owns it?
Local examples? PrivateLimited
Company
Complete this spider diagram for homework, using your textbook to help you
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20 April 2023 © easilyinteractive.com 2007-10 38
Private Limited Companies
Business name must end in ‘Limited’ or ‘Ltd’ Usually small – Many private limited
companies are family businesses with shareholders as directors
Could have only one shareholder who is also the only director
Shares can only be transferred privately. Any current shareholders may prevent the transfer
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Advantages of private limited companiesShares can be transferred from one
owner to another without affecting the running of the company
Shares cannot be sold without the agreement of other shareholders so control of the company cannot easily be lost to outsiders
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Disadvantages of private limited companies Setting up the business is time-consuming
and expensive Firms are not allowed to sell shares to the
public. This restricts the amount of capital raised
Financial information filed with the Registrar of Companies is made public
If a shareholder decides to sell their shares it may take time to find another buyer
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20 April 2023 © easilyinteractive.com 2007-10 41
Types of business organisation
Public limited companies
Imag
e by
Jur
vets
on. U
sed
with
per
miss
ion
20 April 2023 © easilyinteractive.com 2007-10 42
Types of business organisationBusiness
Organisations
Private Public
Unincorporated
Incorporated
Sole trader
Partnership
Private Limited
Company
Public Limited
Company
PublicCorporations
Local and Central
Government
Co-operative
20 April 2023 © easilyinteractive.com 2007-10 43
Forms of business organisation
Who controls it?
Is liability limited?
Where might the finance come from?
Who keeps the profits?(or bears the losses)
What are the key disadvantages?
What are the key advantages?
What are its main aims?
Who owns it?
Local examples? PublicLimited
Company
Complete this spider diagram for homework, using your textbook to help you
*
20 April 2023 © easilyinteractive.com 2007-10 44
Public limited companies
Business name must end in ‘Plc’Shares can be bought and sold very
easily by the public on the stock exchange
Must have at least two directorsMust have at least £50,000 of share
capital
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Advantages of public limited companiesHuge amounts of money can be raised
from the sale of shares to the publicProduction costs may be lower as firms
may gain economies of scalePrestige
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Disadvantages of public limited companies (1)
Very expensive to set up Possible for an outside interest to take control
of the company (takeover) The company’s accounts can be inspected by
members of the public – PLCs have to publish more information than private limited companies
Because of their size they are not able to deal with customers at a personal level
* continued…
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Disadvantages of public limited companies (2)Divorce of ownership and control which
can lead to a conflict of interests between shareholders and directors
Can become inflexible due to their sizeCommunication problems
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Types of business organisation
Summary questions and tasks
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Incorporated businessessummary questions
Give 2 advantages of incorporated businesses over unincorporated businesses
Give 2 advantages of a private limited company over a public limited company
Give 2 advantages of a public limited company over a private limited company
What is the minimum share capital that a public limited company must have?*
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Ownership of businessestask 1
1. Choose a number between 1 and 62. Open the telephone book (not the Yellow Pages)
at a random page somewhere in the business section
3. Select a column from 1 – 6 depending on stage 1 above
4. Draw up a frequency table of unincorporated businesses, Ltds, Plcs and public sector businesses
5. Draw a pie chart from your frequency table6. Which is the most common form of business
ownership and why?*
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Incorporated businessestask 2
Look up some businesses in your local area onYell.com or BT.co.uk(alternatively use your local phone book!)
Can you tell if what form of ownership they have? Do businesses in certain industries tend do have the
same form of ownership? Make a list of names using the table below…
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Sole trader Partnership Ltd PLC
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Flotation (not floatation)
A private limited company (Ltd) can ‘go public’, or ‘float’ on the stock exchange provided that it meets the requirements for a plc. i.e. Over £50,000 of share capital Produce a prospectus to sell shares to the public
Why? Raise capital on the stock market Sounds more prestigious
De-listing: The reverse of flotation i.e. from Plc to Ltd Note: This is NOT called privatisation
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Business Organisation Bingo!taskTest your knowledge
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