22 October 2015© easilyinteractive.com Types of business organisation The private sector Business Organisation Bingo Business Organisation worksheet

22 October 2015© easilyinteractive.com Types of business organisation * Business Organisations PrivatePublic UnincorporatedIncorporated Sole trader Partnershi p Private Limited Company Public Limited Company Public Corporations Local and Central Government Co-operative

Business Organisations

22 October 2015© easilyinteractive.com  The diagram below can be accessed at any time in this presentation simply by clicking on the button  Click the button to return to your previous slide Types of business organisation * Business Organisations PrivatePublic UnincorporatedIncorporated Sole trader Partnership Private Limited Company Public Limited Company Public Corporations Local and Central Government Co-operative

22 October 2015© easilyinteractive.com Types of business organisation Business Organisations PrivatePublic UnincorporatedIncorporated Sole trader Partnershi p Private Limited Company Public Limited Company Public Corporations Local and Central Government Co-operative

22 October 2015© easilyinteractive.com Types of business organisation Business Organisations PrivatePublic UnincorporatedIncorporated Sole trader Partnershi p Private Limited Company Public Limited Company Public Corporations Local and Central Government Co-operative

22 October 2015© easilyinteractive.com Business organisations in the private sector  Unincorporated business: No legal difference between the owners and their business  Incorporated business: Has a separate legal identity to its owners *

22 October 2015© easilyinteractive.com Types of business organisation Sole trader

22 October 2015© easilyinteractive.com Types of business organisation Business Organisations PrivatePublic UnincorporatedIncorporated Sole trader Partnershi p Private Limited Company Public Limited Company Public Corporations Local and Central Government Co-operative

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com Types of business organisation Partnership

22 October 2015© easilyinteractive.com Types of business organisation Business Organisations PrivatePublic UnincorporatedIncorporated Sole trader Partnershi p Private Limited Company Public Limited Company Public Corporations Local and Central Government Co-operative

22 October 2015© easilyinteractive.com 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… *

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com Advantages of partnerships  Lack of legal restrictions  Partners are able to specialise more  More finance can be invested than with a sole trader  Partners can share the workload and decision making *

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com Types of business organisation Incorporated businesses

22 October 2015© easilyinteractive.com Types of business organisation Business Organisations PrivatePublic UnincorporatedIncorporated Sole trader Partnershi p Private Limited Company Public Limited Company Public Corporations Local and Central Government Co-operative

22 October 2015© easilyinteractive.com 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) *

22 October 2015© easilyinteractive.com Two important documents:  Articles of Association  Memorandum of Association *

22 October 2015© easilyinteractive.com 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 * Note the terrible way to remember what the Articles contain – ARTICLES nearly spells the word RULES!!!

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com Articles and memo examples  Examples of Articles and Memo *

22 October 2015© easilyinteractive.com Incorporated businesses record keeping  The 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 *

22 October 2015© easilyinteractive.com 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… *

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com 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…

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com Types of business organisation Private limited companies

22 October 2015© easilyinteractive.com Types of business organisation Business Organisations PrivatePublic UnincorporatedIncorporated Sole trader Partnershi p Private Limited Company Public Limited Company Public Corporations Local and Central Government Co-operative

22 October 2015© easilyinteractive.com 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? Private Limited Company Complete this spider diagram for homework, using your textbook to help you *

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com Advantages of private limited companies  Shares 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 *

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com Types of business organisation Public limited companies Image by Jurvetson. Used with permission

22 October 2015© easilyinteractive.com Types of business organisation Business Organisations PrivatePublic UnincorporatedIncorporated Sole trader Partnershi p Private Limited Company Public Limited Company Public Corporations Local and Central Government Co-operative

22 October 2015© easilyinteractive.com 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? Public Limited Company Complete this spider diagram for homework, using your textbook to help you *

22 October 2015© easilyinteractive.com 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 directors  Must have at least £50,000 of share capital *

22 October 2015© easilyinteractive.com Advantages of public limited companies  Huge amounts of money can be raised from the sale of shares to the public  Production costs may be lower as firms may gain economies of scale  Prestige *

22 October 2015© easilyinteractive.com 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…

22 October 2015© easilyinteractive.com 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 size  Communication problems *

22 October 2015© easilyinteractive.com Types of business organisation Summary questions and tasks

22 October 2015© easilyinteractive.com Incorporated businesses summary 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? *

22 October 2015© easilyinteractive.com Ownership of businesses task 1 1. Choose a number between 1 and 6 2. 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 table 6. Which is the most common form of business ownership and why? *

22 October 2015© easilyinteractive.com Incorporated businesses task 2  Look up some businesses in your local area on Yell.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… * Sole traderPartnershipLtdPLC

22 October 2015© easilyinteractive.com Flotation

22 October 2015© easilyinteractive.com 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 *

22 October 2015© easilyinteractive.com Business Organisation Bingo! task  Test your knowledge and understanding of this topic with Bingo! *

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

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

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? Private Limited Company

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? Public Limited Company

22 October 2015© easilyinteractive.com Ownership and control of business Franchising