1. Commercial Organizations

2. Learning objectives
Must be able to define sole trader, partnership, company/corporations, cooperatives, microfinance providers, public-private partnerships (PPP), non-governmental organizations, and charities
Should be able to distinguish the above and explain advantages and disadvantages of each
Could be able to choose an appropriate form of organization for a case study

3. Topics of interest to business
Debt
Liability
Profits
Legal restrictions
How do these topics relate to ownership structure?

4. Comparison - three main types
See Moodle file Type of Business.DOCX

5. Vocabulary – legal “must knows”
Liability means a businesses’ debts or obligations
Damage is the harm caused by wrongful conduct
“Eye of the law” means from a legal perspective, i.e. as a judge or court might decide
To sue someone means to ask for payment for damages
Contracts and agreements are documents that “courts” can read, interpret and enforce
Having property rights means you have command over something and can say how it is used
Liability means you are financially responsible for a debt
Damages are the expenses associated with making a mistake
“Eye of the law” means from a legal perspective, i.e. as a judge or court might decide
To sue xxx means to ask for payment for damages
Contracts and agreements are documents that “courts” can read, interpret and enforce
Having property rights means you have command over something and can say how it is used

6. Vocabulary – financial must knows
Debt is a financial obligation, e.g. a bank loan
Asset is an item of enduring value, e.g. a house
Collateral is an asset that supports a debt, e.g. a house you own can “secure” a loan
A bond is someone’s promise to pay you an amount at some future time (a government or company)

7. Task: Starting on page 26
For each of the following define the form of ownership and identify at least three advantages and three disadvantages
Sole trader
Partnership
Companies/corporations
Cooperatives
Microfinance providers
Public-private partnerships (include QUANGOs)
Charities

8. Who’s Who? Sole Traders
Sole-traders are individuals who earn a living by providing goods or services to customers, e.g. a plumber or a home repairman
Get to keep all the profits of their labour
Solely liable for work done and mistakes made
There is no difference between the firm and the individual in the eye of the law
You make a mistake, customer sues, you lose your assets!!
No formal legal ownership structure involved

9. Who’s Who? Partnerships
Two to 20 people who decide to pool their skills and resources to undertake a business, e.g. a dentist and a chiropractor open a health centre
Usually financed from personal funds
“sleeping or silent partner” provides funds but not services
Profits are shared according to a partnership agreement
Partners are responsible for partner’s debts and mistakes
Partnership ends on death of a partner

10. Who’s Who? Companies/Corporations
A company is a legal “person” in the eyes of the law (legally separate from the owners)
Debts of the company are not the responsibility of the owners
The company is liable for damages done, not the owners
Companies are owned by shareholders
Shareholders invest money into the business
receive a share of the profits: dividend payment
Companies continue even when owner dies

11. Companies are incorporated…
This means that there is a legal difference between the owners of the business and the business itself

12. Companies have limited liability…
That is, owners (shareholders) will only lose the amount they invest in the business…they will not lose any of their personal wealth if the company goes into debt.
All companies have limited liability (LTD, LLC, INC, PLC)

13. Additional points…
Setting up a company can be complicated, time consuming and expensive
Companies are run by a Board of Directors (BOD elected by shareholders). The directors are responsive for daily running of business. They are accountable to shareholders.
Every shareholder is entitled to a vote – one vote per share.

14. Limited Companies There are two types of limited companies:
Private Limited Company
Public Limited Company

15. Private Limited Companies
A company that can’t raise share capital (finance) from the public – not allowed
They sell shares to family and friends instead
Shares can’t be traded on the stock exchange
Shares in these companies can’t be traded without agreement from BOD – this is so directors can have all control over company

16. Public Limited Companies
Advertises and sells shares to the general public
Shares are sold and traded on the stock exchange
There is less control (dilution of control) in these companies because there are more owners
These companies are exposed to takeover bids – that is, investors can purchase a majority stake in the business

17. For-profit social enterprises - cooperative
Vary in size
Cooperatives are formed by a large group of individuals who jointly own and control the cooperative through memberships, e.g. a savings and loan company, taxi drivers, or a football team
Aim is to provide a value-added service to members
Cooperatives share their profits among its members only

18. For-profit social enterprises - microfinance
Small
Microfinance enterprises exist to provide funds to people who normally would not qualify for a loan, e.g. Grameen Bank provides loans to rural poor
Aim is to help customers exit poverty and improve life
Profits typically reinvested (social mission)

19. For-profit social enterprise - PPP
Public-private partnerships is when a private organization works with a government agency to serve the pubic, e.g. municipal transportation, parks and expos (Dubai 2020)
Vary in size
Ownership is complex but usually uses private funding and private owners receive profits
Aims vary from economic development to public service – a partnership between government and private funding

20. Non-profit social enterprises - NGOs
Non-governmental organizations fulfill a social mission using private funding and ownership, e.g. OXFAM, and Doctors Without Borders
Vary in size
Ownership is private (but not taxed)
Aim is to accomplish a social mission, e.g. health-related work
Profits earned must be reinvested in the organization (cannot carry profits forward)

21. Non-profit social enterprises - charities
We all know charities – they collect money to support a cause but usually do not sell anything
Charities vary in size. Use business organization techniques to improve operations
Aim is to provide funding for philanthropic organizations (museums, orchestras) or charitable organizations (Old Sailor’s Homes, poor relief)
Profits are not allowed

22. Task: Non-profit presentation