14. Objectives, Growth and Business OrganisationCreated and presented by Chelsea and Hafiz

Nuttall, Chris J. and Medi Houghton. Cambridge IGCSE Business Studies. Cambridge: Cambridge University Press, 2010. Print.

Basics of OrganisationsAs explained before, businesses fall into a number of

different models.

Choosing an appropriate business type is important to ensure the success of an operation.

A number of factors influence the most suitable model for a business.

Some businesses are unincorporated, such as…Sole TradersIndividuals who rely on their own skills, capital and intelligence to single-handedly run a business.

Key features:• Full owner control of the business.• Unlimited liability for all of the business’s affairs.• Owner takes all required decisions by themselves.• All profit is received by the owner.

PartnershipsA number of self-employed individuals operating an unincorporated business.

Key features:• Generally established with a Deed of Partnership.• Owners fully control the business and its profits.• Unlimited liability for all owners in regards to all

affairs.

Public limited companiesAn incorporated business which freely offers its ownership to the general public.

Key features:• Shares traded freely.• Wide sources of capital.• Vulnerable to takeovers and ownership conflicts.• Owner profits and liabilities are limited and

depend on share percentage.

While some others are incorporated…

Private limited companiesAn incorporated business which limits its ownership to certain parties.

Key features:• Relatively controlled ownership.• Large but limited sources of capital.• Owner profits and liabilities are limited and

depend on share percentage.

FranchisesAn agreement allowing a business to trade under the name of another business.

Key Features:• Good chance of success thanks to brand

recognition.• Brand owner (franchiser) depends on the success

of operators (franchisees).• Less independence for branch operations.• Allow costs to be divided and localised between

different branches.

And some are run in other ways…

CooperativesA business enterprise owned jointly by members, which exists for their mutual benefit.

Key Features:• Capital provided by members.• Management responsibilities shared equally

between members.• Members receive pre-determined shares of the

profits.

Which model to choose, then?

OwnershipA small trader intending to work on their own would

probably set up a sole proprietorship.

Some may also form partnerships or cooperatives, with members handling different areas.

Incorporated businesses mainly have their ownership decided by shares.

Franchisees, however, generally only own the local operations.

ControlSole traders have complete control over their businesses.

Control of partnerships is generally decided in the related Deed of Partnership.

Limited companies often have fluctuating controllers due to the trade of shares.

Franchises vary in the degree of autonomy given to franchisees.

Cooperatives are usually controlled quite equally by all members.

Sources of financeLimited companies generally attract more

sources of finance than sole proprietorships and partnerships.

Public limited companies often have access to almost limitless sources of income, though vulnerable to takeovers.

Cooperatives are funded by their own members.

Franchises may receive central funding or seek for sources independently, while often benefitting from the financial economies of scale

Use of profitsSole traders and partnerships have what amounts to

complete control over their profits.

Incorporated businesses, however, are often required to pay some percentage of corporate tax to the government

Dividends are shared between owners in limited companies according to their percentage of ownership.

SizeBased on what we have learned of business size

measurements, we may identify sole proprietorships and partnerships as generally being smaller.

Limited companies and franchises tend to be comparatively large in size, at times dealing with global markets.

ExamplesSony Corporation, a Japan-based multinational

conglomerate, was initially a small partnership which has transitioned into a public limited company.

At June 2010, Sony was owned by Moxley & Co., Japan Trustee Services Bank, Ltd., and JPMorgan Chase, among many others, giving access to a wide range of financial sources.

This also allows Sony to manage a wide range of divisions throughout the years thanks to its sheer size and financial capabilities.

Baskin-Robbins, meanwhile, is a US-based ice cream franchise developed from a merger between two small companies.

Presently a subsidiary of Dunkin’ Brands, Baskin-Robbins’ franchising operations span 6,000 parlours in over 35 different countries across the globe.

The franchise’s wide range allows for great amounts of income, with a mean revenue of $290,554 per store in 2002.

GrowthApart from organisation, growth plays a substantial role

in a business’s actions.

Businesses are required to decide an ideal method of growth to maximise their performance and achieve their objectives.

Internal growth• As a business progresses through time, it gradually expands in size and widen the scale of

its operations.• Internal growth completely depends on a business’s own successes and efforts.• This manner of growth may take an extended amount of time and is prone to fluctuations

within the marker.• However, the original owners may retain their degree of control over the business and

eventually secure a relatively stable expansion.

External growth• Expanding businesses through merger or acquisition deals with other businesses.• Businesses may expand their operations rapidly while sharing costs with their partner.• Mergers and acquisitions are typically regulated by competition laws in order to prevent

monopoly.• External growth also allows the participants to rapidly expand their respective markets and

benefit from economies of scale.

ProblemsAn increased operational scale may require significant

increases in capital and cash holdings.

Merging multiple operations may complicate the effort of reliably supplying the market.

In addition, the merging of vastly different businesses may cause a conflict of management and work culture, presenting further problems.

ExamplesThe acquisition of Chrysler by the Daimler Group in 1998

was looked upon by many as a potent “merger of equals”, setting two automobile giants on a common business path.

However, cultural differences between the two took its toll: the rigid, centralised Daimler management conflicted with the creativity-based Chrysler leadership, which eventually led to operational problems, stalled cooperations and financial losses.

Daimler eventually sold its ownership of Chrysler a decade after the merger to avoid further losses.

Exxon and Mobil were originally local successors of John D. Rockefeller’s Standard Oil after its alleged breach of competition laws and subsequent breakup in 1911.

Both companies went on to run gas station chains and brands of oil products, and reached great successes throughout the decade.

Their 1998 merger was the largest in the US corporate history at US$73.7 billion dollars.

ExxonMobil is currently the world’s largest private oil company, and made an all-time record in quarterly income with the $10 billion they earned in Q3 2005.