Business Organisations

Firms or

Enterprises

Companies

Public Limited Companies

An exploration of the different types of Business

• Sides 2 & 5 are portions of the schematic diagram given to you in class.

• Slide 2 Public / Private division

• Slide 5 Unincorporated / Incorporated

Slides 3 & 4 are concerned with the PUBLIC sector and the rest with the PRIVATE sector

Types of Business Organisations

BUSINESS ORGANISATIONS

             

 

PRIVATEY OWNED

STATEOWNED

   

THE   THE

PRIVATE SECTOR  

PUBLIC

SECTOR

   

           

THE PUBLIC SECTOR

Owned by the people of the country and run by the government or business people on their behalf

• National Government Departments• Local Government• QUANGO's

Goods or Services provided

• Public Goods which wouldn’t be provided efficiently or in sufficient numbers by the private sector Free riders / Economies of Scale

• Merit Goods products that ‘society’ thinks are good for everyone to have regards of their wealth

Objectives of Public Sector Activity

• Access – – available to all regardless of location or income

• Quality – – high quality services that do not cut corners

• Affordability – – services offered at prices that are cheaper than

private sector or free at the point of use• Equity –

– available to anyone whatever their background, status, income, class, race, religion, etc.

THE PRIVATE SECTOR

   

UNINCORPORATED INCORPORATED

BUSINESSESCOMPA

NIES  

   

           

       

SOLETRADER PARTNERSHIP

PRIVATE LIMITED

PUBLIC LIMITED

COMPANY( Ltd)COMPANY

( PLC)

Objectives of Private Sector Business

Objectives

Profit

Survival

Share Price

Market PowerSales and Sales

Revenue

Efficiency

Quality and Innovation

Image and Reputation

Environment

Social Issues

Investing in a Business• Sole traders must raise all the finance to set up and run the business

themselves• Partners can all contribute to the financing of a firm

Both the above are unincorporated. The owner and the business are the same;- There is no separation of ownership and control

• Private limited companies can sell shares to family, friends and associates• Public limited companies can raise finance by selling shares on the stock

market

Limited Liability – What does it mean

It all comes down to the responsibility for the debts of the business:

A sole trader or partnership can be held responsible for all the debts of the firm

The owners of limited companies can only be held responsible up to the value of their investment in the business

Ownership and Control

• Owners often want to keep control of their businesses

• This leads many small firms to stay as sole traders, even though this limits their funds

• Taking on new partners or shareholders cuts the amount of control that owners have

• If you hold the majority of shares (over 50%) you can keep some control, but not all

Legal Responsibility

• Sole traders have no legal formalities to go through, apart from registering for VAT if their turnover reaches a certain amount

• Partnerships also have no legal formalities but may choose to sign a Deed of Partnership

• Firms have to go through a series of legal formalities to incorporate and so become a company

Profits and Losses

• Any profits made (once tax has been paid) can be kept by the owners of the business

• This makes Sole Trader (and partnership) businesses very attractive

• Dividends are paid to the owners BUT• Ploughed back profits are an excellent source of

capital for investment in future expansion• But whatever funds have been put into the

business will be lost if it goes bust!

Becoming a company

Limited companies must produce two documentsMemorandum of Association and Articles of AssociationIf these are acceptable, the Registrar of Companies awards a Certificate of IncorporationThe company can then all itself a company

If it wants to sell its shares on the stock market it must also be investigated by them

Other Legal Requirements (UK)

• A limited company must also send a copy of its annual accounts to the Registrar

• It must also hold an Annual General Meeting and invite its shareholders to attend

• Becoming a Public Limited Company involves far more time and cost

• It must have a minimum of £50,000 share capital