Topic 3 - Types of Business

Organisations

N5 Business Management

1

Learning Intentions / Success Criteria

Learning

Intentions

Types of

business

organisations

Success Criteria

By end of this topic you will be able to explain their differing

aims, objectives, sources of finance, industrial and economic

sectors they operate in:

• sole trader

• partnerships

• private limited company

• social enterprises

• charities

• public organisations

and

• how enterprising skills and qualities help business

development.

2

Types of Organisations

• Private

- Sole traders

- Partnerships

- Private Limited Companies

• Public

- National government

- Local government

organisations

• Third

- Non-profit making

organisations

- Social enterprises

3

Private Sector

4

Unlimited Liability

• Both sole traders and

partnerships have

unlimited liability.

• This means that if the

business fails then the

owners must pay all the

debts and liabilities –

even to the point that their

personal possessions

(such as houses and cars)

can be sold off.

5

Limited Liability

• This means that if the

business fails then the

shareholders can only

lose the value of their

investment in the

company.

• Warburtons, IKEA and

New Look are examples

of well-known private

limited companies.

6

Sole Traders

• Sole traders are businesses that are owned and

controlled by one individual.

• The sole trader:

- provide the finance and run the business on a

daily basis

- may employ other people, but basically the

business belongs to them

- makes all of their own decisions

- keeps all the profit from the business

- decides when to work

- doesn’t have to answer to anyone.

• Examples of sole traders include corner shops,

hairdressers and painters.

Disadvantages

The sole trader:

• find it harder to raise

finance

• don’t earn any money

if they go on holiday

or are sick

• can get stressed with

no one to help

• have unlimited

liability.

7

Partnerships

• A partnership is a business that is owned by between two

and twenty partners.

• A partnership:

- provide the finance and run the business on a daily basis

- shares responsibilities and workload

- contains the different knowledge and experience from

each of the partners

- has cover when one of them is off on holiday or ill

- has more than one person putting money into the business

- finds it easier and cheaper to borrow money from the

bank than a sole trader.

• Examples of partnerships include accountants, lawyers,

doctors etc.

Disadvantages

A partnership:

• has to share

the profits

• can fall out

ending the

partnership

• has unlimited

liability.

8

Private Limited Companies (Ltd)

• A private limited company is owned by

shareholders.

• The company name is usually followed by

Ltd.

• The share ownership of the company is by

invitation only and the shares are not sold on

the stock exchange.

• Typically, private limited companies are

owned by families and friends and they are

run by a board of directors and managers.

• All the finance for the business come from

the shareholders but shareholders all have

limited liability.

Disadvantages

• The profits have to be

split amongst the

shareholders

• It can be difficult for a

shareholder to sell their

shares if they want to

• The business has to

submit final accounts to

a register

• There are legal

formalities in setting up

the business.

9

Public Sector

10

National Government

• Public sector organisations are owned by the government on behalf of

the taxpayer and aim to provide a service to the general public.

• They are funded by taxes that individuals and businesses have to pay.

• Different types of taxes exist including income tax, road tax and

council tax.

• The UK parliament has overall responsibility for what happens in the

UK.

• It is made up of Members of Parliament (MPs), who are elected by the

public.

• The Scottish Government has delegated responsibility for issues such

as education, health and transport.

• It is run by Members of the Scottish Parliament (MSPs), who are also

elected by the public.

11

Local Government Organisations

• Local government organisations (or local authorities)

get funding from the Scottish government to deliver

specific services in a specific area of Scotland.

• These include running schools, providing leisure

facilities and emptying our bins!

• There are 32 local authorities in Scotland and each

has to report to the Scottish government.

• Each local authority has a council that is made up of

local councillors who have been voted in by people

living in the local area.

12

Third Sector

13

Non-profit Making Organisations

• Non-profit making organisations such as charities and

voluntary organisations are set up to support specific

causes.

• Charities are regulated by the government and the income

they make is put towards a specific cause.

• For example, The RSPCA uses the income they make to

prevent animal cruelty and to promote animal welfare.

• Voluntary organisations such as community football clubs

or youth clubs aim to provide a service to people, but

without a profit-making motive.

14

Social Enterprises

• Social enterprises have a main social or environmental aim rather

than to make profit for owners or shareholders but they are run in a

business-like way.

• People know what social enterprises try to do and who they are

trying to help.

• At least half of the profit that social enterprises make, through

selling goods and services, must be invested into meeting the stated

aim of the social enterprise.

• Unlike some charities, they don’t rely on grants and donations but

some social enterprises do become charities.

• The main difference between a social enterprise and a charity is its

legal structure and the fact that social enterprises are less regulated

by the government.

15

Summary

Type Ownership Control Finance

Sole Traders One owner Owner makes all the

decisions

• Invest own money

• Bank loan

• Borrow money from

family or friends

Partnerships 2 – 20 owners Partners make agreed

decisions

• Invest own money

• Bank loan

Private Limited

Company – Ltd

Shareholders Board of directors • Selling shares

• Bank loan

• Government grant

Non-profit Making

Organisations

Members or founders Appointed members • Membership fees

• Donations

• Bank loan

• Government grant

Social Enterprises Shareholders Managing Director • Selling shares

• Bank loan

• Government grant

Local Government Council Councillors/Appointed

Managers

• Council Tax

• National Government

funding

• Charges 16