1. Types of business organisations
Red vs. Blue?

2. Outcomes
Analyse local organisations of different types and identify their main features.
Explain the advantages and disadvantages of each type of organisation identified.
Relate each type of ownership to the degree of control.
Distinguish between organisations in the Private and Public Sectors.

3. The Private and Public Sectors of the Economy
The Private Sector comprises businesses owned and controlled by individuals or groups of individuals. In every country, most business activity is in the private sector.
The Public Sector comprises Organisations accountable to and controlled by central or local government. These usually include:
Health and education services
Defense
Law and order
Some strategic industries.
THE ECONOMY
Private Sector
Public Sector

4. Business Activity Private Sector:
Business activity owned financed and controlled by private individuals
Sole Traders
Partnerships
Private Limited Companies
Public Limited Companies (PLCs)
Co-operatives
Franchises
Charities

5. Objectives of Private Sector Business
Satisficing
Profit
Survival
Environment
Image and
Reputation
Share Price
Objectives
Social Issues
Quality and
Innovation
Market Power
Efficiency
Sales and Sales
Revenue

6. The Private Sector Legal Structure
Businesses
Cooperatives
Sole
Trader
Limited
Companies
Partnership
Public
LTD
Private
LTD

7. The Sole Trader/Proprietor
This is the most common form of business organisation. One person provides the finances and in return, has full control of the business and is able to keep all the profits.
Advantages
Easy to set up-no legal formalities.
Owner has complete control –not answerable to anybody else.
Owner keeps all profits.
Able to choose times and patterns of working.
Able to establish close personal relationships with staff (if any are employed) and customers.
The business can be based on the interest and skills of the owner – rather than working as an employee for a larger business.
Disadvantages
Unlimited liability – all of the owner’s a assets are potentially at risk.
Often faces intense competition from bigger firms, for example, food retailing.
Owner is unable to specialise in areas of the business that are most interesting – it is responsible for all aspects of management.
Difficult to raise additional capital.
Long hours often necessary to make business pay.
Lack of continuity- as the business does not have separate legal status, when the owner dies, the business ends too.

8. Partnership
Partnerships are agreements between two or more people carry on a business together, usually with a view of making a profit.
The Deed Of partnership establishes the rights and privileges of the partners. This document includes issues such as voting rights, distribution of profits, The management role of each partner and who has the authority to sign contracts.

9. Partnership Disadvantages Advantages
Unlimited Liability for all partners.
Profits are shared.
There is, as with sole traders, no continuity and the partnership will have to be reformed in the event of the death of one partner.
Al partners are bound by the decision of any one of them.
Not possible to raise capital from selling shares.
A sole trader, taking on partners will loose independence of decision making.
Advantages
Partners may specialise in different areas of business management.
Shared decision making.
Additional capital injected by each partner.
Business losses shared between the partners.
Greater privacy and fewer legal formalities that corporate Organisations (companies)

10. Characteristics of Limited Companies
Limited Liability
Legal personality
Continuity
Capital is divided into shares
Companies are run by directors

11. How Private Limited Companies are Formed
Memorandum of Association + Article of Association
Registrar of Companies
Certificate of Incorporation
Trading Begins

12. The Memorandum of Association
Name of the company
Name and address of the company’s registered office
The objectives of the company and scope of its activities
The liability of members
The amount of capital to be raised and the number of shares to be issued
Note: A limited company must have a minimum of two members.

13. Article of Association
The rights of shareholders
The procedure for appointing directors and scope of their powers
The length of time directors should serve before reelection
The timing and frequency of company meetings
The arrangement for auditing company accounts

14. The Private Limited Companies Characteristics
Tend to be relatively small companies.
Their business name ends in Limited or Ltd.
Shares can only be transferred privately and all shareholders must agree to the transfer.
Private Limited Companies are often family businesses owned by members of the family or close friends.
The directors of these companies tend to be shareholders and are involved in the running of the business.
Many manufacturing firms are Private Limited Companies rather than Sole Traders or Partnerships

15. Private Limited Companies
Advantages
Shareholders have limited liability.
More capital can be raised as there are no limits on the number of shareholders.
Control of companies cannot be lost to outsiders.
The business will continue even if one of the owners dies.
Disadvantages
Profits have to be shared out amongst a much larger number of members.
There is a legal procedure to set up the business. This takes time and costs money.
Firms are not allowed to sell shares to the public This restricts the amount of capital that can be raised.
Financial information filed with the Registrar can be inspected by any member of the public. Competitors could use this to their advantage.

16. Formation of Public Limited Companies
Memorandum of Association + Article of Association + Statutory Declaration
Registrar of Companies
Certificate of Incorporation
Publish of Prospectus
FLOTATION

17. Public Limited Companies
A plc cannot begin trading until it has completed these tasks and has received at least 25% payment for the value of shares.
It will then receive a Trading Certificate and can begin operating.
The shares will be quoted on the Stock Exchange.
The Stock Exchange is a market where second hand shares are bought and sold. A full Stock Exchange listing means that the company must comply with the rules and regulations laid down by the Stock Exchange.

18. Going Public is Expensive
The company needs lawyers to ensure that the prospectus is ‘legally’ correct.
A large number of publications have to be made available.
The company must use financial institutions to process share application.
The share has to be underwritten. A fee is paid to an underwriter who must buy any unsold shares.
The company will have advertising and administrative expenses.
The company must have a minimum of $50,000 share capital.

19. Public Limited Companies
Disadvantages
Setting up costs can be very expensive.
Since anyone can buy shares, its possible for an outside interest to take control of the company.
All company accounts can be inspected by member of the public.
Because of their size they cannot deal with customers at a personal level.
The way they operate is controlled by various company acts which aims to protect shareholders.
There is divorce of ownership and control which might lead to the interest of owners being ignored to some extent.
Plcs inflexible due to their size.
Advantages
Huge amounts of money can be raised from the sale of shares to the public.
Production costs may be lower as firms gain economies scale.
Because of their size, plc can often dominate the market.
It becomes easier to raise finance as financial institutions are more willing l to lend to plcs.

20. Cooperatives
This is a common form of business organisation in some countries, especially in agriculture and retailing.
Features
All members can contribute to the running of the business, sharing the work load, responsibilities and decision making.
All members have one vote at important meetings.
Profits are shared equally among members.

21. Cooperatives Disadvantages Advantages Buying in bulk.
Working together to solve problems and make decisions.
Good motivation of all members to work hard as they will benefit from shared profits.
Disadvantages
Poor management skills unless professionals are employed.
Capital shortages because no sale of shares to the non-member general public is allowed.
Slow decision making if all members are to be consulted

22. Franchises
This is a contract between two firms. The contract allows one of them, the franchisee, to use the name, logo and marketing methods of the other, the franchiser.
The franchisee can separately, then decide which form of legal structure to adopt.

23. Factors Affecting the choice of Organisations
Age: Many businesses change their legal status as they become older.
The Need for finance: A change in legal status may be forced on the business.
Size: The size of a business operation is likely to affect its legal status.
Limited Liability: Owners can protect their own personal financial position if the business is a Limited Liability company.
Degree of control: Owners may consider retaining control of the business as important.
The Nature of the Business: The type of business activity may influence the choice of legal status.

24. Business Activity Public Sector:
Business Activity owned, financed and controlled by the state through government or local authorities
Government – key departments set policy and monitor implementation
Local Authorities – County Councils, District Councils, Parish Councils
Health Trusts
Public Corporations – BBC

25. Which Goods and Services Does the Public Sector Provide?
Public Goods
Non- Excludable
Non- Rivalry
Consumption of the good/Service
by one individual does not reduce the
Amount available for others
It is impossible to exclude others
From benefiting from their use

26. Merit Goods
These are services which people thing should be provided in greater quantities
Examples of merit goods are:
Education, Health Services, Public Libraries
If the individual is left to decide whether or not to pay for these goods, some may choose not to, or may not be able to.