1.4 types of business organization Flashcards
Sole Trader/Sole Proprietorship
A business organization owned and controlled by one person.
advantages of sole trader
- easy to set up: les legal and capital
- full control of decisions
- own work hours
- receive all the profit
- secretive: dont need to share info
- customer contact
disadvantages of sole trader
- no one to discuss problem w
- unlimited liability/unincooprated
- less finance
- banks wont give loan
- remains small less capital
- no economy of scale
- no continuity
- all work alone
who should set up sole trader
- new business
- don’t need much capital for business
- dealing w public
Partnerships
legal agreement between two or more (usually, up to twenty)people to own, finance and run a business jointly and to share all profits.
partnership agreement
-written and legal agreement betweeen business partners contains: -amount of capital -tasks -profit sharing -how long -absence retirement and shit
advantages of partnership
- more capital=expansion
- shared responsibility
- shared profit= motivation
- new skills and ideas
- easy to set up less legality
disadvantages of a partnership
- -unlimited liablity/unincooprated
- disagreement
- lack of capital
- no continuity
who should run a partnership
- run a business but avoid legalities
- when law only allows partnership
- wel known partners want to run a business
private limited company
business owned by shareholders but can not sell shares to public
advantages of private limited
-shares can be spend to large number= expansion cuz capital
-limited lability/incooprated
-
disadvantage of private limited
- legal matters
- –article of association: rules under which the company will be managed
- –memorandum of association: imp decision of company and director
- shares can not be transferred
- less secret
- can only sell to known people
who is private limited for
- family or partnership where they wanted to expand
- -wanted more capital
- spread risk
public limited company
owned by shareholders but they can sell shares to public and are tradeable
advantages of private limited company
- limited liability/ incorporated
- very large capitals
- no restriction to buying and selling
- company has high status
disadvantages of public limited company
- leagl formalities
- more regulation to protect interest of shareholder
- selling of shares is expensive
- may loose control to shrareholders
- exp to hold agm meetings
annual general meeting
is a legal requirement for all companies. shareholders may attend and vote on who they want to be on the board of director for coming year
Franchises
owner of a business grants a licence to another person or business to use their business idea
advantages of franchising to franchisor
- Rapid, low cost method of business expansion
- Gets and income from franchisee in the form of franchise fees and royalties
- Franchisee will better understand the local tastes and so can advertise and sell appropriately
- Can access ideas and suggestions from franchisee
- Franchisee will run the operations
- all products must be obtained from them
disadvantages of franchising to franchisor
- Profits from the franchise needs to be shared with the franchisee
- Loss of control over running of business
- If one franchise fails, it can affect the reputation of the entire brand
- Franchisee may not be as skilled
- Need to supply raw material/product and provide support and training
advantages of franchising to franchisee
- An established brand and trademark, so chance of business failing is low
- pay for advertising
- Franchisor will give technical and managerial support
- Franchisor will supply the raw materials/products
- fewer decisions to make
- get loans
- training is paid for
disadvantages of franchising to franchisee
- Cost of setting up business
- No full control over business- need to strictly follow franchisor’s standards and rules
- Profits have to be shared with franchisor
- Need to pay franchisor franchise fees and royalties
- Need to advertise and promote the business in the region themselves
Joint Ventures
Joint venture is an agreement between two or more businesses to work together on a project
advantages of joint venture
-Reduces risks
-cuts costs
-different expertise
-The market potential for all the businesses in the joint venture is increased
Market and product knowledge can be shared to the benefit of the businesses
disadvantages of a join venture
-Any mistakes made will reflect on all parties in the joint venture, which may damage their reputations
-disagreement
-The decision-making process may be ineffective due to different business culture or different styles of leadership
shared profit
public cooperation
business in the public sector owned and controlled by the government
appoint a board of director that manages business
aims of public cooperation
- to keep prices low so everybody can afford the service.
- to keep people employed.
- to offer a service to the public everywhere.
advantages of public cooperation
- essential control over imp industry
- natural monopolies
- nationalize to stop from failing
- non profitable imp business
disadvantages of public cooperation
- no share holder for higher profit
- subsides lead to inefficiency
- ne close competition
- can use for political reasons
- low motivation
