3.1.2 Different forms of business Flashcards
what is a Mission statement
- A written description of the main corporate aims and purpose
- The purpose of the business includes values, strategy and standards.
- Ethics of the business
- Gives staff shared purpose to improve productivity
- Gives clues about its beliefs such as ethics over profits
What are the different levels of business objectives?
- Mission statements and corporate aims
- Corporate objectives
- Functional objectives
What is a corporate objective
Goals of the business
goals depend on the size of the business
what are functional/departmental objectives?
- Specific to each departments
- More detailed than corporate
- Functional objectives help achieve corporate objectives
What are the different business objectives and what are they?
- Profit objectives
- Growth objectives
- Survival objectives
- Continue trading and not run out of money
- Cashflow objectives
- Improve cash flow to have enough money to cover costs.
What are the non-profit and for-profit business objectives?
- Non-Proft are set up for social and ethical objectives
- Forprofit - focus on normal business objectives but may incorporate Social and ethical objectives as it improves the company’s reputation and image.
What are the social and ethical objectives?
- Social objectives
- benefit society
- Ethical objectives
- how the company operates such as fair trade and environment
Acronyms of Private and public limited companies
LTD PLC
What is a public sector company?
- Run and owned by government
- Aim to provide a service rather than make a profit
- Funded by tax
What is a private sector company
- Owned by private individuals
- Most aim to make a profit except Non profit organisation
Aims
and objectives of a non-profit company?
- To benefit society rather than make a profit
- Money generated is invested back into the business
Different types of Non-profit organisations?
- Charities -
- Social enterprises -
- Mutual Organisation
what are characteristics of a charity
- Make money through donations and business activities
- Money made is used to fund charitable donations
- They have rewarded tax reductions for their charitable status
what are the characteristics of a social enterprise
- They have a social objective
- Trades and makes a profit like a normal business but profits go towards social activities/causes
what are characteristics of a mutual organisation
- They try to offer customers the best value for their money
- No shareholders so profits can be reinvested into the business resulting in reduced prices for the customer.
What is unlimited liability?
- Business and owner are one under the same law
- Business debts become personal debts
- May have to sell off personal assets
- Huge finical risk
what is limited liability
- Owners aren’t personally responsible for the debt
- Shareholders and owners have a separate legal identity from the business
- Shareholders can only lose money they have invested
Advnatages of a soletrader
- Freedom - Own boss has full controll over decions
- Profit - erans all the proft
- Simplicity - less fomr filling and book keeping less complex, ONly has to register with HMRC
- Saving on fees - No legal costs for drwaing up an owenrship agreement
Disadvnatges of a soletrader
- Risk - no one to share responsibilities with
- Time - working long hours
- Expertise - Soletrader may have limited skills
- Finance - responsible for running costs and can only raise money through capital requirements or loans
- Vulnerability - If you get ill no cover
- Unlimited liability
- Likely to remain small
Characteristics of a limited libaility company?
- Privtae limited LTD
- Public limited PLC
- Owned by sharholders and run by direcotrs
- Capital vlaue of company divided by shares - can be brought or sold
- Companies act 2006 - memorandum of association and artile of association must be written up
- Documants sent to the companies house which then issue a certifacte of incorporation, then business needs to do annual reports of finaicnal activites
Advantages of a private limited company LTD
- Limited liability
- No minimum share capital
- Can raise money through ordinary share capital - if other shareholders agree
Disadvantages of private limited company LTD
- Profits shared with shareholders through dividends
- Corporate tax
- Legal requirements
- Less finance secrecy
- Shares not on stock exchange limits investment
Advantages of Public limited companies PLC
- Limited liability
- Can raise large amounts of shares through selling shares on the stock exchange
- Shares are freely transferable
- Easier to raise finances
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Disadvantages of a public limited company
- Need over £50k of share capital to sell on the stock exchange, with 25% available for the public.
- Less control
- Corporate tax
- Profits shared with shareholders
How are limited companies run?
- Small LTD - shareholders are directors
- Large LTD - directors elected by the board by shareholders
- PLC -company controlled by directors, Divorce of ownership and control
What is ordinary share capital?
Shares sold by companies to raise money are called ordinary share capital - usually used for long term investing
What are dividends and how are they split?
The proportion of profits earned by the company and given to shareholders as a return for their investment.
Given by a fixed amount per share so more shares = more dividends
What is the market capitalisation and how is it calculated?
The total value of ordinary shares issued by a company
=Number of issued shares X current share price
Why might some business change their structure
- If they want to raise capital to expand
- Sole trader to LTD to PLC
- If PLC is taken over through a buy out of shareholders, it can become an LTD
Why might some business change their structure?
- If they want to raise capital to expand
- Sole trader to LTD to PLC
- If PLC is taken over through a buy out of shareholders, it can become an LTD
What are the likely missions and objectives of a non-profit?
- Mission - to benefit society
- Objectives - generate enough profit to achieve the mission.
How might the objectives and mission of the public sector differ from the private sector?
- Public sector
- Mission - to benefit society
- Objective - social benefits over costs
- Private sector
- Objectives - Profit maximisation
- May include social benefits for brand image
- Objectives - Profit maximisation
Decision making, objectives and mission for a sole trader and small LTD
- Decision making quick
- Control over objectives and mission
Decision making, mission and objectives for large LTD
- Shareholders might not share the same values causing different objectives and difficult to make decisions
- Orignal owner might loose control causing change to mission and objectives
Decision making, objectives and mission for PLC
- Conflict of interests between directors and shareholders
- Directors want long term gains and profit retainment
- Shareholders want increased dividends
- Directors have to listen to shareholders to gain from investments.
