Business Organisations Flashcards
What are the factors the choice of a business structure depends on
Capital: Amount of money needed.
Tax implications. Eg. corporation tax is lower than self-assessment income tax but must disclose accounts as a LTD or PLC.
Liability: Need protection of limited liability or are you willing to risk (unlimited liability)?
Work : Need help with work or decisions?
Explain a sole trader
A sole trader business is one which is owned and run by one person.
Usually a first business with family involvement or for someone who wants complete control
Usually a small independent business e.g a newsagents, a hairdresser / barber
Explain the formation of a sole trader
Started immediately if operated under person’s own name
If a different name is used, that name must be registered with CRO (Company Registrations Office)
Must apply for any licences required by law
Must register with Revenue for any taxes which apply to it e.g. VAT
Explain the advantages of sole traders
Easily setup & few regulations - no government permission needed. just register with CRO for different name and revenue
Owner makes all decisions - No time wasted. Respond to market changes quick
Owner gets all profits - Great motivation to work hard. Entrepreneur directly rewarded
Confidential type - financial accounts not published. No access to secrets
Explain the disadvantages of sole traders
Unlimited liability - owner takes all risk sole trader personally responsible for debts
Difficulty raising capital - difficult to get loan with chance of bankruptcy. Borrow from family/friends/bank
Lack of expertise - rely on one person.
Stressful - No help
Not separate legal entity - sole trader is personally sued for legal issues
No continuity of existence
Explain unlimited liability
Business goes bankrupt owing a lot of money the owner themselves is responsible for paying back all the businesses loans
Is selling off the business debts are still owed owner can lose personal assets like their house
What is a partnership
A partnership is a business owned and run by between 2 and 20 people in order to make a profit
Combine their resources and talents
Ex: Accountancy firms KPMG, Solicitors
Explain a deed of partnership
A contract drawn up before the business is set up sets out issues like profit sharing, salaries, what happens if business closes, duties
Explain the formation of a partnership
Started immediately if partners operate under own names
If using a different name, that name must be registered with CRO
Recommended to make a written partnership agreement called a Deed of Partnership
Explain advantages of partnership
Easy & inexpensive to form and few regulations - register with revenue and CRO if different names
Risks are shared - Not all on one
Confidential type - financial account not published
Different expertise - more skills, easier to run business. Work is shared
More Capital - can raise money quicker, all contribute capital
Explain disadvantages of partnership
Unlimited liability - partners jointly and severally liable for debts. if n=one partner cannot pay others must
Disagreements can arise
Decision making slower - more opinions, business is less flexible,miss opportunities
Profits must be shared- in agreed profit sharing ratio. Must reflect work done
Not separate legal entity - partners are personally sued in legal issues
No continuity of existence
Explain what a private limited company is with example
A business which may have up to 1 – 149 shareholders who operate the business with the benefit of having limited liability so if company fails they only lose the money invested in it
Letters LTD must follow the name of the company
Shares not sold to the public
Separate legal existence to its owners so can sue and be sued
Example: Eason & Son LTD
Explain the formation of a private limited company
Prepare all necessary documents - Constitution and Form A1
Submit documents with fee to Companies Registration Office (CRO)
CRO checks documents & then issues Certificate of Incorporation
Hold Statutory Meeting (1st meeting)
Start trading as a separate legal entity from shareholders
Explain the advantages of a private limited company as a business organisation
Limited liability- if company goes bankrupt shareholders are not personally liable. they can only lose capital invested
Easy to raise capital- more people, can grow and set up quicker
Workload can be shared- ran by directors
Increased skills and expertise- better decisions than solitary person. direcotrs
Lower tax on profits (12.5% Corporation Tax)- profits are left then for business expansion
Explain the disadvantages of a private limited company
Complicated and lengthy to set up - Apply for permission off CRO, must pay for service. cannot trader without cert of incorporation
Accounts must be published - P&L and balance sheet. not confidential
More legal requirements- send annual return to CRO. Audit of accounts. Costs alot
Profits shared - in ratio of how much invested not how much effort is put in
Explain Constitution as a document to form a private limited company
Sets out the rules under which the company proposes to regulate its affairs. Its available for public inspection
Includes: Name of company with LTD
Statement saying shareholder have limited liability
Details of authorised share capital
List of shareholders info and signatures
What is a form A1 as a document to form a private limited company
Founders fill this in and it includes:
Company’s name, registered office and email
Details of secretary and directors
Signature of secretary and directors
Details of founding shareholders and their shares
Declaration that companies act has been complied with
Activity company is being set up to trade in
What is a certificate of inforporation
An official licence to begin trading as a private limited company
Explain what a public limited company is with example
Set up by at least 7 shareholders and run by directors who are voted in by shareholders.
No restrictions on the number of shareholders in a PLC
Shareholders have limited liability
Shares are traded on the stock market
Members of the public can buy shares
Examples: Glanbia PLC, Ryanair PLC
Explain the advantages of a Public limited company
Limited Liability - if company goes bankrupt shareholders are not personally liable. they can only lose capital invested Easy to raise capital - sell to public and have good credit rating so can get loans Lower tax (Corporation Tax 12.5%)- more after tax profit for dividends/expansion Media interest - free publicity, constantly written about. Recruit great employees who want to work for high profile business
Explain the disadvantages of a public limited company
Strict rules and guidelines- stricter to protect public. Lengthier and costlier set up. cannot trade without cert of incorporation and cert of trading from CRO
Accounts published - Not confidential
Expensive to sell shares to public-brochures to be designed/ printed with history of business so far. lawyers, stock brokers hired to handle sale of shares
At risk of hostile takeover - shares freely bought. Can be targeted if enough shareholders sell company is taken over ex: Cadbury were taken over by Kraft
Name people involved in running a company
Shareholders Board of directors Managing director Chairperson Company secretary Auditor
Explain the role of shareholders in a company
Owners of a company Invest money for a share of the company Receive a dividend each year (share of the company profits) Can vote at the AGM, 1 share 1 vote Vote in the Board of Directors
Explain the role of the board of directors in a company
Voted in by shareholders Make the major decisions, ensure success Set goals and strategies of the business Must report back to shareholders Set the dividend to be paid out at the end of the year
Explain the role of managing director/CEO in a company
Runs the company on a day-to-day basis
Leader of the business and sets out the vision and direction of the company
Hires senior managers
Is in overall charge of the business and is answerable to the Board of Directors
Ex: Michael O Leary of Ryanair PLc
Explain the role of chairperson in a company
A direcotr Elected by Board of Directors
In charge of running the company’s meetings
Acts as a figurehead leader for company
Explain the role of company secretary in a company
Responsible for the administration of the company e.g keeping shareholder records, sending out notice of company meetings, taking the minutes of a meeting, sending companies annual return to the CRO
Explain the role of auditor in a company
An outside independent accountant that checks over company accounts to ensure they are accurate and correct.
Ensures company has kept proper accounting records and must write a report stating whether the accounts are complete or accurate
Explain what a co op is with an example
A business set up by a group of people, who come together and establish an enterprise with the aim of helping one another
Owned and controlled by members for benefit of members
Must be at least 7 owners in the co-op
Run by Committee of Management voted in by owners
Has limited liability
Ex: credit union
Explain the formation of a co operative
Must apply to Registrar of Friendly Societies
Must be issued a certificate of registration
Explain with example what a producer co operative is
A group of producers (e.g farmers) come together and set up a business e.g Kerry Co-Op
Explain with example what a worker co operative is
A Co-Op that is owned and controlled by those who work in it ex: greencaps was a co-op set up by people from Ballymun offering a left luggage and luggage porter service Dublin Airport
Explain with example what a credit union is
Similar to a bank
Made up of a group of people who save together and lend to each other at a reasonable rate
Explain the advantages of a co-op
Limited Liability- if co-op goes bankrupt they will only lose capital invested
Easy to raise large amounts of capital - each owner contributes some
One member, one vote – a democratic type of business - each member equal say
Explain the disadvantages of a co-op
Can be complicated to set up - Must apply for permission from register of friendly societies. each year must send annual report to the registrar
Accounts must be published - not confidential
Difficult to raise capital - each member has equal say so less incentive to contribute more capital
Explain a state-owned enterprises with an example
These are businesses owned by the Irish government on behalf of the people of Ireland.
Run by professional managers
‘Sate-sponsored’ bodies or ‘semi-state’ bodies
Ex: Iarnród Éireann (Transport), RTÉ (broadcasting)
Explain the advantages of state owned enterprises
Create employment - thousands of jobs. reduced unemployment. better standard of living for people with more wages
Provide essential services - to all in all parts of ireland. private entrepreneurs would not service smaller parts
Development of the Irish economy - IDA Ireland attracts foreign companies like Dell/Intel creating jobs and business pay corporation tax
Dividend to government- if make a profit. desperately need dividends to run country
Explain the disadvantages of state owned enterprises
Do not make profit - many make loss. government has to give subsidies to keep them going
Inefficient with money - not judged on profit. no incentive to keep costs to minimum. wastes taxpayers money
Political Alliances- directors appointed because of support for particular party rather than business expertise. Also government can interfere with business
High levels of debt - have large loans as government wont or cant give them money they need
Explain privatisation
This is when the government sells a state-owned enterprise to private individuals or companies.
Shares in the company can be offered to the general public
Shares can be sold to one business
Examples: Eircom – now known as Eir ; Aer Lingus – sold to IAG
Explain the advantages of privatisation
Quick cash - received cash from sale. used to pay national debt and improve economy
Reduces political control and interference - not made by politicians. Made by business managers with goal of profit
Raises finance - raises finance for expansion. no replying on government unable to invest. can sell shares
Opportunity for investment- Irish people an opportunity to invest money and make decent return
Explain disadvantages of privatization
Higher prices for consumers- poorer service, redundancies and owners want to make it profitable
Potential job losses
Decisions made for benefit of the company - not strategic interests of Ireland
Loss of annual dividend - instead of using to benefit Irish people profit will fall into hand of select investors
Only profitable state owned companies can be privatised government let subsidising all the loss making companies
Explain a franchise
A business arrangement where one person sells the right to use their name, business idea or business to another person and allows them to set up an exact replica of that business as if it were their own for a one off fee and an annual share of the profits.
Franchisor trains franchisees in all aspects of running the business and lays down strict rules to follow
Ex: Super macs expanded over Ireland through franchising
Explain the advantages of a franchise
Reduced Risk- already successful. guaranteed sales with well known name
Economies of Scale - head office buys stock gets good discount. products sold cheaply,competitive advantage
Training and Ongoing Support - guidelines in all aspects. ongoing support in running of business an marketing
Advertising- benefits from national advertising ex: dominos sponsored X factor
Explain disadvanatges of a franchise
Cost - must pay initial fee and a share of profits each year after
Restrictions and Conditions- conditions on running of business. little room for individual flair and freedom in the business
Damage to image - actions of franchisees mistakes make entire brand have bad image. business may suffer through no fault of the entrepreneur
Explain an alliance
An Alliance is when two separate and independent businesses make a deal to co-operate with each other on a particular business project
Pool their resources to make success of project
No change in ownership
Ex: Swatch and Mercedes-Benz who worked together to make the SMART car
Explain the advantages of an alliance
Cost effective expansion - Split the costs, business share equipment and other assets with each other
More successful expansion- brainstorming. shared knowledge and expertise
ex: engineers and designers from both companies to share ideas to produce best car possible
New markets- can open new markets for both. Attracts new customers increasing profits ex: tesco and bord gáis
Explain the disadvantages of an alliance
Disagreements- one feels not getting as much out of it as other. Smaller businesses may feel identity is hidden by higher profile
Lose customers- Unhappy. May feel they have a restricted choice or unhappy with choice offered. Unwilling to buy from them
Explain a transnational /multinational companies
A business with a head office in one country but branches in a number of other countries
Branches carry out different jobs
Ex: Zara, Dell
Give advantages of transnational companies
Employment
New technologies, new products and new management skills
Competition
Corporation tax
Buy raw materials and supplies from Irish businesses
Give disadvantages of transnational companies
No loyalty
Profits are returned to home countries
Pressure the government
Decisions are taken by head office
Explain employment as an advantage of transnational companies
MNCs employ over 200000 people in Irish branches
Reduces unemployment
Wages mean employees get higher standard of living and increased spending in economy
Ex: Dell and Intel created thousands of well-paid quality jobs for people in their factories
Explain new technologies, new products, new management skills as an advantage of transnational companies
They train their irish workers in all these new skills
Increasing skill set of labour force and helps to make our economy more modern and technologically advanced
Ex: dell intel, facebook brought latest computer technology helping ireland develop into advanced knowledge based economy
Explain brings competition into the Irish market as an advantage of transnational companies
Better quality and lower prices to compete with indigenous firms.
Consumers have more choice lower prices and better quality
ex: lidl and aldi increased competition in the Irish grocery markets
Explain tax to government as an advantage of transnational companies
Corporation tax on profit and VAT on products sold here
they also pay PAYE, PRSI with employees wages
Amount of tax revenue for government to use improving the irish economy
Explain buying raw materials and supplies in Ireland as an advantage of transnational companies
Helps Businesses to increase their sale and profits
Positive spin off effect on indigenous businesses
Tesco, lidl, aldi buy sector of the irish economy to flourish
Explain no loyalty as a disadvanatges of transnational companies
Have taken low grants and taxes and then left ireland for lower wage economies.
Very little notice, unemployment
Ex: Fruit of the loom a US transnational closed down its factory in Donegal to move to Morocco where wages are cheaper
Explain Profits are returned to home countries as a disadvanatge of transnational companies
Repatriate profits.
Sent home
Doesn’t necessarily benefit the Irish economy. Money made in the country goes out.
Explain Pressure the government as a disadvanatge of transnational companies
MNCs are very influential and can put pressure on government.
If laws are introduced they dont like they could threaten to pull out of Ireland
Influence over Irish government policy
Explain Decisions are taken by head office as a disadvantage of transnational companies
May not take irish interests into account
In the past US congress found Microsoft used its irish subsidaries to reduce its US tax bill
Explain an indigenous firm with exmaples
These firms are businesses set up, owned and managed by Irish people
Main place of business is Ireland, make products and sell here but may also export
‘Home Grown Businesses’
Ex: Supermacs, Lily O’Briens, Pat The Baker
Explain the advantages of indigenous firms
Employment- labour intensive, use more workers than machines. Many jobs, lower unemployment, richer government
Loyalty- set up here. tend not to leave if economy goes through bad patch or to reduce costs
Enterprising Culture- encourage, inspiring other irish. More businesses in the economy and economic growth
Profits stay in Ireland- reinvest profit to expand business or goes into banks loaned out to help other irish businesses
Give five main changes taking place in business ownership
Co-operatives becoming PLCs Privatisation of state-owned enterprises Increasing popularity of franchises High tech transnational companies Nationalisation
Why do businesses change their organisational structure over time?
To Raise Capital
To Lower Risk Faced by the Owners
To Increase Sales or Profits
To Acquire Skills
Explain co-operatives becoming public limited companies as a changing trend in ownership and structure of business
Changed organisational structure ex: Avonmore co-op and waterford co-op who merged to form glanbia plc
Explain privatisation of state-owned enterprises as a changing trend in ownership and structure of business
Irish government has sold more and more of its owned companies in recent years. ex: 2014 privatized Bord Gáis Energy
Explain increasing popularity of franchises in Ireland as a changing trend in ownership and structure of business
Large increase
Irish people wishing to set up a business have taken to franchising as there is a lower risk of this type of business failing
Explain high-tech transnational companies in Ireland as a changing trend in ownership and structure of business
succeeded in attracting many high-tech computer transnationals to set up operations here ex: facebook HQ in Dublin. Attracted by low corporation tax, highly educated graduates, english language
Creates thousands of well paid jobs
Explain nationalisation as a changing trend in ownership and structure of business
Opposite to privatisation
Government taking ownership of a private business
Ex: banking crisis and economic downturn government was forced to give banks billions of euro to help them survive and they were given shares in return
Explain to raise capital as a reason businesses change their organisational structure
more people that can invest and better credit ratings enjoyed by some businesses make hem attractive choice when money is needed to fund business
Ex: Kerry co-op became a PLC so it could sell shares on stock exchange to finance expansion
Explain to lower risk faced by the owners as a reason businesses change their organisational structure
certain businesses give advanatge of limited liability
If business goes bankrupt private assets are safe only capital invested into business would be lost
ex: sole trader- private limited company
Less danger
Explain to increase sales and profits as a reason businesses change their organisational structure
If business forms an alliance can give it ability to sell more products ex: swatch and mercedes benz
Business changing structure to a plc will enjoy increased publicity
Explain to acquire skills as a reason businesses change their organisational structure
Sole trader may enter partnership with others who have the skills she needs to expand and improve her business
