Chapter 19: Business Organisations

Question 1

What is a sole trader?

Answer 1

Is a business set up, owned and run by an entrepreneur on their own. E.g. Farmer

Question 2

What are the advantages of a sole trader?

Answer 2

Easy to Set Up: Few legal requirements. Register name with Registrar of Business Names.

Keep all profits: All profits go to the sole trader which is motivation to work hard.

No Publication of Accounts: Financial Accounts do not have to be published so trade secrets not shared.

Quick Decision Making: No need to discuss with others so opportunities can be seized

Question 3

What are the disadvantages of sole trader?

Answer 3

Unlimited Liability: If the business goes bankrupt the sole trader is personally responsible for paying back all business loans. May have to sell personal assets e.g. house to cover debt. Therefore huge risk.

Difficult to Raise Capital: Difficult to raise the money needed to set up a business

No continuity of existence: If owner dies business ceases to exist.

Working Long Hours: Working alone can be stressful and requires a lot of effort. Also Sole trader may lack certain expertise.

Question 4

Explain partnership. Give an example.

Answer 4

Set up and owned and managed by 2 to 20 owners called partners. They set up a business together and combine their resources and talents to make a profit. E.g. Accountants KPMG

Question 5

How is a partnership set up?

Answer 5

Deed of Partnership: A contract used in the event of disagreements between partners. Includes:
-How profits shared
-Role expected of each partner
-Salaries of each partner
-Whether partners can take money from the business
-What happens if the business closes down

If a new name register with CRO.

Question 6

What are the advantages of a partnership?

Answer 6

Easy to Set Up: Few legal registration requirements. Must register name with Registrar of Business Names and Revenue for taxes.

More Capital Available: Each partner can contribute capital to the business.

Pool of Skills: Each partner has a different range of skills to bring to the business. This can result in better running of the business.

No Publication of Accounts: Financial Accounts do not have to be published so trade secrets not shared.

Question 7

What are the disadvantages of a partnership?

Answer 7

Unlimited Liability: Partners are jointly responsible for paying back all business loans. May have to sell personal assets e.g. house to cover debt. Therefore huge risk

Slow Decision Making: Decision making is slow as all partners must be consulted. Making the business less responsive.

Profits Shared: Profits must be shared between partners.

Conflict: Disagreement on how the business should be run can impact success.

Question 8

Explain Private Limited Company with an example.

Answer 8

A business owned by between 1 and 99 shareholders. If only one shareholder must have two directors. Separate from owners, company makes contract and can be sued not the shareholders. Not on the stock exchange. E.g. River Island Ltd.

Question 9

What are the advantages of a private limited liability?

Answer 9

Limited Liability: Partners are NOT personally responsible for paying back all business loans. Shareholders do not have to sell personal assets e.g. house to cover debt. Only lose capital invested.

More Capital Available: There are up to 99 shareholders contributing capital to the business

Directors: are involved in running the business. Workload and decision making can be shared based on expertise

Lower Tax: Limited Companies pay a low corporation tax 12.5% on profits

Question 10

What are the disadvantages of a private limited company?

Answer 10

Difficult to Set Up: Permission from Registrar of companies, Certificate of Incorporation and fees.

Publication of Accounts: Must publish financial accounts each year. Competitors may use this information for advantage

Legal Requirements: Every year must complete annual return to companies registration office and have financial accounts audited. This costs the business money.

Profits Shared: Profits must be shared between shareholders according to amount invested

Question 11

Explain the six steps to setting up a private limited company.

Answer 11

Step 1(a) Memorandum of Association sets out the relationship between the company and the general public. Sets out the limits to the company’s powers and is available for public inspection.

Step 1(b): Articles of Association sets out the internal rules and regulations for running the company.

Step 1(c): Form A1 must be completed by the founders.

Step 2: Documents must be sent to CRO for review.

Step 3: CRO examines the documents for a fee and once happy issues the Certificate of Incorporation. (Official licence to begin trading)

Step 4: Statutory Meeting: Private limited company must hold its very first meeting. Each shareholder given share certificate. Business can commence trading.

Question 12

What is included in the memorandum of association (constitution)?

Answer 12

Name of the company (LTD)
Address of company’s registered office
Objectives of the company
Statement that shareholders have limited liability
Authorised Share Capital
Founding Shareholders

Question 13

What is included in articles of association?

Answer 13

Procedure for arranging meetings
Procedure for voting at meetings
Procedure for electing directors
Powers and duties of directors
Authorised Share Capital
How the company will close down

Question 14

What is included in Form A1?

Answer 14

Statement saying company will obey the Companies Act
Details of secretary and directors
Signature of secretary and directors confirming role
Details of amount and type of shares intended to sell

Question 15

Explain public limited company with an example.

Answer 15

A business set up by at least 7 shareholders and run by directors who are voted in by shareholders. There is no limit of number of shareholders. E.g. Ryanair

Question 16

What are the advantages of a Public Limited Company?

Answer 16

Limited Liability: Partners are NOT personally responsible for paying back all business loans. Shareholders do not have to sell personal assets e.g. house to cover debt. Only lose capital invested.

More Capital Available: Company can raise large amount of capital by selling shares on the public stock exchange.

Lower Tax: Limited Companies pay a low corporation tax 12.5% on profits

Media Awareness: Public Limited Companies are referred to in the news and TV. Free publicity.

Question 17

What are the disadvantages of a public limited company?

Answer 17

Difficult to Set Up: Application process is long and costly in order to protect public interest. Must have cert of incorporation and cert of trading.

Publication of Accounts: Must publish financial accounts in detail each year. Competitors may use this information for advantage.

Expensive to sell shares: it costs a lot to advertise your business to sell shares. Pay for prospectus, lawyers, stockbrokers.

Hostile Takeover: can occur as shares can be bought and sold freely on stock exchange. This can happen even if directors don’t want it to.

Question 18

What are shareholders?

Answer 18

-Owners of the company
-Invest money in return for partial ownership
-Receive some share of profit each year called a dividend.
-Each share entitles them to one vote at AGM

Question 19

Explain board of directors.

Answer 19

-Voted in by shareholders to run the company.
-Makes all major decisions of the company.
-Responsible for ensuring business success.
-Report back at AGM

Question 20

Explain CEO

Answer 20

Chief Executive officer (managing director) appointed by board of directors to run the business day to day. Responsible for objectives. Set visions and directions. Hires senior managers and delegates.

Question 21

Explain chairperson.

Answer 21

Elected by Board of Directors to be in charge of company meetings. Figurehead leader of company.

Question 22

Explain company secretary.

Answer 22

Responsible for administration by keeping up to date register of all shareholders. Sending notice of meetings, agenda to staff and annual return to CRO. Taking minutes of meetings.

Question 23

Explain auditor.

Answer 23

Outside independent accountant that checks companies accounts to ensure they are accurate and correct. Must write a report stating whether they are complete and accurate.

Question 24

Explain cooperative.

Answer 24

A business set up by group of people who come together and establish a business with the aim of helping one another. Minimum of 7 members. Owned by members run by elected committee of management. E.g. Credit Union

Question 25

Explain three types of Co-Op. Explain formation of a Co-op.

Answer 25

Producer Co-op: A group of producers set up a business together. Producer sells produce to the Co-op and then sells it to the public. E.g. Kerry Group

Worker Co-op: Co-op owned and controlled by those who are in it. E.g. Greencaps in Dublin Airport

Credit Union: a group of people who save together and lend to each other at a reasonable rate of interest.

Formation: Apply to Registrar of Friendly Societies and must be issued certificate of registration.

Question 26

What are the advantages of a Co-op? (3)

Answer 26

Limited Liability: If the co-op goes bankrupt member will only lose capital invested. They will not have to sell personal assets to cover debts of the business.

More Capital Available: There are a minimum of 7 and no maximum contributing capital to the business.

Democratic: One member = one vote, rather than one share = one vote. Each member has an equal say on how co-op is run.

Question 27

What are the disadvantages of a Co-op? (3)

Answer 27

Difficult to Set Up: Permission from Registrar of Friendly Societies and yearly report sent to Registrar.

Publication of Accounts: Must publish financial accounts each year. Competitors may use this information for advantage.

No incentive to invest more: As all members equal (one member = one vote) there is no incentive to invest more capital to have more say.

Question 28

Explain state owned enterprise with an example.

Answer 28

A business owned by the government on behalf of Irish people. Run by professional managers appointed by government. Must have minimum of 7 members.
E.g. RTE

Question 29

What are the advantages of State Owned?

Answer 29

Job Creation: Create thousands of job which reduces unemployment rate in Ireland. Results in improved standard of living.

Essential Services: Provide essential services to all people in Ireland not just to those in areas that make a profit e.g. ESB, an Post.

Develop the Economy: IDA is responsible for attracting foreign companies to Ireland such as Google and Facebook. These provide jobs and pay corporation tax in Ireland.

Generates Revenue for Government: Making a profit means more money available to improve the country.

Question 30

What are the disadvantages of State Owned? (3)

Answer 30

Loss Making: Many State Owned Enterprises are loss making which means government must pay subsidies to cover loss. E.g. CIE receives €300m which could be used elsewhere in economy. E.g. hospitals

Not cost effective: Less incentive to focus on minimizing costs. Therefore inefficient with taxpayer money. E.g. Fás spent €600,000 on ad that was never used.

Political: Board of Directors are appointed by the government who may have the job for political reasons rather than business expertise.

Question 31

Explain privatisation with an example

Answer 31

When the government sells a state owned company to private individuals or companies. The government can also offer shares for sale to the general public. E.g. Eircom

Question 32

What are the advantages of Privatisation?

Answer 32

Cash: Government receives cash from the sale of state owned company which can be used to pay national debt and improve economy.

Control of decision making: Decisions of the company no longer made by politicians but rather real business managers with the goal of making a profit.

Expansion: Company no longer relies on the government for finance to expand. It can raise money by selling shares to the public.

Investment Opportunity: Privatisation offers irish people the opportunity to invest money and make a return.

Question 33

What are the disadvantages of privatisation?

Answer 33

Higher Prices: Privatisation leads to higher prices and redundancies for employees as the new goal is maximize profits.

Decision making no longer in best interests for Ireland: Decisions of the company no longer for the best interests of Ireland but rather the individual company. E.g. Aerlingus cancel Shannon- Heathrow Route

Loss of Dividend: Government loses annual dividend it used to receive from the profits of the state owned company.

Stuck with Loss Making: Only profit making state owned companies will be privatised meaning government stuck with loss making companies.

Question 34

For Franchising and Strategic Alliance see previous brainscape.

Answer 34

N/a

Question 35

Explain Transnational Company with an example.

Answer 35

A business with a head office in one country and branches in a number of different countries. E.g. Intel

Question 36

What are the advantages of a transnational company?

Answer 36

Job Creation: Transnational Companies create thousands of job which reduces unemployment rate in Ireland. Results in improved standard of living.

New Technologies: Transnational Companies bring new technology, ideas and management skills to Ireland thus increasing skills of labour force.

Competition: bring new competition to Ireland resulting in lower prices and better quality goods. This is good for consumer e.g. Lidl and Aldi

Corporation Tax: pay tax on their profits which generates money for the revenue which can be used by the government to improve public services.

Question 37

What are the disadvantages of a transnational company?

Answer 37

No Loyalty: Transnational companies arrive to avail of grants and can close down with short notice to go to lower wage countries. Results in high unemployment.

Repatriate Profits: Transnational companies often take profits back to their home country therefore it does not benefit Irish Economy.

Dominant: Transnational companies are large and can put pressure on government to get their own way. Threaten to pull out of Ireland if new laws introduced.

Decision Making: Transnational companies make decisions from Head Office and don’t take into account Irish interests.

Question 38

Explain indigenous firms with an example.

Answer 38

A business set up, owned and managed by Irish people. Products made in Ireland and sold here and exported. E.g. Supermacs

Question 39

What are the advantages of indigenous firms?

Answer 39

Job Creation: Create thousands of job which reduces unemployment rate in Ireland. Results in improved standard of living.

Loyal to Ireland: Stay in Ireland even if downturn in the economy.

Enterprise Culture: Encourage enterprise culture in Ireland. If people see a successful Irish business they may consider setting one up.

Profits stay in Ireland: They re-invest profits back into the business or put it in irish banks where it can be loaned to other irish individuals.

Question 40

Explain four reasons to change business structure.

Answer 40

To Lower Risk for Owners-Sole trader may want to change to Private Limited Company in order to have limited liability. This means only lose capital invested and personal assets not at risk.

To Increase Sales and Profits-Forming an Alliance increases sales and cuts costs. Forming PLC increases publicity helping business to build reputation to increase sales.

To Acquire Skills-Sole Trader might enter a partnership to gain new skills from partner which would benefit the business.

To Raise Capital-more people that can invest in public business means more money available for expansion. E.g. Kerry Co-op became a PLC to fund expansion.

Question 41

What are the factors in choosing a business structure?

Answer 41

Cost: Money needed.
Tax Implications: Corporation tax lower than self-assessed income tax.
Liability: Need protection or willing to accept risk.
Expertise: Do you need help with work.

Question 42

Explain formation of a sole trader.

Answer 42

If a new name is used must be registered with CRO (Company Registrations Office).
Apply for any licences required by law.
Must register with Revenue for any taxes that apply.

Question 43

Outline the reasons why a sole trader would change to a Private Limited Company?

Answer 43

Raise Finance-Selling shares raised money for expansion. Banks more willing to loan to listed company.

Limited Liability-PLC separate legal entity don’t lose everything when sued.

Increase Profits-PLC’s attract more media attention meaning better brand recognition and increased sales.

Continuity of Existence: PLC will continue to exist even if one owner dies.