Chapter 4 Flashcards
Types of buisness organisations
Limited liability
Means that the liability of shareholders in a company is limited to only the amount they invested.
Unlimited liability
Means that the owners of a business can be held responsible for the debts of the business can be held responsible for the debts of the business they own. Their liability is not limited to the investment they made in the business.
partnership
- Is a form of business in which two or more people agree to jointly own a business.
- some partners can simply invest in the business and not take an active part in running the business or make any decisions. These people are called sleeping partners.
Partnership agreement
Is the written and legal agreements between business partners. It is not essential for partners to have such an agreement but it is always recommended.
Unincorporated business
Is one that does not have a separate legal identity. Sole traders and partnerships are unincorporated businesses
Incorporated businesses
Are companies that have separate legal status from their owners.
shareholders
Are the owners of a limited company. They buy shares which represents part-ownership of the company
Private limited companies
Are businesses owned by shareholders but they cannot sell shares to the public.
Are businesses that break up their ownership into shares and sell them in order to raise finance. The business can sell shares to friends and family. They are often much smaller than public limited companies and are, in many cases, family-owned.
Public limited companies
Are businesses owned by shareholders but they can sell shares to the public and their shares are tradable on the stock exchange.
Public limited companies are also businesses that break up their ownership into shares and sell them in order to raise finance. However, because their shares are made available to the public through the use of the stock exchange,
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 directors for the coming year.
Dividends
Are payments made to shareholders from the profits (after tax) of a company. They are the returns to shareholders for investing in the company.
Franchise
A franchise is a form of business agreement where a business owner (known as the franchisor ) sells the right to supply their goods and services under their recognised brand name, to the franchisee . The franchisee buys the licence to operate this business from the franchisor.
Joint Venture
is where two or more businesses start
a new project together, sharing capital, risks and profits.
Public corporation
- is a business in the public sector that is owned and controlled by the state (government).
- Government does not directly operate the business but appoints Board of Directors who will run the public corporations
Different types of Business organisation
the private sector
Sole trader
Partnership
Private Limited Companies
Public Limited Companies
Franchises
Joint Ventures
what is a sole trader
- Sole traders are businesses that are owned and operated by one person.
- These are usually the smallest and simplest forms of business to set up because there are no additional owners to share decisions with.
- In addition, as long as the owner has the capital to open the business, they can do so.
- The only legal requirement for sole traders is that they register their profits so they can pay taxes on what they earn.
benefits of a sole trader
- They are very easy to set up.
- The owner has complete control over the business.
- The owner can keep all of the profit after all costs and taxes have been paid.
drawbacks of a sole trader
- The business has unlimited liability.
- The owner will likely have very limited sources of capital available to them.
- The owner has no one to share the workload with, which may make running the business stressful.
benefits of partnership
- The business has access to more capital from other investors.
- The owners have the expertise of multiple partners to help make decisions.
- The workload of running the business can be split between the partners.
drawbacks of partnership
- The business has unlimited liability.
- Conflict can occur between the partners, making decision-making difficult.
- Profits have to be shared between the partners.
Incorporated businesses points
- A company exists separately from the owners and will continue to exist if one of the owners should die
- A company can make contracts or legal agreements
- Company accounts are kept separate from the accounts of the owners.
who are stakeholders
defenition and example
Any person or group with a direct
interest in the performance and activities of a
business.
* Owners
* Management
* Workers
* Customers
* Governments
* Suppliers
* Debtors
* bankers
benefits of private limited companies
- Shares can be sold to large number of people
- Limited liability
- Keep control
drawbacks of priavte limited company
- Significant legal matters
- Need agreement of all shareholders to sell shares
- Accounts are less secret
- Can’t sell shares to general public
benefits of public limited company
- Limited liability
- Separate legal identity
- Raise large capital sums
- No restriction in buying selling shares
- Benefits from high status
drawbacks of public limited company
- Legal formalities are complicated and time-consuming
- Even more regulations and controls
- Selling shares to the public is expensive
- Lose control
benefits of franchisor
owner
- The franchisee buys license to use brand name
- Expansion is faster (no need to finance new outlets)
- Management is the responsibility of the franchisee
- All products sold must be obtained from the franchisor
drawbacks of franchisor
- Poor management of one outlet could lead to bad reputation
- Franchisee keeps profits from outlet
benefits of franshisee
- The chances of business failure are reduced
- Franchisor pays for advertising
- All supplies are obtained from a central source
- Fewer decisions
- Training is provided by the franchisor
- Banks will often lend
drawbacks of franchisee
- Less independence with operations
- May unable to make decisions
- Licence fee must be paid
joint ventures benefits
- Sharing costs- very important for expensive projects such as a new aircraft
- Local knowledge when joint venture company is already based in the country
- Risks are shared
drawbacks of joint ventures
- If the new project is successful, then the profits have to be shared with the joint venture partner
- Disagreements over important decisions might occur
- The two joint venture partners might have different ways of running a business- different cultures
benefits of public corporation
- Some industries are considered important like water and electricity that government ownership is essential
- Ensure that consumers are not taken advantage of by private owned monopolies
- If an important business is failing, the government can step in, This will keep business open and secure jobs.
- Important public services are available.
drawbacks of public corporation
- No private shareholders to insist high profit and efficiency
- Government subsidies increase inefficiency in managers thinking government is always there to help them
- No close competitions, lack of incentive to increase consumer choice
- Government can use these businesses for political reasons
