Chapter 4-types Of Business Orginisation Flashcards
What is a joint venture
When 2 or more businesses start a new project together,sharing capital and profits.
Eg. Of joint ventures in real life
European joining with Chinese businesses in China, as they know the market need+consumer tastes
What are the advantages of joint ventures (3)
Shared costs
Shared risks
Local knowledge
What are the disadvantages of joint ventures (3)
Shared profits
Disagreements
Different styles-different cultures
What does the term “public” sector include
All businesses owned by state/school
Public services
What is a public corporation
A business in the public sector that owned and controlled rolled by the state
What does nationalized mean
Was once owned by public individuals and then purchased by the government
What are the main types of business organisation in the private sector (6)
Partnership
Sole trader
Private limited companies
Public limited companies
Franchises
joint ventures
What is the most common form of business organisation + why
Sole trader
Few legal regulations to be followed
What is the owner of a sole trader business called
Sole proprietor
What is a sole trader
A business owned and operated by 1 person
What are the legal regulations to set up a sole trader business(3)
Owner must register+send annual accounts to government tax office
Must observe laws which apply to all businesses in that industry (ie. alchohol lisence)
Name either needs to be registered at registrar of business names or on all business documents+sign saying who the owners are in the store
Advantages of sole trader organisations (7)
Own boss
Few legal regulations
Freedom of hours/decisions etc
contact with cumstomers
Incentive to work hard because
You earn all the profit(will suffer if you don’t)
Secrecy in business matters apart from the tax office
What is limited liability
Liability is limited to amount invested
What is unlimited liability
When owners are personally held responsible ofr debts of the business
Disadvantages sole trader organisations (6)
No one to discuss business matters with
Unlimited liability (business is not a separate legal entity)
Limited funds (capital)
Banks are reluctant to lend due to low credit store etc
Expantion limited to capital produced(unlikely to be high)
No continuity, business legally stops exhisting
What are situations appropriate for sole trader organisations (3)
New business
Not much capital needed
Mainly dealing with public/providing services direct contact=important
What is a partnership
2 or more people in an agreement to jointly run a business in which usually the partner/s who invested the most capital have a say in running the business and share profits.
Most countries have a max of 20 parttners
How could you set up a partnership
It is easy
Either you just ask(verbal agreement)
Or present someone with a partnership agreement/deed of partnership
Why is it recommended to have a deed of partnership/partnership agreement
Without it partners may disagree over who put more capital/ who is entitled to more profits, the agreement stops such debates as there is a legal document outlining those things.
What does a deed of partnership/partnership agreement contain (5)
Amount of capital invested by each partner
Taskes to be undertaken by each partner
Way in which profits will be shared
How long the parntership is expected to last
Arangements for absence, retirement and the admittance of new partners
What are the advantages of a partnership (5)
More sorces of capital (allows for expantion)
Few legal requirements
Shared responsibilities
Motive to work
Business information is private apart from the partners and the tax office
Disadvantages of a partnership organisation (5)
Unlimited liability
Unincorporated business
Partners can disagree+consulting takes time
If one partner is inefficient/dishonest the whole business suffers
Because most countries have a partner limit, business growth is limited to the capital produced by the 20
End with the death of a partner
When would it be appropriate to have a partnership organisation (3)
Wish to form a business with others and avoid legal complications
Where the proffesional body (ie. medicine) doesnt allow proffesionals to form a company
Partners are well known (ie. Family), simple way of involving several of them into the running of the business
What is a limited partnership+abbreviation
LLP
A partnership only availible in some countries where there partnership has limited liability but the shares cannot be bought or sold, as the business is a separate legal unit, there is continuity after death.
What is an unincorporated business+eg
A business that does not have a separate legal identity
Sole trader
Partnership
What are the types of limited companies
Public and private
true or false public limited companies are in the private sector
True
What is an incorporated business+eg
Companies that have a separate legal status from their owners
Public and private limited companies
What does it mean if a company is incorporated
The company exists separate from the owners and would continue if one should die
Company can make contracts/legal agreements
Company accounts kept separate from accounts of owners
What are companies
Organisations that are joint owned by people who have invested in the business, shareholders.
What are private limited companies
Businesses that are owned by shareholders but cannot sell shares to the general public, cannot advertise their shares to the general public.
What are ways to show that a comany is a private limited (abbreviations etc)
Ltd/limited/(UK)
Proprietary limited/Pty Ltd(ZA)
What is a stakeholder
Someone who has interest in the activities of the business
Who are the directors in a ltd(UK) company
The majority shareholders
What are the advantages of a private limited company (3)
Shares can be sold to a lot of people(some places have a max)
All shareholders have limited liability=Less risky than sole/partnership
People who started company keep control as long as they dont sell to many shares
What two important documents have to be sent where(private limited company)
Article of association
Memorandum of association
Registrar of companies
What does the article of association contain (4)
Rules under which company will be managed, holding of official meetings, rights+duties of directors, procedures after selling shares.
What does the memorandum of association contain (4)
Important information about the company and its directors,
official name and address of registered offices,
number of shares to be bought by each director and the
objectives of the company.
What is the purpose of the memorandum and articles of association
To ensure company is correctly run and reassure shareholders abiut the structure and purpose of the company.
These documents also allow for a certificate of incorporation to be issued by the registrar of companies to allow them to start trading
Why might some people be reluctant to invest in a pty ltd
They would struggle to sell their shares quickly if they needed their investment back
What arethe disadvantages of a private limited company(4)
Significant legal matters
Accounts must be annually sent to registrar of companies and can be inspected by the public
Cannot sell shares to public-difficult to raise large sums to reinvest
Shares cannot be sold/transferred without agreement from other shareholders(cant quickly sell your shares if you need the investment back)
For what are private limited companies suitable for
Families/partnerships that wish to expand without further risk to their own capital. It allows more capital to be raised which is suitable for all except large companies.
What are public limited companies
Companies that can sell their shares to the public, the shares are tradeable on the stco exchange
What are advantages of public limited companies (5)
Limited liability
Incorporated business(continuity)
No limit to no. of shareholders-oppurtunity to raise large sums of capital
No restriction on movement of shares
Usually have high status-attract suppliers willing to trade on credit and banks willing to lend
Disadvantages of public limited companies (4)
Legal formalities of forming
More regulations+controls to protect interests of shareholders eg. Disclosure of accounts+other info
Selling shares to public is expensive/to “go public”
Original owners may lose control, divorce between ownership and control
Other ways to refer to public limited companies
Plc-UK
limited/ltd-ZA
What is an AGM
Annual General Meeting
Legal requirement for companies. Shareholders may attend to vote for who they wants on the board of directors for the ccoming year
What are dividents
Payments made to shareholders from profit after tax. They are return to shareholders for investing in the company.
Who has control over a public limited company and what do they do
Company Directors, they run the business and take decisions. Appoint managers for day to day decisions.
Manage the business to meet their own objectives, eg reduce dividents to fund expantion
What control do shareholders have over a public limited company
None other than they can elect proffessional managers as company directors at the agm
What is the divorce between ownership and control
Shareholders own, directors and managers control
What is the risk of:
Sole trader
Partnership
Private limited company
Public limited company
Carried by sole owner
Carried by all partners
Shareholders hold up to their original investment
Shareholders hold up to their original investment
What is a franchise
A business based upon the use of brand name, logos and trading methods of an existing, succesful business. A franchisee buys a licence to operate the business from the franchisor.
What are the advantages to a franchisor (3)
All products sold must be obtained from them
Expantion is faster than if they had to finance all the new outlets.
Management is not their responsibility
What are advantages to franchisee (6)
Low chance of business failure (well known product)
Franchisor pays for advertising
Training for staff+management is provided
Banks are more willing to lend
Supplies are obtained from franchisor
Everything is decided by franchisor
Disadvantages to franchisor (2)
Franchisee keeps profits from the outlet
Poor management could lead to a bad reputation for the whole business
Disadvantages to franchisee (3)
Less independence
May be unable to make decisions to suit local area
Have to pay royalties/ % of annual turnover
What does the franchisor contribute to the business (3)
Brand name+products
Originak idea
Advertising+training
What does the franchisee contribute to the business (3)
Capital
Management
Enterprise
How does the control in a public corporation work
Government sets objectives and appoints ministers to the board of directors who manage the business in order to achieve the objectives
What are advantages of public corporations (4)
Considered important, ownership is essential
If industries are controlled by monopolies it would be wasteful to have competitors(don’t need two railways)
Important public services can still be made available to the public
Disadvantages of public corporations (4)
Less profit motive=less efficient
Government subsides lead to inefficiency as managers think government will help if they suffer
No incentive to increase consumer choice/efficiency because there is no close competition
Businesses can be used for political reason
What is an objective
An aim/target to work towards
What is a business objective
Aims/targets that a business works towards
What are the benefits of setting objectives (4)
They give workers+managers a clear target to work towards
Taking decisions is focused to what can help them achieve the objectives
The managers can compare how they performed to the objectives to see success
Clear and memorable objectives unite the whole business towards the same goal
What are the most common objectives for a business in the private sector to achieve (6)
Business survival
Profit
Market share
Growth of business
Return to dshareholders
Service to comunity
What is the formula for market share
%=company sales/total market sales x 100
What is market share
% of total market sales held by one brand or business
What are social enterprises
Operated by private individuals in the private sector, but dont have profit as a motive, they have social objectives as well as an aim to make a profit to reinvest back into the business
Hat is the triple bottom line
Social
Enviromental
Financial
