Forms of Business Organizations Flashcards
What is an organization?
A system that groups people together towards establishing a common goal
List 5 reasons someone may decide to start a business
- Will get to be their own boss
- Can pursue their interests
- For the ability to set their own schedule and goals
- For the chance to express themselves the way they want
- Opportunity to do different tasks - manager, customer service, etc
- To have a second career
- To be able to work from home
What is the Private Sector?
The part of the economy that is funded by private individuals and owned by private firms.
The Private Sector includes…
the manufacturing industries, firms in the construction industry, joint ventures, multinational firms, hawkers and cooperatives
Give a definition for the term ‘Public Sector’
The part of the economy that is funded by the government through taxpayers.
What is a Sole Trader?
A single business owner who may employ others to work for them but they have to make all the decisions and acquire all the capital.
List the advantages of being a Sole Trader
- Ease of Formation - the owner just need to submit a registration doc. to the Registrar of Companies
- The owner enjoys all the profit
- Personal control - no consultations needed for decision making
- Personal Service - the owner can vary the hours of work to suit the customers
List the disadvantages of being a sole trader
- There is limited capital to inject
- The owner does not have limited liability
- The owner may not be in a position to hire specialized staff
- May not benefit from economies of scale
- Lack of security for families, customers, and employees
What is a Partnership?
A business legally formed by a minimum of two persons and a maximum of twenty persons
What are the two types of Partnerships?
Limited Liability and General Partnerships
What are the two types of Partnerships
Limited Liability and General Partners
What are the different types of partners?
Ordinary, Sleeping and Limited Liability
Give the advantages of partnerships
- More than one person will be injecting capital into the business
- Better decision making due to shared knowledge
- Specialization as partners can manage different parts of the business
- The workload is shared so there will me more time for leisure and less stress
- The busines will not be dissolved by death or bankruptcy
Give the advantages of partnerships.
- More than one person will be injecting capital into the business
- Better decision making due to shared knowledge
- Specialization as partners can manage different parts of the business
- The workload is shared so there will me more time for leisure and less stress
- The busines will not be dissolved by death or bankruptcy
What are the disadvantages of Partnerships?
- Binding as all partners lose if one makes a mistake
- Difficulty of management when partners disagree
- The risk is concentrated on a few
- Decision making may be slow because of arguments
List the characteristics of a Private Limited Liability Company
- Capital is obtained by private firms, financial institutions, Gov’t agenies or retained profits
- The company must be registered with the Registrar of Companies
- ‘Limited’ must be included in the name
- Membership is between 2 to 50 persons
- Accounting statements must be prepared and an audit undertaken with a copy issued to the Registrar of Companies
Advantages of a Private Limited Company are:
- A larger capital base
- Has continuity and can easily obtain loans from financial institutions
- Separate legal identity from ownership
Disadvantages of a Private Limited Company are:
- Capital is limited
- Must file financial reports with the Registrar of Companies
- Selling of shares is restricted to the Private grouping
Public Limited companies are also known as…
Joint Stock Company
What is the management structure of a Public Limited Company?
The Board of Directors, which is elected by the shareholders, manages the company. The B.O.D appoints an Executive Director or Chief Executive Officer to report to them on the operations of the company.
List the characteristics of a Public Limited Company
- Minimum of seven shareholders
- Shares are traded openly in the stock market
- Must be incorporated
- Can obtain capital from shareholder equity and financial institutions
- Is continuous
Three advantages of a Public Limited Company are:
- Easier to obtain finance
- Shareholders have limited liability
- Shares can be quoted on the Stock Exchange and sold to the public
- Able to grow and obtain from economies of scale
- Changes in shareholders and directors don’t affect the continuity of the company
Disadvantages of a Public Limited Company are:
- Legal requirements may be costly and time-consuming
- Accounts have to be made public
- Decision making takes long
- Differences of opinion may occur
- Control of the company may be lost
What is a franchise?
A form of business where a franchisor grants a franchisee a license to use the established brand and reproduce the product.
List the advantages for the franchisor
- Broadens their access to international markets
- Larger capital base
- Easy source of revenue
List the disadvantages for the franchisor
- Loss of control over the brand
- Reputation may be ruined
List the advantages for the franchisee
- Avoids the risks of starting a business
- Benefit from management, technical and financial support provided by the franchisor
- Less marketing required
List the disadvantages for the franchisee
- Must pay royalties to the franchisor
- Does not have complete control over the business
- Cannot enhance or change the product of service
The general economic benefits of franchises:
- Helps alleviate unemployment
- Promotes various sectors in the economy
- Injection of revenue into the local economy
The general national drawbacks of franchises are:
- May result in loss of culture or a culture shift
- Local companies may not be able to compete
A multinational is…
a company that has operations in more than one country
What is a Conglomerate?
A Conglomerate combines a number of different companies which operate in different industries
Define what a ‘cooperative’ is.
A cooperative is an organization that is jointly owned and operated by its members, with profits shared amongst them in the form of dividends.
The characteristics of a cooperative are:
- Has a separate legal identity
- Each member contributes equity capital
- One-member, one-vote principle
- Democratic style of management
List the 3 types of Cooperatives
- Consumer
- Producer/Marketing
- Worker
The advantages of Cooperatives are:
- Perpetual existence as the society has a separate legal identity
- No long and complicated legal formalities
- The philosophy of self and mutual help to foster fellow feeling among the members
The disadvantages of Cooperatives are:
- There is a lack of secrecy because the society must submit annual reports and accounts to their authorities
- Some members may lack mutual interest and not function in a spirit of cooperation
