Organisations and Their Structure Flashcards
Limited Company / Limited Liability
- legally separated from its owners.
- owners (shareholders) are not personally responsible for the company’s debts or liabilities beyond the amount they have invested in the company.
- if company incurs legal liabilities, shareholders have no obligation to pay these.
Advantages of limited company
Shareholders’ liability is limited to the amount invested in the company, protecting personal assets from business debts and obligations.
Distinct from its owners, allowing for continuity even if shareholders change or pass away.
Disadvantages of Limited Company
Limited companies require more formalities in terms of registration, reporting, and compliance with regulations, which can be time-consuming and costly.
Memorandum of association
A short document that has basic details of the company, including name, country of registered office, and authorized share capital.
Document signed by founding shareholders.
Articles of Association
Detailed and rules that govern the running of the company. Include number of directors, how directors should be appointed and removed, what their power are, what happens When Shares are to be issued.
Process to follow when articles are modified.
Partnership
2 or more people operate business to make profit, losses, share ownership and responsibilities.
Each partner is personally liable for business’s debts and obligations.
Problems of ownership and how much money a partner should receive upon retirement, or how much money should go to estale of a partner who dies while an active partner can arise.
Advantages of Partnership
Partnerships distribute the workload among multiple individuals, reducing the burden on each partner and allowing for diverse skill sets to be utilized.
Enabling greater investment potential and access to a wider network of contacts.
Disadantages of Partnership
Partners are personally liable for the debts and obligations of the partnership, which means they could potentially lose personal assets if the business faces financial difficulties.
Sole Trader
An individual owns and operates the business alone.
No legal formalities required to become a sole trader.
May be required to register with revenue for VAT Purposes.
Advantages of sole trader
- simple and minimal formalities to setup sole trader business.
- sole owner, full control over business and decision making.
- all profits belong to the sole trader
- tax deduction and allowance
Disadvantages of sole trader
- personal assets are at risk in event of business debts or legal claims.
- being sole proprietor means taking on all aspects ofthe business including administrative tasks, marketing, customer service and more.
Advantages of a functional structure for an organisation
- Centralised decision making helps provide each function with an organizational perspective.
- Pooling of specialists enhances coordination and control.
- Facilitates specialist career development.
Disadvantages of a functional structure for an organisation
- Functional area conflicts will arise more frequently.
- Differences in functional goals can reduce communication and coordination
between functions. - Difficult to establish organisational wide performance metrics.
TOP LEVEL MANAGEMENT
Highest-ranking executives in an organization .
Examples: CEO (Chief Executive Officer), COO (Chief Operating Officer), CFO (Chief Financial Officer)
Make decisions regarding the firm’s long run objectives.
Set new plans to expand and increase sales
Communicate those Plans to all managers
Middle level management
Acts as a bridge between top-level management and lower-level employees.
Responsible for implementing the strategies and policies set by top management while overseeing the day-to-day operations of specific departments or teams.
Examples include department heads, branch managers, and divisional managers.
LOW LEVEL MANAGEMENT
Responsible for executing the plans and directives set by middle and top-level management. They focus on coordinating tasks, assigning duties, and ensuring that day-to-day operations run smoothly.
Examples include team leaders, shift supervisors, and forepersons.
Three friends in the UK have developed a new software package that can scan computer networks to highlight problems with security. They are discussing how to start a business to develop and sell this software.
One friend suggests that they setup a partnership and the other friend suggests a limited company. The friends have discussed the possibility of raising equity to fund the growth of the business. Discuss which of the two types of business would be better for this situation.
A limited company provides limited liability protection to its owners (shareholders). This means that the personal assets of the friends would be protected if the business were to incur debts or face legal liabilities. In contrast, a partnership would expose each partner to unlimited personal liability, putting their personal assets at risk.
Investors prefer investing in limited companies due to the clarity of ownership structure and limited liability. Limited companies can issue shares, making it easier to attract external investors who are willing to invest capital in exchange for a stake in the business. Partnerships typically lack this flexibility and may face challenges in attracting external investment.
Limited companies generally offer more scalability compared to partnerships. They can easily transfer ownership through the sale of shares, accommodate a larger number of shareholders, and have a clearer pathway for growth and expansion. This scalability is crucial for a business like theirs, which aims to develop and sell software on a potentially large scale.
Skills for Top-level Management
Leadership
Strategic thinking
Decision-making
Communication
Skills for Middle-level Management
Coordination
Coordination
Time management
Interpersonal skills
Skills for Low-level Management
Technical skills
Monitoring
Training
Reporting
