Topic 4: Business organisations Flashcards
What are the Characteristics of a Public Sector Organisation?
- Owned and operated by the government/state.
Objective to serve the community. Usually provide a service rather than aiming to make a profit.
They are financed from public revenue: taxes companies and individuals pay, duties etc.
Some of the services provided are for free, including hospitals, libraries and education up to the age of 18.
Paid public services include e.g., travelling by bus.
What are some examples of public sector organisations.
- Tax Authority
- Public Schools
- Police
- Public Library
What are Private Sector Organisations?
All profit-making businesses that are not run or operated by the government are private sector organisations. Private sector is owned by an individual or corporation and the main aim is to make profit.
State the 4 Main Private Sector Organisations.
SOLE TRADERS
PARTNERSHIPS
PRIVATE LIMITED COMPANIES (LTD)
PUBLIC LIMITED COMPANIES (PLC)
What is a Sole Trader?
An individual who owns his or her own business. He is the only financial beneficiary of its success but also financially responsible if the business fails.
What are the advantages and dissadvantages of being a sole trader?
ADVANTAGES
Business is easy to set up
Sole trader keeps all profits
Sole trader has complete control Easier and quicker to make decisions
Accounts do not have to be published
DISADVANTAGES
Sole trader may lack capital/equity and find it difficult to raise more
Unlimited Liability i.e., Sole trader is personally liable for all debts
Sole trader may lack appropriate skills
Making all decisions can be stressful
No continuity, as business ceases when sole trader dies.
What are the Characteristics of a Partnership?
Has 2-20 owners
The owners have unlimited liability
A deed of partnership (formal agreement) is drawn up i.e. to show how profits and losses are shared
Obey the Partnership Act 1890 (UK)
What are the characteristics that are found in limited partnerships?
- Limited partners have limited liability (their personal belonging are safe) unless they break the regulations relating to the involvement in partnership (points 2 & 3).
- Partners are not allowed to take out or received back any part of their contribution to the partnership during its lifetime
- Partners are not allowed to take part in the management of the partnership business
- At least one partner with unlimited liability.
What does having a Limited Partnership mean?
partners are responsible for the partnership’s debts only up to the amount/capital/equity they originally invested. But at least one partner must have unlimited liability.
What does the Partnership Act dictate In the absence of a Partnership Agreement?
5% interest on loans from Partners
NO Salaries paid to partners
NO Interest to be paid on capital or equity
NO Interest to be charged on partners’ drawings
What do the Deed/agreement of the partnership include?
Capital or equity contributed by each partner
Profit and Loss share ratio
Salaries paid to partners
Interest (if any) to be paid on capital or equity
Interest (if any) to be charged on partners’ drawings
What are advantages and disadvantages of a partnership using a formal partnership agreement.8
A benefit of a partnership agreement would be that it would clearly state the arrangement for the payment of salaries. Without an agreement, no salaries would be paid to partners. As some partners is likely to continue working in the business and some partners are not, the agreement could state that partners who work are entitled to a reward for the work they do on a daily basis in the business. This would then prevent future disputes about the appropriation of profit
A disadvantage of having a formal agreement is that it may not cover all possible situations that could arise in the business. The agreement is likely to cover the financial aspects of the business, such as whether interest on drawings is allowed and an agreement on the profit-sharing ratio. Disputes between the partners could still exist over the future direction of the business, especially when partners are new to the business.
Evaluate a Partnership as a form of business. (6)
ADVANTAGES
More capital or equity can be raisedthrough additional partners
Losses can be shared between partners
Additional partners may bring more skills and expertise to the business. These extra skills will improve the business by improving the product or the marketing leading to more Sales
The responsibility of management can be shared between the partners
Partnerships are ideal organisations for professional practices such as medicine, law and accounting
Profits are taxed as personal income of the partnership
Financial information is not published
DISADVANTAGES
Partners have unlimited liability. A partner will have to cover all the losses of the business if it fails
(This excludes the limited partners)
A partnership is dissolved on the death of the partner
It is difficult to liquidate or transfer partnerships
A partnership may still find it difficult to raise capital or equity for expansion, as increased unlimited liability could act as a deterrent
Profits have to be shared between partners
There could be conflict between the partners. As a result, it is difficult/time- consuming to make decisions
What is a share
shares are the equal parts into which a companies capital is divided into
Who is a shareholder?
A person who invests capital in a Limited Company
Who is a stakeholder?
A stakeholder is any person or business who is affected by the actions of that business
Name all 8 Stakeholders.
Owners
Managers (Directors)
Employees (Workers)
Customers
Suppliers
Providers of external finance
Government
Competitors
Identifying the Owners use of the business’s financial statements
Owners check the security of their investment. They look at the overall profitability of the business. They monitor how the business traded over the previous financial year. They compare the business performance with the previous year to judge how safe their capital or equity is and whether they would get a return on their investment. They owners look at the Income Statement to assess if they will receive any share of profit.
Identifying the Employees (Workers) use of the business’s financial statements
May want to look at the accounts to see how well the business is performing and whether they have job security. The employees would look at the Income Statement to assess the overall profitability of the business. They could also use the accounts to try to secure a pay rise.
Identifying the Managers (Directors) use of the business’s financial statements
Run the business on behalf of the owners. They monitor the accounts to see how the business is performing. They make decisions based on the financial data available.
Identifying the Customers use of the business’s financial statements
May want to see how financially stable the company is. They can then assess whether the supply of goods and services is secure, and whether they should trade with the company.
Identifying the Suppliers use of the business’s financial statements
Look at the company accounts to see how stable the business is. The supplier can then assess whether they will receive their payment, what credit terms to give and how much interest to charge.
Identifying the Providers of external finance use of the business’s financial statements
Assess the company’s ability to pay back any money that they lend the business, such as loans. They would look at the Statement of Financial Position to assess the liquidity of the business.
Identifying the Governments use of the business’s financial statements
Looks at the profits of the business to monitor whether the business is paying enough tax.
Identifying the Competitors use of the business’s financial statements
Can compare the amount of profit they are making with the business.
