types of business organisations

Question 1

what are examples of private sector organisations?

Answer 1

• sole trader
• partnership
• private limited company
• public limited company
• multinational
• franchise

Question 2

what are the advantages of PRIVATE limited companies?

Answer 2

• owned by shareholders and quite often these shareholders are supportive family members (owner can retain control)
• profits are only shared between shareholders (recieved as a dividend)
• more able to raise money (by borrowing and through the share issue of ordinary shares)
• if the company fails the investors are protected by the rules of limited liability

Question 3

what are the disadvantages of PRIVATE limited companies?

Answer 3

• must be registered with the registrar of companies
• legal set up costs are expensive (must use documents called memorandum of association and articles of association)
• profits are only shared with shareholders making it harder to motivate and control workers who do not hold shares

Question 4

what are the advantages of PUBLIC limited companies?

Answer 4

• can easily raise money because they can sell shares on the stockmarket
• increased capital means the company can grow and diversify easier

Question 5

what are the disadvantages of PUBLIC limited companies?

Answer 5

• shareholders own a Plc but directors control it, this means that directors may make decisions that the shareholders disagree with
• by allowing the public to buy shares of the company, there is always the threat that someone will buy enough shares to take over the whole company
• shareholders generally want to make as much profit as possible so it can be difficult to pursue other objectives, such as providing a quality service or acting ethically

Question 6

what are the advantages of multinationals?

Answer 6

• producing overseas increases brand awareness beyond the home country
• cheaper production costs: the cost of land and labour is cheaper in developing countries
• economies of scale: cost per unit can be lowered through specialisation
• accessing government grants: the governments of some countries offer financial incentives to locate new production facilities
• avoidance of trade barriers such as tariffs and quotas + legislation in other countries may be more relaxed
• creats jobs and boosts the local economy of developing countries

Question 7

what are the disadvantages of multinationals?

Answer 7

• much overseas production work is deskilled jobs that may be low paid, repetitive assembly line work, which does not benefit the host country in the long term
• relaxed legislation may lead to cutting corners, e.g. health and safety laws
• social responsibility may be overlooked if there are no environmental laws in place
• profits are not retained in the host country e.g. profits made by apple from production in vietnam would still go back to HQ in california

Question 8

what are the advantages of a franchise?

Answer 8

• faster growth: for small business owners, franchising is a way to expand more quickly and cost effectively
• lower risk: opening a franchise is usually less risky than setting up as an independent retailer (the franchisee is adopting a proven business model and selling a well known product in a new local branch)
• lower operating costs: franchisees employ each outlets staff and pay the operating costs
• better performance: because they have a vested interest in the business, franchisees will do what it takes to succeed, as opposed to a manager who is largely rewarded the same regardless
• lower capital outlay: once the model is established, expansion comes mainly through the investment of franchisees, meaning it costs much less to grow

Question 9

what are the disadvantages of a franchise?

Answer 9

• the more franchises opened, the less control the franchisor has over the quality and consistency of the brand
• poor performance by some franchisees could give the brand a bad reputation
• costs may be higher for the franchisee, as well as the initial costs of buying the franchise, they have to pay continuing management service fees to the franchisor
• the franchise agreement usually includes restrictions on how the franchisee can run the business meaning they might not be able to make changes to suit their local market

Question 10

what are the aims/objectives of third sector organisations?

Answer 10

• the third sector is not about making a profit but rather making a difference to society or improving a community
• often tackle social problems
• their aims often include rasing awareness and promoting a cause
• they aim to operate ethically and be socially reponsible

Question 11

what are the advantages of being a social enterprise?

Answer 11

• recieve funding/grants only available to social enterprises
• attract customers who appreciate the good causes
• attract good quality staff who want to help the social cause
• help tackle social problems it has chosen