Types of business organisations - UB

Question 1

What sectors of the economy are there?

Answer 1

Private, Public, Third

Question 2

Who owns Private sector companies?

Answer 2

Individuals which aim to make a profit

Question 3

Examples of Private sector organisations?

Answer 3

Partnerships, Private Limited Companies, Public Limited Companies, Franchises, Multinational

Question 4

Who owns Public sector organisations and what is there aim?

Answer 4

They are owned by the government on behalf of the taxpayer which aim to provide a service to the general public.

Question 5

Examples of Public sector organisations?

Answer 5

Local government organisations, national government organisations and agencies.

Question 6

Examples of Third sector organisations?

Answer 6

Non-profit making organisations such as charities or voluntary organisations are set up to support specific causes.

Social enterprises have a main social or environmental aim rather than to make profit for owners or shareholder but they are thin in a business-like way.

Question 7

What is a typical business transition in the Private sector.

Answer 7

Sole trader - Partnership - Limited company (LTD) - Public Limited Company (PLC)

Question 8

What is the definition of a Public Limited Companies?

Answer 8

A plc is a company that is owned by shareholders. Shareholders are people who have brought shares in the company, perhaps through the London Stock Exchange. The company is owned by shareholders and run by a Board of Directors who have been appointed on behalf of shareholders to control and manage the company.

Question 9

What are the advantages of a Public Limited Company? (5)

Answer 9

• Limited liability for the shareholders.
• Shareholders would only lose he money they invested into the company and not their own personal assets if the company went bankrupt.
• large amounts of capital (finance) can be raised by selling more shares via the stock exchange and lenders feel more confident investing.
• They can often take advantage of economies of scale because of their size. This means they can obtain discounts for buying e.g. raw materials in bulk.
• Plcs can control more of the market compared to smaller organisations and therefore have mor empower within it.

Question 10

What are the disadvantages to a Public Limited Company? (4)

Answer 10

• Financial statements have to be published annually which will involve a cost to produce them.
• There is no control over who can buy shares in the company.
• The company has to abide by the Companies Act to avoid legal action being taken.
• Profits may be lower when the company is initially set up due to high start-up costs.

Question 11

What is a Limited Company (Private Sector)?

Answer 11

• Owned by shareholders and controlled by a board of directors
• Ltd cannot sell shares to the public
• A Ltd requires a minimum of one shareholder to register. It is required to produce a memorandum and articles of association with are documents detailing the running and formal procedures established in the business.

Question 12

What are the benefits of a LTD? (6)

Answer 12

• Limited liability
• Allows for economies of scale
• Control is not lost to outsiders
• Experience and skill gained from shareholders
• Less risk of liquidation
• Easier to attract finance

Question 13

What are the disadvantages of a LTD? (5)

Answer 13

• Profits shared amongst shareholders
• Dividends paid to shareholder at the end of the financial year if a profit is made
• Shares cannot be sold to the public
• Must abide by companies act
• Must produce annual accounts which can be publicly viewed

Question 14

Definition of Franchises?

Answer 14

A person who starts a business and provides a product or service supplied by another business (the franchisor) is known as a franchisee and operates a business known as a franchise. The franchisee is allowed to use the business name and sell its products.

Question 15

What are the advantages of Franchisee? (3)

Answer 15

• They can set up a business using a business name that is well established and that people are familiar with. This could allow them to gain customers and sales quickly compared to setting up a brand new business. It also reduces the risk of failure.
• Advertising costs are paid for by the franchisor which saves the franchisee having to spend money on this themselves
• Franchisor carried out training for the whole business and therefore it is appropriate to the needs of the workforce and will save the franchisee money

Question 16

What are the disadvantages of a Franchisee?

Answer 16

• It requires a considerable sum of money to set up a franchise and the franchisee may not have this money available.
• Some of the profit earned has to be given to the franchisor, thereby reducing the money that the franchisee earns.
• The franchisee might have little or no control over the products available, their price or the layout of the store. The franchisee might find this frustrating as they cannot inject any new ideas into the business.

Question 17

What are the advantages of a Franchisor? (3)

Answer 17

• Income is guaranteed as the franchisee normally pays a percentage of profit each year to the franchisor
• If the business does not work, the cost of failure is split and therefore risk is spread
• Market share of the whole franchise increases as more branches are being opened

Question 18

What are the disadvantages of a Franchisor? (2)

Answer 18

• As only a percentage of turnover is given to the franchisor by the franchisee, this might be lower than what the franchisor could have earned themselves
• A franchisee could damage the reputation and image of the business and this could cause problems for the whole franchise

Question 19

What is a multinational?

Answer 19

A multinational organisation is one that operates in more than one country. It will normally have a headquarters based on one country; this is known as the ‘home’ country. Because it operates in more than one country, it will be globally recognised. A socially responsible multinational organisation may have a positive impact on the local economy and community by providing jobs and creating wealth for the local area.

Question 20

What are advantages of a multinational? (6)

Answer 20

• Economies of scale can be taken advantage of, therefore reducing costs
• Legal restrictions can be avoided in other countries compared to the home country
• May be able to take advantage of different tax regulations in other countries, therefore increasing profitability
• Expanding abroad will mean the organisation becomes bigger, increasing sales, and also safer from takeovers by other organisations
• Government grants that do not require to be paid back might be given in some countries for locating there
• Resources, eg labour, might be cheaper in some countries, reducing the overall expenses

Question 21

What are the disadvantages of multinationals? (4)

Answer 21

• Each country’s laws need to be complied with, which might mean changes need to be made to the goods or service, and these might be expensive
• The culture might vary from one country to another and the organisation will need to consider this
• Language barriers may make trading more difficult and expensive if language interpreters need to be employed
• Language barriers may also mean that communication is misinterpreted and decisions wrongly made

Question 22

What are National government organisations?

Answer 22

Public sector organisations are owned by the Government on behalf of the taxpayer and aim to provide a service to the general public. They are funded by taxes that individuals and businesses have to pay. Different types of taxes exist including income tax, corporation tax and council tax

Question 23

Why do National government organisations exist?

Answer 23

National government agencies exist to support the work of the Government. They provide a service, are owned by the taxpayer and are funded by taxes.

Question 24

Examples of National government organisations?

Answer 24

HM Revenue & Customs
Royal Mint
Office of Fair Trading

Question 25

What is the Scottish governments involvement in issues?

Answer 25

The Scottish Government has delegated responsibility from the UK Parliament for issues such as education, health and transport. It is run by Members of the Scottish parliament, who are elected by the Scottish public

Question 26

How do local government organisations work?

Answer 26

Local government organisations get funding from the Scottish Government to deliver specific services in a specific area of Scotland. These include running schools, providing leisure facilities and emptying rubbish bins.

Question 27

Who organises charities and how are they run with examples?

Answer 27

Charities are owned and controlled by a Board of Trustees. They are regulated by the Government, and the income they make is put towards a specific cause. Examples includes the British Heart Foundation and Barnardos.

Question 28

Who organises voluntary organisations and how are they run with examples?

Answer 28

Voluntary organisations such as community football clubs or youth clubs aim to provide a service to people, but without the profit-making motive. A committee is normally set up to manage the organisation and people will volunteer to undertake specific duties e.g. Treasurer

Question 29

Who organises social enterprises and how are they run with examples?

Answer 29

Social Enterprises trade in all markets, selling goods and services. They have a social or environmental aim rather than to make a profit for owners or shareholders, but are run in a business-like way. Unlike charities they do not rely on grants and donations. The main difference between a social enterprise and a charity is its legal structure and the fact that Social Enterprises have less regulation by Government. A well-known example of a
Social Enterprise is ‘The Big Issue’.