Types Of Organisations Flashcards
What is unlimited liability?
-being personally liable for all depts, this means that personal assets such as a car or house are at risk of being sold to pay off business debts.
What is the deed of partnership?
The deed of partnership document sets out the terms of the partnership. For example it states how much money each partner invested in the partnership and what role each partner will have in the partnership.
What is a sleeping partner?
A partner who invests but is not involved in the day-to-day running of a partnership is called a sleeping partner.
What are advantages of a partnership?
- Partnerships can raise more finance than sole traders. Banks are more likely to lend money to an organisation that has many partners than to a sole trader.
- Different partners can bring different skills to the business. For example a partnership running a garage might have some partners who are excellent mechanics while other partners may have excellent sales skills.
- Partners can share the workload and responsibility of the business between them. In comparison a sole trader has no-one with whom to share their workload and responsibilities.
What are disadvantages of a partnership?
- Partners may disagree and argue about the future direction of their business. In contrast, a sole trader has the advantage of being the only decision maker.
- Any profit made is shared between two to twenty people. A sole trader has the advantage of receiving all profit.
- Like sole traders, partnerships have unlimited liability. All partners have the worry of being liable for any business debt the partnership has.
What’s part of the private sector?
- private limited companies
- public limited companies
- franchise
- multinationals
- sole traders and partnerships (already covered)
How do limited companies get their name?
Limited companies get their name because they have limited liability
What is limited liability?
- this means that the owners personal belongings are not at risk
- if the business gets into dept with creditors, the owners only lose their investment in the company
Private limited companies
-the owners of a private limited company are called shareholders as they have one or more share in the business, they share ownership with the business with others
In a private limited company are shares available to the public?
In a private limited company (Ltd) shares are not available to the general public and are sold privately to investors whom the business knows, such as employees.
What is the aim of private limited companies?
Private limited companies aim to maximise profits, to grow and perhaps increase market share
What are limited companies controlled by?
They are controlled by a board of directors who are managed by a managing director
What do all limited companies have to produce?
All limited companies have to produce complex documents called the memorandum of association and articles of association that outline the rules of the company, such as shareholders rights and the responsibilities of the directors
What are advantages and disadvantages of a private limited company?
Advantages
- owners (shareholders) have limited liability
- ownership is not lost to outsiders
- the business usually retains a close and tight-knit, friendly feel with a high level of customer service
- expertise and business acumen are gained from an experienced board of directors
Disadvantages
- profits have to be split with many shareholders by issuing dividends
- a complicated legal process is required to set up the company
- a limited source of capital is available as shares are not sold publicly
- financial statements have to be shared with companies house(and therefore made publicly available), meaning profits are not kept private
Who are public limited companies owned by?
Public limited companies, like private limited companies are owned by shareholders who have limited liability
What are public limited companies controlled by?
They are also controlled by the board of directors
Can public limited companies sell their shares publicly?
However unlike private limited companies, public limited companies can sell their shares publicly, through the stock market
What are the aims of public limited companies?
Public limited companies aim to dominate the market, increase market share and increase market value (the total value of all their shares)
What are the advantages and disadvantages of public limited companies?
Advantages
- shareholders have limited liability
- large amounts of finance can be raised through the public sale of shares
- it is easy to borrow finance due to a PLC’s size and reputation, so less risk for banks
- PLCs can easily dominate the market
Disadvantages
- dividends are shared with many shareholders
- control of the business can be lost as anyone can buy shares on the stock market
- annual accounts have to be published
- setting up a PLC is costly and complicated
What is a franchise?
A franchise is a business model that allows businesses to pay a sum of money to own a branch of a well-known existing business
What is the franshiser?
The main original business is known as the franchiser
What is the Franchisee?
The owner of each individual branch is known as a franchisee
What are franchiser’s main aim?
- The franchiser’s main aim is to grow and increase market share and the franchise model allows this
- they also aim to maximise profits and if they are a plc, increase their market value too
What does each franchisee have very little decision-making power?
Each franchisee has very little decision-making power over important strategic and tactical decisions as these are made by the main franchiser
Advantages and disadvantages of a franchise for the franchiser
Advantages for the franchiser
- a low-risk form of growth as the franchisee invests the majority of the capital
- receives a percentage of all franchisee’s profits each year (known as royalties)
Disadvantages for the franchiser
- The reputation of the whole franchise can be tarnished by one poor franchisee
- only a share of profits is received rather than all profits as it would be if they owned each branch
Advantages and disadvantages of a franchise for the franchisee
Advantages for the franchisee
- The franchise is a well-known business with an existing customer base
- Industry knowledge and training is provided by the franchiser
- The franchisee benefits from national advertisements carried out by the franchiser
Disadvantages for the franchisee
- there is very little autonomy over decisions as the franchiser decides and product, store layout, uniforms,ect
- royalties have to be paid each year
- there are high initial start-up fees
What is a multinational?
A multinational is a business that has operations in more than one country, this could be because some public limited companies are so large that they operate on a national scale (so in more than one country)
Most multinationals are…
Limited companies
The businesses head office is usually based in…
The home country
In recent years why has is become easier to operate as a multinational? And why has it helped the world?
- in recent years it has become easier to operate as a multinational due to the improvement in infrastructure, for example, inexpensive air travel, single currencies such as the euro and the growth of e-commerce
- all of these have helped the world become one big market , which is known as globalisation and it has helped some multinationals become massively successful
The good and bad effects of multinationals on host countries
Good
-multinationals provide jobs and training and can have a positive effect on local economies
Bad
-they can exploit low-paid labour, use up natural resources, put local firms out of business and take their profits back to their home country
Why do public limited companies want to expand overseas?
- to reduce production costs= some companies choose to manufacture their products in countries that have lower wage costs. Other companies (such as Ford) produce components of the final product in countries where they can be produced at the lowest cost
- to reduce transport costs= components might be cheaper to transport than the bulkier finished article. Also it might be cheaper to manufacture products in a foreign country rather than trying to transport the Finished goods from the country of origin.
- to penetrate markets protected by import control= A major reason for the presence of US and Japanese firms in Europe is to evade trade tariffs imposed by the EU on goods coming from outwith the EU
- to earn higher after-tax profits= many companies move production to countries with low profit taxes to earn higher after-tax profits
- to escape government regulations at home= many companies are tempted to move from their country of origin if a government imposes a restriction such as minimum wage or minimum working condition rules 
What are advantages and disadvantages of multinationals
Advantages
- wages in raw material costs are lower in host countries
- Business can avoid legalisation in the home country
- grants can be issued by governments to locate in their country
- Business can avoid quotas (retraction on amount of imports/exports) and tariffs (taxes on imports exports) issued by their own governments
Disadvantages
- language barriers can slow down communication
- cultural differences can affect production
- Exchange rates can affect purchasing and paying expenses in different countries
- Time differences can hinder communication between head office and branches around the world
What is part of the public sector?
- Central government
- local government
What does the UK government provide and example? (Central government)
The UK government provides national services to the citizens of the UK that it would be very difficult to rely on the private sector to provide
-for example, defence by the armed forces, healthcare through the NHS and transport infrastructure of the road network. These are critical services paid for through taxation
Elected politicians (Central government)
And the overall control of policy surrounding these organisations is held by elected politicians
What are individual departs controlled by? (Central government)
Individual departments are controlled by employed citizens called civil servants
In Scotland, the Scottish parliament oversees devolved services, such as education and the police (central government)
Just need to know
What do all central government organisations aim to provide?
-The main objectives of central government include providing a cost-effective service, improving society and operating with an allocated finance
Nationalised companies (central government)
-The public sector also includes any nationalised companies
-this means private sector businesses that have been bought in part or in full by the government, to stop them from going bust

What is privatising ? (Central government)
- The opposite of nationalising is privatising
- which is selling a public sector organisation to the private sector
What is the local government in Scotland split into? (Local government)
Local governments in Scotland is split up into local authorities, such as Fife counsil, Stirling council ect
What do councils provide? (Local government)
-they provide essential services to the public such as schools, refuse collection and street lighting, free of charge.
Who carries out top-level decision making? (Local government)
Top-level strategic decision-making is carried out by the elected counsellors
Who carries out tactical decisions? (Local government)
While the tactical decisions and operational day-to-day running of the individual organisations are in the hands of managers and employees of the council, such as the headteacher of your local state secondary school
Where does finance come from? (Local government)
- finance comes from taxation collected by central governments, local council tax and local business rates
-  some organisations such as council-owned leisure centres also charge for services to fund running costs
What do all local government organisations provide? (Local government)
- all local government organisations aim to provide a quality service
- they don’t aim to make profits however some public sector organisations such as schools do aim to stick to their given budget and not overspend
Advantages and disadvantages of the public sector
Advantages
- provide some of its services to all consumers
- as a public sector organisation it faces a little competition
- provide services that could be unprofitable if provided by firms in the private sector
- provides employment for many people
- provides goods and services for those members of the community who cannot afford them
Disadvantages
- often considered to be bureaucratic
- as there is no profit motive there is often a lack of innovation
- A change of government is likely to mean changes in priorities and switch changes in funding in spending
- can often ‘crowd out’ private firms
What is part of the third sector?
- charities
- voluntary organisations
- social enterprises
- democratic enterprises
- co-operatives
What is the sole purpose of setting up a charity?
Charities are set up with the sole purpose of raising money to benefit others. For example, helping to relieve poverty, providing funding for medical research and helping to protect the vulnerable
How do charities raise finance ?
- they raise finance through donations, sponsorship and fundraising events
- they may also have a trading arm
What happens if charities make a profit?
Any profits they make are given to their cause rather than kept by the owners
Owners of the charity
- there is no individual owner of the charity instead it is set up as a trust
- The overall control of the trust is carried out by a board of trustees, while some individual outlets or departments can be managed by paid managers who are assisted by volunteers
What do the main aims and objectives of the charity depend on?
- The main aims and objectives of charities depend on the individual cause at the heart of the organisation.
- for instance SSPCA aims to improve the welfare of animals in Scotland, while UNICEF aims to protect children’s rights worldwide
Advantages and disadvantages of charities
Advantages
- charities are exempt from paying some taxes such as VAT and corporation tax
- there are low wage costs due to volunteers working for free
- private companies are more willing to donate to and sponsor charities than ever before as it is a good ‘PR’
Disadvantages
- it can be difficult to compete with the large marketing budgets of organisations within the private sector
- charities rely heavily on volunteers who may leave for paid work
What are voluntary organisations?
- voluntary organisations aim to provide a service for their members and the local community, for example the scouts, girl guides or youth football teams
- they are usually set up to bring together people with similar interests
- they are normally managed and organised by an elected committee and helped by volunteers
- they raise finance mostly through membership subscriptions
What do social enterprises aim to do?
Social enterprises are organisations that aim to make a profit to benefit a specific group or cause.
How do social enterprises operate?
-unlike non-profit organisations they operate as private sector businesses do, in that way they can be owned by one person (sole trader), 2-20 people (partnership) or shareholders in a limited company
Who are social enterprises controlled by?
Also, as in the private sector, control can be in the hands of a board of directors or paid managers and finance can come from capital investment or bank loans
What is the main difference between social enterprises and organisations in the private sector?
The main difference between social enterprises and organisations within the private sector is that the profits benefit a social, environmental or cultural cause and not solely the owners of the business
Advantages and disadvantages of a social enterprise
Advantages
- social aims can endear a social enterprise to customers
- good quality employees who believe in the social ‘mission’ are attracted to the organisation
- they are likely to receive government grants due to their positive impact on society
- ‘asset lock’ means that, should the enterprise be closed down, the sale of any assets and any profits will be used to benefit their cause
What are democratic enterprises?
- increasingly in the EU and USA democratic enterprises are being developed
- all of these businesses share the same objective of generating profit
- they differ from private sector businesses and that they aim to make but not necessarily maximise profit
- decision-making and profits are shared among members democratically
- democratic enterprises are becoming ever more popular with governments which are keen to encourage enterprise and increase the wealth of their economy but which also want their citizens to share in this prosperity
What are co-operatives?
- A good example of a democratic enterprise is a cooperative, whose main aim is to provide a quality service for the benefit of its members and customers
- cooperatives invite their customers and employees to become members, who then share ownership, decision-making and profits (known as dividends)
- cooperatives also subscribe to an internationally agreed set of values and principles which define their ethical approach to business
- these values and principles are their democratic structure are what distinguish co-ops from organisations following the social enterprise model
