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