Thought for the day: discuss…..

WIKI: http://ais-igcsebusiness.wikispaces.com/home

Reminder iGCSE Business expectations
Complete all work to the best of your ability.
Bring your laptop (charged), the textbook, lined paper, calculator and writing equipment to all lessons.
Complete all homework & tasks to the deadline.
Keep all hard copy of work organised in a file that can be checked regularly by the teacher.
Organise all online work in a e-file on your laptop.
Ask for help when needed.
UNIT 1.1
LESSON 1

• Make a subfolder called:
• Topic Two_ Business structure, organisation
& control
Make a subfolder in ‘called:
• 2.1 Ownership and internal organisation

This Term:
The report due on 18 th 30% (+5% homework)
Half yearly (unit 1 & 2) 40%
Homework 5%

A04
A03
A02
A01
A
Grade
Evaluation
Anayslis
Application
Knowledge & Understanding
Evaluate, discuss, justify, advise, recommend. reasoned explanations, develop arguments, understand implications and draw inferences
Examine, Analyse, Interpret,
Formulate, Cause and Affect, advantages & disadvantages.
Apply facts, terms, concepts, theories and techniques to business problems and issues. Link to a business.
facts, terms, concepts and conventions appropriate to the syllabus; theories and techniques

2.1 Ownership and internal organisation
UNIT 1.1
LESSON 1

Aim of this section……
• To be able to identify the types of business organisation (sole trader, partnerships, limited companies, franchise, joint venture) and Limited and unlimited liability.

• Activity One.
• Pg 67

Entrepreneurs
• The creation of any business relies heavily on the ability of the entrepreneur to calculate and manage risk .
• The creation of a business involves considerable opportunity costs when combining human and financial resources.

Entrepreneurs
Q & A Who or what is an entrepreneur?
• People who establish or operate business, thereby taking financial risk
• People who set up business are called entrepreneurs
• They are innovators, organisers, decision makers and risk takers
• Not everyone has what it takes
Take this quiz: http://www.entrepreneur.com/personalityquiz
HWK: Research a successful entrepreneurs and investigate their attitudes to risk taking.

Entrepreneurs
• An entrepreneur is a person who has an idea for a business, develops the idea, and organises the necessary resources to see the idea through. Entrepreneurs create and build business enterprises.

Entrepreneurs
Characteristics:
• Hardworking
• Ambitious
• Independent
• Highly motivated
• Creative
• Prepared to take risks

Plenary
• 3 min:
• Draw
• What do you think when you think entrepreneur

Most businesses in the UK are privately owned.
This means:
• They are owned by private individuals
• These individuals risk their own money
• The owners’ reward is the profit they make.

• Sole trader – 1 owner
• Partnership – 2 people or more
• Private limited companies (Ltd) – often a family-run business with the protection of limited liability
• Public limited companies (plc) – large organisations whose shares are traded on the Stock Exchange
• Franchises – small business trading with agreement of large firm
• Cooperatives – collectively owned by workers/customers

• Sole traders and partnerships have unlimited liability . Owners are responsible for all debts and may have to sell personal possessions.
• Companies have limited liability . Owners can only lose their investment even if the company has huge debts.

• Make sure you understand liability and what it means for the owners.
• Pg 68
Limited liability: the owners of a business have liability for the affairs of the business, restricted up to the amount they originally put into the business.
Unlimited liability: the owners of a business have liability for the affairs of the business to the extent of their personal wealth.

• A sole propietorship is a business owned by a single person (also known as sole trader).
• This person can employ as many people as needed, but remains the only owner of the business.

Benefits
• Easy to set up and give a personal service
• Owner independent – can make quick decisions
• Minimum of paperwork
• Knows customers – helps to avoid bad debts
Drawbacks
• Unlimited liability
• Long hours, no cover for holidays/sickness
• Capital may come from savings
• Needs business skills
• Business ends on death

– Make Notes…
Define
Setting up as a sole trader
Where does the money come from?
What happens if things go wrong?
Pg 69-70

• A partnership is a business organization owned by more than one person.
In an ordinary partnership, there are between 2 and 20 owners- the coowners of the partnership.
• At least one of these partners will have unlimited liability, although it is usual practice for all the partners to share responsibility for any losses made by the business.
• The government does allow some businesses, such as law firms and health clinics, to operate with more than 20 partners.

• To prevent potential misunderstandings and conflict, most partnerships draw up legal contract between the partners, known as deed of partnership.
• The contents of the partnership deed include the names of all partners, the amount of capital invested bu each partner- and hence their stake in the partnership, their responsibilities, voting rights, arrangements for dismissing a partner or approving a new partner and how profits are to be shared between the owners.
• If a deed of partnership is not prepared, then The Partnership Act of 1890 applies, stating that legally all partners have an equal share in the running of the business and the distribution of its profits

Benefits
• Easier to raise capital
• Problems/ideas can be discussed
• Greater range of skills/expertise
• Cover for holidays/sickness
Drawbacks
• Unlimited liability
• Profits are shared
• May be disagreements
• Decisions/actions legally binding on all partners
• Death of a partner means share needs repaying

– Make Notes…
Make Notes…
Define
Setting up as a sole trader
Where does the money come from?
What happens if things go wrong?
Pg 70-72

• A sole trader is run by one person. A partnership is owned and run by two or more people.
• Sole traders and partnerships typically have limited liability. Capital is restricted to the owners own savings, borrowing & profits made.
• A sole trader has control over their own business and takes all the profit.
• Partners can share skills and spread the workload or running the business.

• Each company has its own identity in law.
• They are set up as legal entitites and exist quite separate to their owners.
• The company employs staff, not the owner(s).
• The company owns assets, not the owner(s).
• The company operates until it is formally wound up or goes into liquidation.
• The company pays corporation tax on its profits.

Benefits
• Limited liability
• Minimum of 1 director and 1 shareholder
• Easy to set up/affairs still private
• Easier to raise capital/borrow from bank
• Share transfers need agreement of all
Drawbacks
• Cannot sell shares to the public
• More regulations to comply with
• Accounting procedures may be more costly
• Death of shareholder has no effect on company

– Make Notes…
– How do you set up a limited company?
– Who owns and runs a limited company?
– Where does the money come from?
– What happens if it goes wrong?
– Pg 76

Benefits
• Limited liability
• Increased capital as public can buy shares
• Minimum of 2 directors and 2 shareholders
• Shares increase in value if company successful
• Operating large scale can lower costs per unit
Drawbacks
• Many regulations to comply with
• Accounts (and problems) are public knowledge
• Shareholders may sell shares if dividends poor
• Original owner may lose overall control

– Make Notes…
– Why go public?
– Pg 78

• A company is owned by shareholders who are able to bring capital into a business.
• Shareholders are protected by limited liability. The financial risk is limited to the value of the shares they hold.

• Sole traders – suitable for one person running small business with low risk/little investment required
• Partnership – suitable for professional groups, husband/wife businesses, small business needing different skills
• Private limited company – suitable for family business, essential if risk considerable, eg through expensive stock
• Public limited company – suitable for large national/international operations

Most private businesses are owned by sole traders, partners or are companies.
Other alternatives are:
• Cooperatives – societies which operate for the benefit of their members (whether customers or workers).
• Franchises – where a large company allows a small operator to trade on name in return for share of profits.
• Joint Venture – an enterprise undertaken by two or more business organisations pooling resources.

• Some organizations, known as franchisors, sell the right to other businesses to use their company name, logo, slogans and trademarks.
• Examples of franchises include McDonald’s, Starbucks and 7-Eleven.
• The purchasing business is known as the franchisee. In return for the use of the franchise, the franchisee has to pay a certain percentage of its sales revenue
(known as royalty payment) to the franchisor.
• The major advantage of franchises is their low failure rate. According to a recent
CNN report, the failure rate of Subway and Dunkin Donuts are only 7% and 8% respectively. This is largely because of the interrelated benefits to both franchisor and franchisee. Once established, a business development manager provides ongoing support and advice to the franchisee.

Benefits
• Each owner has equal share/one vote
• Profits are shared equally
• Can have limited liability status
• Workers can decide whether to be owners
Drawbacks
• Obtaining finance may be difficult
• Decisions by consensus take time
• ‘Hard’ decisions may be difficult to make
• ‘Equality’ can be hard for good leaders/workers

Benefits
• Provide access to new markets and distribution networks
• Increase capacity
• Share risk and costs between partner business
• Give access to greater resources (specialized staff, technology and finance).
Drawbacks
• If objectives aren't clear
• Different objectives between the partners
• An imbalance in levels of experience, investment or assets bought to the venture
• Different culture and management style, resulting in poor cooperation.

• Another way to grow with less risk to its own capital is to sell franchises.
• Another way of entering a foreign market is to create a joint venture with a local company.

Teacher will read out a definition …
Find the Key word to the definition
… and Swat it !!

!!
Sole trader
Partnership
Private limited company
Public limited company
Franchise
Co-operative
Limited liability
Unlimited liability
Joint venture

 Be creative
 Use key words
Activity 13.2
Pg 82

Of this section……
• Understand the Relationship between objectives, growth and business organisation

pg 84
Business in context
UNIT 1.1
LESSON 1

People setting up a business will have to decide which legal form o business organization they wish to establish.
This will depend on numerous factors, including:
• OwnershipDoes the owner want to be in complete control of the business? Can the owner/s afford to have the risk of having unlimited liability?
• ControlHow many people will own the business? Does it want complete privacy of its accounts? Do the owners prefer to work alone or with others, perhaps so to share the workload?
• Sources of financeHow much money is needed to set up the business? Do the owners have the necessary money to start the business or are additional funds required?

• Use of ProfitsDoes the owner want to keep all the profits of the business?
• Stakeholders (individuals and organizations with a direct interest in the well- being of a business)- Are the owners prepared to share the profits in return for greater sources of finance to fund the organization’s business operations? How prepared are the owners to work with foreign suppliers and governments? Do they have sufficient capital or do they need to rely on other stakeholders?
• ShareholdingsAre the owners prepared ro allow others have shares (hence voting rights) in the business?

– Make Notes…
– Reasons for growth
– Methods of Growth
– Which methods of growth should a business choose?
– Problems with Growth

Differing objectives of business organizations
• Different business organizations have different objectives.
• A sole trader new in business might set survival as the main objective, whereas a franchise might decide that growth is its key business objective.

Differing objectives of business organizations
• As a business grows, it is likely to move away from being a sole trader to a partnership or private limited company.
• Therefore, is business objectives are also likely to change.
• For example, many limited companies will aim for profit maximization by operating in overseas markets.
• Multinationals might choose to move or expand operations in foreign countries to benefit from lower rates of corporation tax. E.g. taxes in Japan, Australia and UK are far higher than those in Hong Kong, Singapore and Bahrain.
• Whatever the reason, the size of a business can helpt it to compete more effectively in increasingly competitive markets.

• A multinational corporation (MNC) is an organization that operates in two or more countries.
• For example, The Body Shop has more than 2,400 stores and operates in over 60 countries.
• As businesses grow, they might find that their domestic operations are inadequate.

• For example, it might be cheaper and more efficient to switch production to another country.
• There have been various factors that have made it easier for businesses to operate on a global scale, such as:
• lower transportation costs,
• advances in technology such as e-commerce,
• more efficient communication systems,
• and trade libration (the removal of barriers to international trade).

• Multinational Corporations(MNC)
• Business organization that works in two or more country.
– Multinational can increase their sales, by expanding internationally to widen their customer base.
– Producing in another country can avoid protectionist policy from the home country.
– Can also spread risk, multinational corporations can bring domestic recession internationally.
• eg.
– Natural Disaster-(hurricane, tsunamis, earthquakes...)
– Disease-(bird flu, H1N1....)
– Terrorist Attacks-(9/11)
– Globalization of markets helps the country increase customer base rapidly.
Corporations rushes to go international before their rivals to gain customer royalty.
• ex. Coca-Cola, Dell, Exxon, GM...

The advantages of being a multinational include:
• MNCs operate on a very large scale so are therefore able to exploit economies of scale.
• This means that the MNC can pass on cost savings to customers in the form of lower prices, thereby enhancing its international competitiveness.

The advantages of being a multinational include:
• Through job creation, MNCs are able to help improve the living standards in the countries that they operate. For example, Wal-Mart, the world’s largest retailer, employs over 2.1 million people worldwide
• By operating in overseas markets, MNCs are able to generate more profit by selling to a larger customer base
• MNCs are able to spread risks by operating in overseas markets. For example, adverse trading conditions in one part of the world can be offset by more favorable circumstances in other parts of the world.

The advantages of being a multinational include:
• By producing in a foreign country, a MNC is often able to avoid any trade restrictions. For example, Japan’s Honda is able to avoid import taxes in the European Union as i has manufacturing plants in the UK, Belgium, Italy and France.

The disadvantages of being a multinational include:
• MNCs face an array issues to deal with, such as different legal systems, tax regulations and environmental guidelines.
• The lack of local knowledge can also cause major problems for a MNC.

The disadvantages of being a multinational include:
• The sheer size and geographic spread of a MNC makes it harder to manage the business. It becomes more difficult for managers to ensure everyone works well together.
• Effective communication can also be an issue if workers are located in countries with different languages and national cultures.
• Fluctuating exchange rates can make it difficult to measure and compare the value of a MNC’s sales and profits in overseas markets.

The disadvantages of being a multinational include:
• Multinationals have often been criticized for cost- cutting practices, such as poor working conditions and low paid wages to workers in lowincome countries.
• Since many MNCs earn far more revenue than the Gross Domestic
Product (GDP- the value of a country’s annual production) of the host country, they are often in a powerful position to exploit foreign governments over decisions such as the location of the business and access to finance (government subsidies, grants and loans.)

The disadvantages of being a multinational include:
• Whilst jobs might be created, MNCs can force local firms that are less competitive to close down. Their huge market power and ability to exploit economies of scale mean that local firms might struggle to compete.
• The over-reliance on MNCs in low- income countries means that there are major consequences should any MNC choose to relocate its operations to another country. For example, in 2010 a French supermarket chain Carrefour pulled out of Thailand, Malaysia and
Singapore, creating an increase of unemployment in these three countries.