Introductory Business
Concepts
Forms of Business Organisation
(special thanks to Geoff Leese)
Objectives
• Consider the different types of business
organisations operating in the private
sector
• Consider the advantages & disadvantages
of each type of organisation
Types of Business Organisations
Private Sector
Franchise
Sole Trader
Partnerships
Companies
Private limited companies
Cooperatives
Public limited companies
Sole Trader
• Owned financed and controlled by one
individual but can employ other staff
• Traditionally common in local building
firms, small shops, restaurants, butchers
• Today many people are setting up their
own businesses by creating small webbased companies working from home
Sole Trader
Advantages
• Requires little capital
• Easy to set up
• Personal incentive –
• keep all the profits
• make key decisions
• high degree of control
• Flexibility
• Ability to offer personal service
Sole Traders
Disadvantages
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Unlimited Liability
Limited access to capital
Potential for long hours
Pressure of being solely responsible
Lack of continuity – business ceases
once owner dies
• No cover for illness
Business Organisations
• Sole traders can overcome these
disadvantages by becoming a partnership
Partnerships
• Owned, financed and controlled by
between 2 & 20 partners
• Terms of Partnership agreed through
contract
• Bound by the terms of the Partnership Act
1890
• Common in professions – lawyers,
accountants, architects, surveyors, estate
agents, vets etc
Partnerships
Advantages
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Each partner contributes capital
Shared responsibility
Greater opportunity for specialisation
Easy to set up
Partnerships
Disadvantages
• Unlimited Liability
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(However since 2001, Partnerships can apply to be Limited Partnerships)
All partners liable for the debts of the others
Partnership dissolved on death of one partner
Potential for conflict
Decisions of one partner binding on the rest
Limited access to capital
Private limited companies
• Usually small family business
• Owned by between 2 and 50
shareholders
• Directors elected by shareholders
Private limited company
• Advantages
– Limited liability
– Shareholders contribute capital
– Protected from takeovers
• Disadvantages
– Still limited capital
– Limited economies of scale
Public limited companies
• Owned by minimum of 2 but no maximum
number of shareholders
• Example Boots
• Directors elected by shareholders
• Has a separate legal identity – the
company can sue and be sued
• Minimum share capital of £50,000
Public limited companies
• Advantages
– Large amount of capital can be raised
– Economies of scale
• Disadvantages
– Unwanted takeover possible
– Can be remote from customers
– Potential diseconomies of scale
Co-operatives
• Controlled by a committee
• Ownership, finance and control in hands of
‘members’
• Exists for the benefit of ‘members’
– Consumer co-ops – members buy goods in bulk, sell
to members, divide profits between members
– Worker co-operatives – workers buy the business
and run it – decisions and profits shared by members
– Producer co-operatives – producers organise
distribution and sale of products themselves
Franchises
• Method of Business Organisations backed by
established ‘brand’ name
• Franchisee – pays a fee for the purchase of the
franchise
• Common franchises – Body Shop, McDonalds,
Costa Coffee, Subway
Franchises
• Advantages
– Owner gets to run a business with less ‘risk’
– Owner buys the right to use the established
companies name, format products, logos,
display units, methods etc.
– Speedy way for business to expand
– Become very popular
Franchises
• Disadvantages
– Owner – (Franchisee) responsible for debts
– Franchisee pays a royalty to owners of the
brand
– Franchisee must adhere to pricing policy of
parent company and so it can be difficult to
realise high profits
Conclusion
• Considered the various types of business
organisations
• Considered the advantages &
disadvantages of each
• Useful Websites
– http://www.thetimes100.co.uk
• Lots of very useful stuff there!