BUSINESS ORGANISATIONS Unit 6 – Domestic Environment Class Exercise • Describe the different types of business organisations that exist. • What are the advantages and disadvantages that exist for each type of organisation? Objectives of this topic • To have an understanding of the following • Sole trader • Partnership • Company • Business Alliance • Franchising • Transnational or multinational company • The state of business • Indigenous firms Types of Business Organisations Irish Economy Private Sector Sole Traders Companies Private Limited Company Partnership Public Limited Company Public Sector Cooperative Others eg Franchise Public Corporations Local Authorities State Services Sole Trader • A business owned and controlled by one person Advantages • Owner keeps all profit Disadvantages • Unlimited liability – can lose • Owner makes all decisions • Independence – freedom and • flexibility • Confidentiality of accounts • Personal service to customers • Easy to set up • • • • all assets Lack of capital for expansion Lack of continuity of existence Difficulty of raising finance One person responsible for all tasks. A lot of pressure and work for one person. Partnership • A partnership is an agreement between two or more • • • • people to conduct business with a view to making a profit. Membership of a partnership is between 2 and 20 people. Partnerships are common among doctors, solicitors, accountants etc. Partners draw up a Deed of Partnership: a legal agreement setting out the rights, responsibilities and duties of each partner. A business must register its name with the CRO Partnership Advantages Disadvantages • Extra capital is available • Partners have unlimited • Shared decision-making liability • Disagreement among partners • Profit shared among partners • Decision-making is slow • Risk and responsibility is shared • Different skills and expertise of partners • Confidentiality of accounts • Easy to form Private Limited Company • This is a business owned generally by between 1 and 99 • • • • • • shareholders Shareholders contribute capital to the company. Shareholders appoint a board of directors to run the company. Shareholders have limited liability. The company has the work ‘Limited’ after its name. Companies are regulated by the Companies Act. Profits are distributed to shareholders in the form of dividends. Steps in the formation of a PLC To form a private limited company, the following steps must be taken: 1. Prepare the following documents a) b) c) Memorandum of Association Articles of Association Form A1 2. Send the documents plus the appropriate fee to the Companies Registration Office (CRO). 3. The CRO checks the documentation. If everything is in order they issue a Certificate of Incorporation. This is the birth cert of the company. Trading may begin. 4. The company must hold its first meeting. Private Limited Company Advantages Disadvantages • Limited Liability • Legal formalities • Separate legal entity • Costs • Access to capital • Regulations • Continuity • Publish accounts • Top management • Shared views • Low tax rates • Shared profits • Structured People involved in companies • Shareholders: • They are individuals or institutions who invest money in a company in return for shares • Board of Directors: • A board of directors is elected by the shareholders at the company AGM to run the business. • Managing Director: • Elected by the board of directors to run the company. • Auditors: • These are third-party accountants who are appointed to check the accuracy of the company accounts. • Secretary: • The company secretary is responsible for administration in the company. Co-Operatives • Co-ops are organisations formed by people with a common interest to establish an enterprise, with the aim of helping each other. Co-Operative • Co-ops can be formed by seven or more members. • Each member has one vote, irrespective of the number of shares held. • There is a maximum number of shares that an individual can hold. • There is no authorised capital. New shares can be issued. • All profits are divided among the members in proportion to their shareholding. Types of Co-operative • Producer Co-op • These co-ops are owned by producers of goods. • The most common type in Ireland are those owned by farmers. E.g. Dairy co-op. • Worker Co-op • This is a small local business that is owned by workers. The workers make all the decisions on how to run the business, they also work in the firm. • Community Co-op • These are usually set up to provide an important local service for people in the area. E.g. community water scheme. • Credit Unions • This is a non-profit making co-op where a group of people save regularly and lend to each other at a very reasonable rate of interest. Public Limited Company • A public limited company is a business owned by at least 7 shareholders with no maximum requirement. • Shares are quoted on the stock exchange so they can be bought and sold by the public. • Shareholders have limited liability. • Every public limited company must have plc after its name. Formation and Operation • Company set-up: • A plc is set up in the same way as a private company – by lodging documentation with the CRO. • Permission: • The company must get permission from the stock exchange in order to get a public listing. • Prospectus: • The company will issue a prospectus as an information guide to prospective investors. • Set Selling Price: • The company must decide how much capital it wants to raise and will then set a selling price for the shares. • Advertisements: • The shares will be offered for sale through advertisements. • Stock exchange: • Once the available shares have been sold, trading on the stock exchange begins. Public Limited Companies Advantages Disadvantages • Shareholders have limited • High formation expenses. liability Access to large amounts of capital. Higher credit rating with financial institutions. Continuity of existence. Top-quality management can be recruited. • Accounts must be audited • • • • and published. • Many legal requirements to be followed. • Owners may have little say in the running of the company. Formation of a Limited Company Business Alliance • This is an agreement formed between two or more businesses to work together in particular commercial matters while at the same time remaining separate entities. • The alliance involves sharing expertise, skills, costs and risk. • E.g. oneworld alliance of airlines. Franchise • This is the granting of a licence by the franchisor to the franchisee, allowing the right to use the franchisor’s trade name, logo and business system, and to sell their product or service. • The licence is expensive and a percentage of sales/royalties must be paid annually. • E.g. McDonalds, Supermacs, Pizza Hut, Subway Forms of Business Ownership Exercise State-Owned Companies • State enterprises are set up, owned, financed and controlled by the government. • Capital to finance the enterprise is provided by the government. • Commercial state enterprises produce goods and services that are sold to the public. Indigenous Firms • These are firms that are set up in Ireland and owned and managed by Irish people. • They produce goods and/or provide services in Ireland. Their principle place of business is Ireland. • Enterprise Ireland is the state agency responsible for the development of such firms in Ireland. Transnational Companies • A company with its headquarters in one country and branches in a number of different countries. • The head office controls the business, while the branches carry out different jobs. Transnational Companies Advantages Disadvantages • They provide huge • Lack of loyalty. employment. • They provide revenue to the government in the form of corporation tax. • Export led leads to favourable balance of payments. • They buy raw materials from Irish businesses. • They provide intense competition for local firms. • Most of the profits are repatriated to their head office. • Larger transnationals exert massive pressure on governments for their own objectives.