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
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•
•
•
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.