14. Objectives, Growth and
Business Organisation
Created and presented by Chelsea and Hafiz
Nuttall, Chris J. and Medi Houghton. Cambridge IGCSE
Business Studies. Cambridge: Cambridge University Press,
2010. Print.
Basics of Organisations
 As explained before, businesses fall into a number of
different models.
 Choosing an appropriate business type is important to
ensure the success of an operation.
 A number of factors influence the most suitable model
for a business.
Some businesses are
unincorporated, such as…
Sole Traders
Individuals who rely on their own skills, capital and
intelligence to single-handedly run a business.
Key features:
• Full owner control of the business.
• Unlimited liability for all of the business’s affairs.
• Owner takes all required decisions by themselves.
• All profit is received by the owner.
Partnerships
A number of self-employed individuals operating an
unincorporated business.
Key features:
• Generally established with a Deed of Partnership.
• Owners fully control the business and its profits.
• Unlimited liability for all owners in regards to all
affairs.
While some others are
incorporated…
Public limited companies
An incorporated business which freely offers its
ownership to the general public.
Key features:
• Shares traded freely.
• Wide sources of capital.
• Vulnerable to takeovers and ownership conflicts.
• Owner profits and liabilities are limited and
depend on share percentage.
Private limited companies
An incorporated business which limits its ownership
to certain parties.
Key features:
• Relatively controlled ownership.
• Large but limited sources of capital.
• Owner profits and liabilities are limited and
depend on share percentage.
And some are run in other ways…
Franchises
An agreement allowing a business to trade under the
name of another business.
Key Features:
• Good chance of success thanks to brand
recognition.
• Brand owner (franchiser) depends on the success
of operators (franchisees).
• Less independence for branch operations.
• Allow costs to be divided and localised between
different branches.
Cooperatives
A business enterprise owned jointly by members,
which exists for their mutual benefit.
Key Features:
• Capital provided by members.
• Management responsibilities shared equally
between members.
• Members receive pre-determined shares of the
profits.
Which model to choose, then?
Ownership
 A small trader intending to work on their own would
probably set up a sole proprietorship.
 Some may also form partnerships or cooperatives, with
members handling different areas.
 Incorporated businesses mainly have their ownership
decided by shares.
 Franchisees, however, generally only own the local
operations.
Control
 Sole traders have complete control over their businesses.
 Control of partnerships is generally decided in the related Deed of
Partnership.
 Limited companies often have fluctuating controllers due to the trade of
shares.
 Franchises vary in the degree of autonomy given to franchisees.
 Cooperatives are usually controlled quite equally by all members.
Sources of finance
 Limited companies generally attract more
sources of finance than sole proprietorships and
partnerships.
 Public limited companies often have access to
almost limitless sources of income, though
vulnerable to takeovers.
 Cooperatives are funded by their own members.
 Franchises may receive central funding or seek
for sources independently, while often benefitting
from the financial economies of scale
Use of profits
 Sole traders and partnerships have what amounts to
complete control over their profits.
 Incorporated businesses, however, are often required to
pay some percentage of corporate tax to the government
 Dividends are shared between owners in limited
companies according to their percentage of ownership.
Size
 Based on what we have learned of business size
measurements, we may identify sole
proprietorships and partnerships as generally
being smaller.
 Limited companies and franchises tend to be
comparatively large in size, at times dealing with
global markets.
Examples
 Sony Corporation, a Japan-based multinational
conglomerate, was initially a small partnership
which has transitioned into a public limited
company.
 At June 2010, Sony was owned by Moxley &
Co., Japan Trustee Services Bank, Ltd., and
JPMorgan Chase, among many others, giving
access to a wide range of financial sources.
 This also allows Sony to manage a wide range
of divisions throughout the years thanks to its
sheer size and financial capabilities.
 Baskin-Robbins, meanwhile, is a US-based
ice cream franchise developed from a
merger between two small companies.
 Presently a subsidiary of Dunkin’ Brands,
Baskin-Robbins’ franchising operations
span 6,000 parlours in over 35 different
countries across the globe.
 The franchise’s wide range allows for great
amounts of income, with a mean revenue of
$290,554 per store in 2002.
Growth
 Apart from organisation, growth plays a substantial role
in a business’s actions.
 Businesses are required to decide an ideal method of
growth to maximise their performance and achieve their
objectives.
Internal growth
• As a business progresses through time, it gradually expands in size and widen the scale of
its operations.
• Internal growth completely depends on a business’s own successes and efforts.
• This manner of growth may take an extended amount of time and is prone to fluctuations
within the marker.
• However, the original owners may retain their degree of control over the business and
eventually secure a relatively stable expansion.
External growth
• Expanding businesses through merger or acquisition deals with other businesses.
• Businesses may expand their operations rapidly while sharing costs with their partner.
• Mergers and acquisitions are typically regulated by competition laws in order to prevent
monopoly.
• External growth also allows the participants to rapidly expand their respective markets and
benefit from economies of scale.
Problems
 An increased operational scale may require significant
increases in capital and cash holdings.
 Merging multiple operations may complicate the effort
of reliably supplying the market.
 In addition, the merging of vastly different businesses
may cause a conflict of management and work culture,
presenting further problems.
Examples
 The acquisition of Chrysler by the Daimler Group in 1998
was looked upon by many as a potent “merger of equals”,
setting two automobile giants on a common business path.
 However, cultural differences between the two took its toll:
the rigid, centralised Daimler management conflicted with
the creativity-based Chrysler leadership, which eventually
led to operational problems, stalled cooperations and
financial losses.
 Daimler eventually sold its ownership of Chrysler a decade
after the merger to avoid further losses.
 Exxon and Mobil were originally local successors
of John D. Rockefeller’s Standard Oil after its
alleged breach of competition laws and
subsequent breakup in 1911.
 Both companies went on to run gas station chains
and brands of oil products, and reached great
successes throughout the decade.
 Their 1998 merger was the largest in the US
corporate history at US$73.7 billion dollars.
 ExxonMobil is currently the world’s largest private
oil company, and made an all-time record in
quarterly income with the $10 billion they earned
in Q3 2005.