Business Structures Overview

Sole Trader

• Easy to set up with low costs
• Owner makes all decisions and keeps all profits
• Difficult to secure loans
• Unlimited liability for debts
• Long working hours & limited time off
• Sole responsibility for all aspects of business
• Challenges if owner becomes ill

Partnership

• Managed by 2-20 people
• Workload shared
• Partners can specialize in different areas
• More capital invested
• Unlimited liability for debts
• Potential for disagreements
• Profits shared amongst partners
• Business disruption if a partner leaves

Why bring in more partners?

• Gaining expertise
• Generating new ideas
• Increasing capital investment

Franchise

• Agreement to use an established brand name and products/services
• Offers a way to run a business, not a business itself

Franchisee

• Reduced marketing costs due to established brand

• Lower risk compared to starting independent business

• Potential for training and support from franchiser

• Products, pricing, and store layout often dictated by franchiser

• Royalty payment (often a percentage of revenue) required

• High initial costs are common

Franchisor

• Fast expansion method without significant investment
• Steady cash flow from royalty payments
• Shared risk between franchiser and franchisee
• Negative impact on reputation if franchisee performs poorly
• Risk of franchisee failing to return funds

Case study: Subway

• Investment of £100,000-£150,000 for a Subway franchise
• Franchisee granted right to operate in a specific location and use the brand
• Fees provide access to national advertising, brand awareness, and support

General Business Disadvantages

• Substantial setup costs
• Lack of control over who buys shares
• Requirement to publish annual accounts
• Need to comply with company regulations

General Business Advantages

• Easy access to loans due to larger size
• Limited liability

Types of Organisations

• Three main sectors: private, public, and third

Types of Businesses

• Private Sector:

  • Sole trader
  • Partnership
  • Private Limited company
  • Public Limited company
  • Multinational company
  • Franchise

• Public Sector:

  • Public sector organization
  • Local council (government)
  • Public corporation

• Third Sector:

  • Charity
  • Voluntary organisation
  • Social enterprise
  • Co-operatives

Private Sector Aims

• Maximize profits
• Transform innovative ideas into successful businesses
• Expand the business for continued growth

Private Sector Examples

• Private Limited companies (Ltd)
• Public Limited companies (PLC)
• Franchises

Limited Companies

Private Limited Company (Ltd)

• Shares are privately owned, not available to public
• Minimum of one shareholder

Public Limited Company (PLC)

• Shares are available for purchase by the public on the stock market
• Minimum of two shareholders
• Owned by shareholders
• Controlled by a board of directors
• Must produce a memorandum and articles of association

Private Limited Company (Ltd) Advantages

• Ownership control remains with insiders
• Easier to raise finance from shareholders and lenders
• Boards of directors bring experience to aid decision-making

Private Limited Company (Ltd) Disadvantages

• Profits shared amongst more people
• Shares cannot be sold to the general public
• Must comply with company regulations

Private Limited Company (PLC) Advantages

• Ability to raise significant capital by selling shares
• Limited liability for shareholders

Different Sectors of the Economy

Multinational Corporations (MNCs)

• Operate branches or subsidiaries in multiple countries
• Establish production facilities in different nations
• Motivations:
  • Increase market share
  • Accessing cheaper labor & lower production costs
  • Utilizing government grants
  • Tax avoidance or reduction
  • Reducing transportation costs
  • Bypassing trade barriers

Public Sector

• Focused on delivering high-quality services to all citizens

• Utilizes taxpayer funds to provide essential services

• Examples:

  • Police
  • Schools
  • Hospitals
  • Fire brigade
  • Army
  • BBC

• Ownership and Funding: Owned/controlled by local or national government, financed by taxes.

Third Sector

• Aims to support worthy causes, raise awareness, & provide quality services
• Provides support for food, shelter, clothing, funding, and awareness
• Organizations:
  • Charities
  • Voluntary Organizations
  • Social Enterprises
  • Co-operatives

Charities

• Established to help others
• Raised finances through donations, sponsorships, and fundraising
• Not owned by individuals, but are set up as trusts