Types of Business Structures
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Types of Business Structures

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@SelectivePetra

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Questions and Answers

What is a key advantage of being a sole trader?

  • Harder to get loans
  • Owner must share profits
  • Owner makes all the decisions (correct)
  • Unlimited liability

    • A partnership can have between 2 to 20 people managing the business.

    True

    What is the main aim of social enterprises?

    To benefit a specific group or cause.

    Which of the following is NOT a disadvantage of partnerships?

    <p>Workload can be shared</p> Signup and view all the answers

    What is the primary attribute of cooperatives?

    <p>Democratic enterprises</p> Signup and view all the answers

    Social enterprises differ from traditional non-profit organizations in that they operate more like ___ sector organizations.

    <p>private</p> Signup and view all the answers

    What are the two main types of limited companies?

    <p>Private Limited Company (Ltd) and Public Limited Company (PLC)</p> Signup and view all the answers

    Franchises require a royalty payment as part of their agreement.

    <p>True</p> Signup and view all the answers

    What is a common source of funding for charities?

    <p>Donations and fundraising.</p> Signup and view all the answers

    Which sector includes charities and voluntary organizations?

    <p>Third sector</p> Signup and view all the answers

    What is a disadvantage of being a public limited company?

    <p>Control is lost to outsiders</p> Signup and view all the answers

    Match the following types of organizations with their main characteristic:

    <p>Sole Trader = Owner keeps all the profits Partnership = Managed by 2-20 people Charity = Established to help others Cooperative = Members share ownership</p> Signup and view all the answers

    Study Notes

    Sole Trader

    • Easy and inexpensive to establish.
    • Owner holds all decision-making power.
    • Profits are retained by the owner.
    • Loan acquisition from banks can be challenging.
    • Unlimited liability for the owner.
    • Long working hours with limited holidays.
    • Full responsibility rests with the owner.
    • Operational difficulties in case of the owner's illness.

    Partnership

    • 2-20 individuals manage the business.
    • Workload is shared among partners.
    • Partners can specialize in specific areas.
    • Additional capital can be invested.
    • Unlimited liability for all partners.
    • Potential for disagreements among partners.
    • Profits are distributed among partners.
    • Business operations can be disrupted by a partner leaving.

    Social Enterprises

    • Distinct from traditional non-profit organizations, as they operate like private sector entities.
    • Profits are utilized for the benefit of a specific social, environmental, or cultural cause.
    • They attract customers due to their social goals.
    • Appeal to high-quality employees aligned with their social mission.
    • Increased likelihood of receiving government grants due to their positive societal impact.
    • "Asset lock" provision ensures profits and assets from sales are used for the cause in case of closure.

    Cooperatives

    • Democratic enterprises.
    • Prioritize providing quality services to members and customers.
    • Customers and employees can become members and share ownership.
    • Adhere to international values and principles for ethical conduct.

    Charities

    • Established to provide assistance to others.
    • Rely on donations, sponsorships, and fundraising for financial support.
    • May have a "trading arm" (a shop) to generate funds.
    • Operated as a trust, not owned by individuals.
    • Heavily reliant on volunteers for labor.

    Voluntary Organisations

    • Focus on providing services to members and the local community.
    • Finance is raised primarily through membership subscriptions.

    Social Enterprise

    • Organizations that aim to generate profits for a particular group or cause.
    • Structured similarly to private sector organizations.
    • Profits are allocated to a social or environmental/cultural cause.
    • Their social goals attract customers.
    • Attract high-quality employees who share the organizational social mission.
    • More likely to receive government assistance and support.
    • "Asset Lock" principle ensures assets and profits are dedicated to the social cause upon closure or sale.

    Franchise

    • A business agreement that allows the usage of an established business's brand name, products, and services.
    • Not a business itself, but a method of running a business.

    Franchisee

    • Benefits from reduced marketing costs.
    • Reduced risk due to the established brand.
    • May receive training and administrative support from the franchiser.
    • Products, prices, and store layout may be dictated by the franchiser.
    • Typically required to pay a royalty based on revenue.
    • Initial costs are usually high.

    Franchisor

    • Benefits from rapid expansion without significant investment.
    • Steady cash flow through royalty payments.
    • Shared risk between franchiser and franchisee.
    • Company reputation can be harmed by poor franchisees.
    • May experience difficulties recovering funds from weak franchisees.

    Case Study: Subway

    • Setting up a fully equipped Subway requires an investment of £100,000 to £150,000.
    • Subway grants the right to operate in a specific location and use the brand.
    • Franchise fees provide access to national advertising and brand awareness/support.

    General Business Disadvantages

    • High initial setup costs.
    • Lack of control over share purchases.
    • Requirement to publish annual financial statements.
    • Compliance with company regulations.

    General Business Advantages

    • Large size facilitates easy borrowing of money.
    • Limited liability protection.

    Types of Organisations

    • Business (Economy) Sectors: Private, Public, and Third sectors.

    Private Sector

    • Private Aims: Maximizing profits, transforming innovative ideas into successful businesses, and expanding the business for growth.
    • Private Sector Examples: Sole Trader, Partnership, Private Limited company, Public Limited company, Multinational company, Franchise.

    Public Sector

    • Public Aims: Providing high-quality services to all citizens within a country, utilizing taxpayer funds effectively, and delivering essential services.
    • Public Sector Examples: Public Sector Organisations (PSO), Local Council (government), Public Corporation.

    Third Sector

    • Third Sector Aims To support worthy causes, raise awareness of "good causes", and provide the best possible service.
    • Third Sector Examples: Charity, Voluntary organisation, Social enterprise, Co-operative.

    Private Limited Company (Ltd)

    • Shares are privately owned, not publicly available for purchase on the stock market.
    • Requires a minimum of one shareholder.

    Public Limited Company (PLC)

    • Shares are publicly traded on the stock market.
    • Requires a 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

    • Control of the company remains with insiders.
    • Increased financial resources can be generated from shareholders and lenders.
    • Experienced boards of directors assist in decision-making.

    Private Limited Company (Ltd) Disadvantages

    • Profits are distributed among more individuals.
    • Shares are not available for sale to the public.
    • The company must adhere to the Companies Act.

    Public Limited Company (PLC) Advantages

    • Significant capital can be raised by selling shares to the public.
    • Limited liability.

    Multinational Corporations (MNCs)

    • Establish branches or subsidiaries in multiple countries.
    • Distinctive feature is the creation of production facilities in various countries.
    • Motivations for establishing MNCs:
      • Expanding market share.
      • Seeking lower labor and production costs.
      • Accessing government grants.
      • Minimizing or avoiding taxes.
      • Reducing transportation expenses.
      • Navigating trade barriers.

    Public Sector

    • Focuses on providing high-quality services accessible to all citizens.
    • Utilizes taxpayer funds effectively to deliver essential services.
    • Organizational examples: Police, Schools, Hospitals, Fire Brigade, Army, BBC.
    • Owned/controlled by local or national government and funded by taxes.

    Third Sector

    • Aims to support worthy causes, promote awareness of "good causes", and provide the best possible service.
    • Provides support for worthy causes like shelter, food, clothing, funding, and awareness campaigns.
    • Organizational examples: Charities, Voluntary organizations, Social Enterprises, Co-operatives.

    Charities

    • Established to assist others.
    • Source funding through donations, sponsorships, and fundraising efforts.
    • Structured as trusts, not owned by individuals.
    • Heavily reliant on volunteers for labor force.

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    Description

    This quiz explores various business structures including sole traders, partnerships, and social enterprises. Understand the key characteristics, advantages, and challenges associated with each type of business. Test your knowledge on how these structures operate and their implications.

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