Business Organisation Types Explained PDF

All organisations have one thing in common: they are made up of a group of individuals who are coming together to work towards achieving a common goal. How they do that is different for each organisation – they will have different ways of dividing their work and structuring themselves internally, ev...

All organisations have one thing in common: they are made up of a group of individuals who are coming together to work towards achieving a common goal. How they do that is different for each organisation – they will have different ways of dividing their work and structuring themselves internally, even if they’re in the same industry. When a business owner wants to start a business, there are a number of different organisation types that they can choose. There are a number of factors that need to be taken into consideration as the type of organisation will have an impact on many things such as: whether liability for debts is limited or unlimitedhow the business is governedhow the business is governedhow the business raises funding. Limited liability – Means the owners liability for debts is limited (usually to how much they’ve invested). Unlimited liability – Means the owners liability for debts is unlimited. Their personal assets, like any property that they own, may be at risk if the business cannot pay its debts. A sole trader is one person running their own business. They are usually small and are very easy to set up and run as they have very few regulations they must abide by. Individuals who provide a service such as: hairdressers, photographers, electricians are often sole traders. Sole traders have unlimited liability and are responsible for all the debts of the business. They can take all the profits for themselves. A partnership is when two or more people start a trade, occupation or profession together with a view to making a profit. Partnerships – A conventional partnership has unlimited liability. A partnership isn’t allowed to own property in its own name. It’s governed by the regulations set out in the Partnership Act (1890). Each partner is taxed individually like a sole trader. Limited liability partnerships – A limited liability partnership is taxed like a partnership but must be registered at Companies House. Its liability is limited. It’s governed by the regulations set out in the Limited Liability Partnerships Act (2000). Limited partnerships – A limited partnership is formed and regulated under the Limited Partnership Act (2000). It has one or more partners that have unlimited liability, and one or more partners that have limited liability. The partner with limited liability can’t take part in the management of the business. It also needs to be registered at Companies House. The owners of a limited company may be involved in running the business, but they have no automatic right to be involved. The ownership and management of the company can be split. Both the company and its owners are taxed separately. Private limited companies (Ltd) – A private limited company is formed under the Companies Act (2006). It has one or more directors. Provided they have paid for their shares in full, the owners (shareholders) liability is limited to the amount of their shares. must register on companies house Public limited companies (Plc) – A public limited company is formed under the Companies Act (2006). It has two or more directors, two or more shareholders and must have a qualified company secretary. Provided they have paid for their shares in full, the owners (shareholders) liability is limited to the amount of their shares. all above must register on Not for profit organisations: public sector The public sector is made up of the organisations that provide all public services in the UK, such as emergency services, healthcare, education, housing, refuse collection, and social care. Most of them don’t have profit as their primary objective and money to pay for the services is raised through a variety of taxes. all above must register on companies house expect sole trader and partnership house Not for profit organisations are found in both the private and public sector. They have three characteristics: they don’t have external shareholders (and therefore don’t raise capital in this way) they don’t issue dividends (they retain any surplus in the organisation) their objectives include a social, environmental or charitable aspect. Even though they are called not for profit, this can be misleading as these organisations do make profits (often called a ‘surplus’) and some of them even have making a profit or surplus as part of their formal business plans. A not-for-profit organisation can be either incorporated or unincorporated. Not for profit organisations: private sector Not for profit organisations in the private sector include nearly all charities, voluntary and community organisations. Sports and housing associations are also common private sector not for profit organisations. Most of them don’t have profit as their primary objective and money to pay for the services is raised through donations, grants and fund raising activities. Not for profit organisations: public sector The public sector is made up of the organisations that provide all public services in the UK, such as emergency services, healthcare, education, housing, refuse collection, and social care. Most of them don’t have profit as their primary objective and money to pay for the services is raised through a variety of taxes. Sole traders Governance – Sole traders make all the decisions about running a business by themselves and don’t have to be accountable to anyone else. This can mean it’s quicker for them to make decisions, but it can also mean they don’t benefit from diverse viewpoints when making decisions. The owner isn’t a separate legal entity from the business. Funding – Sole traders typically raise funding through personal sources; either the profits of their business that they reinvest, or through loans from family and friends. Access to funding from banks and lenders can be difficult to obtain – especially as they’ll typically need a formal business plan. Partnerships Governance – A partnership should have a partnership agreement in place to set out each partner’s rights and responsibilities, how the business will operate on a day to day basis, and how profits will be shared. A partnership agreement will also set out what happens in the event of death or retirement of a partner, or the admission of a new partner into the partnership. Although it isn’t a legal requirement to have a partnership agreement it can be beneficial, as without it the terms of the Partnership Act (1890) apply and partners won’t always agree with its provisions. As there are two or more people in a partnership, there are more viewpoints and skills, but getting people to agree on a way forward can be challenging. Funding – Partnerships may find it easier to raise funds than sole traders as banks are more likely to lend money to a business with more than one owner as it is less risky for them. The more partners there are, the more that risk is shared. Like for a sole trader, a partnership isn’t a separate legal entity from its owners. Limited liability partnerships Governance