GR10 - Types of business organisation (2).pdf

4. Types of business organisation  FORMS OF BUSINESS ORGANISATION Sole Trader & Limited Partnership companies Private ltd Public ltd  Other forms of businesses Joint venture Franchise ...

4. Types of business organisation  FORMS OF BUSINESS ORGANISATION Sole Trader & Limited Partnership companies Private ltd Public ltd  Other forms of businesses Joint venture Franchise  Sole trader Sole trader is a business owned and operated by just one person. The owner is the sole proprietor. Unincorporated businesses  Sole trader (Features) No continuity One No separate owner legal entity Control Profit Unlimited liability Easy to set up Advantages of Sole trader: 1) There are few legal regulations to set up the business. 2) Sole trader has complete control over his/her business and there is no need to consult with or ask others before making decisions. 3) Freedom to choose his/her own holidays, hours of work, prices to be charged and whom to employ 4) Close contact with his/her own customers, the personal satisfaction of knowing his regular customers and the ability to respond quickly to their needs and demands. 5) Sole trader has an incentive to work hard as he is able to keep all the profits, after he pays tax. He doesn’t have to share these profits 6) He doesn’t have to give information about his/her business to anyone else - other than the tax office. (Secrecy in business matters) Disadvantages of Sole trader: 1) No one to discuss business matters. Taking all decisions by himself/herself 2) No separate legal entity - The sole trader is fully responsible for any debts that business may have or for any harms by business operations 3) Unlimited liability - means that if business can not pay its debts, then the people or bank the sole trader own money to (creditors) can force sole trader to sell all of his/her own possessions in order to pay them. 4) Lack of capital - the sources of finance for a sole trader are limited to the owner’s savings, profits made by the business and small bank loans. 5) To remain small because capital for expansion is so restricted 6) When sole trader die the business will legally not exist any longer. This is because there is no continuity of the business after the death of the owner.  Partnership w hic h t wo us in e ss in fo rm o f b ine ss e rsh ip is a ow n a b us Partn to jo in tly p le a gr ee m o re pe o or Partnership Agreement is the written and legal agreement between business partners. Unincorporated businesses  Partnership Features More ideas from new partner(s) Continuity Share capital & profit No separate legal entity Unlimited Shared liability Responsibilities Advantages of Partnership: 1) More capital - More capital invested in to the business from business partner 2) The responsibilities of running the business are shared (Marketing, Accounting, Administration and production) 3) Partners are motivated to work hard because they would both benefit from the profits. 4) More ideas and assistance to make a good decision making, to set plans and to implement business strategies. Disadvantages of Partnership: 1) No separate legal entity - The sole trader is fully responsible for any debts that business may have or for any harms by business operations 2) Unlimited liability - means that if business can not pay its debts, then the people or bank the sole trader own money to (creditors) can force sole trader to sell all of his/her own possessions in order to pay them. 3) Partners can disagree on business decisions and consulting all partners takes time. 4) If one of the partners is very inefficient or actually dishonest, then the other partners could suffer by losing money in the business.  Activity Find a sole trader business (well-known by yourside) and explain about it EXPLAIN DETAILED ABOUT THEIR BUSINESS OPERATION  Public Limited Private Companies limited Incorporated businesses limited Shares to Limited Private public liability Shares Control by Less control Separate owner legal entity Annual General Continutity No AGM meeting Publish financial Capital No need to statement Legal formalities publish Advantages of Private limited companies: 1) More capital - The sales of shares (privately) could lead to much larger sums of capital to invest in the business than the partnership business. 2) Limited liability - It means that if the company failed with debts owing to creditors (banks or lenders), the shareholders could not be forced to sell their possessions to pay the debts. 3) Incorporated (separate legal entity) - A company exists separately from the owners and the business is fully responsible for any debts or for any harms by its operations. it won’t affect the shareholders or directors. 4) Control - The people who started the company are able to keep control of it as long as they do not sell too many shares to other people. Disadvantages of Private Limited Company: 1) Documentation & regulations: there are significant legal matters which have to be dealt with before a company can be formed. 2) The shares in private limited company can not be sold or transferred to anyone else without the agreement of the other shareholders. 3) The accounts of a company are less secret than for either a sole trader or a partnership. 4) Most importantly for rapidly expanding businesses, the company can not offer its shares to the general public. Advantages of Public limited companies: 1) More capital - The sales of shares (to general public) could lead to much larger sums of capital to invest in the business than the business. 2) Limited liability - It means that if the company failed with debts owing to creditors (banks or lenders), the shareholders could not be forced to sell their possessions to pay the debts. 3) Incorporated (separate legal entity) - A company exists separately from the owners and the business is fully responsible for any debts or for any harms by its operations. it won’t affect the shareholders or directors. 4) There is no restriction on the buying, selling or transfer of shares. 5) A business trading as a public limited company usually has high status and should find it easier to attract suppliers prepared to sell goods on credit and banks willing to lend to it. Disadvantages of Public Limited Company: 1) Documentation & regulations: there are significant legal matters which have to be dealt with before a company can be formed. 2) Selling shares to the public is expensive. the business will often do the process (selling shares) by merchant bank. It will change a commission for its service. 3) The accounts of a company are required to publish all financial transactions to the general public. So there is no secrecy. 4) There is a very danger that although the original owners of the business might become rich by selling shares in their business, they may lose control over it when it ‘goes public’.  Perseroan Terbuka (PT Tbk) (Public Limited Companies) Perseroan Terbatas (PT) (Private Limited Companies) A share is referred to as a unit of ownership which represents an equal proportion of a company's capital. Shareholder means 'a person or organisation who owns shares in a limited company. A dividend is a distribution of profits by a corporation to its shareholders Franchise a business that uses the name, logo and trading systems of an existing scuccessful business. Franchisor Franchisee  ADVs DISVs Established Profit Sharing brand Training and Huge initial Guidance capital Management Quality Supplies control Free national Pay to local advertisement promotion Advantages: 1) The chances of business failure are much reduced because a well-known product is being sold. 2) The franchisor pays for advertising (national & International level) 3) All supplies are obtained from a central sources (Franchisor) (obtain good quality materials) 4) Training for staff and management is provided by the franchisor 5) Banks are often willing to lend to franchisees due to relatively low risk Advantages and Disadvantages to the franchisee Disadvantages: 1) Less independence than with operating a non-franchised business. 2) May be unable to make decisions that would suit the local area 3) Licence fee must be paid to the franchisor and possibly a percentage of the annual turnover. Advantages: 1) The franchisee buys a licence from the franchisor to use the brand name 2) Expansion of the franchised business is much faster than if the franchisor had a finance all new outlets 3) The management of the outlets is the responsibility of the franchisee 4) All products sold must be obtained from the franchisor Advantages and Disadvantages to the franchisor Disadvantages: 1) Poor management of one franchised outlet could lead to a bad reputation for the whole business 2) The franchisee keeps major portion of profits from the outlet Draw route map - from sole trader to public ltd Joint Venture re e to w ork s in es s es ag r mo re bu. Two o rt ic ula r pr oj ect er on a pa togeth Share cost and Share experiance Cover up Market risk and skills effiectively Advantages of Joint Ventures 1) Sharing costs - very important for expensive projects such as new aircraft 2) Local knowledge when joint venture company is already based in the country 3) Risks are shared Disadvantages of Joint Ventures 1) If the new project is successful, then the profit have to be shared 2) Disagreements over important decisions might occur 3) The two joint venture partners might have different ways of running a business - different cultures. Public sector organisations are controlled and owned by government Features Social Owned by state objectives Training and Guidance Financed Quality Supplies by Low price or taxation Free Airports, Post office, Healthcare centre