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Types of business organizations - Coggle Diagram
Types of business organizations
Unincorporated business
Unincorporated businesses are not legally registered as companies (corporations). The 2 main types are...
Sole traders
Are individuals who own their own business. They don’t have to work alone, they can employ people to work with them or for them. Are common in businesses that are simple to establish and require minimal capital to get started. A hairdresser just needs a few items of equipment to get started, so being a sole trader is the ideal form of legal ownership, especially because it takes minimum paperwork before they can begin business.
Partnerships
Are unincorporated businesses, so in the eye of the law the owners and business are the same legal entity. Partnerships are small organisations that used to have between 2 and 20 partners. Small local businesses often choose to be partnerships as they don’t have to do as much paperwork as larger companies and can keep all the profits themselves.
The deed of a partnership
Is a legally binding document, drawn up by partners. If a conflict arises, they can refer to the deed of partnership.
Details
Registered address.
Salary entitlements.
Holiday entitlements.
Finance provided by each partner.
Percentage of profit to be received by each partner.
Limited liability
Companies are legally registered, and have separate legal identities to the identities of their owners. The company is liable for all its debts. If the business faces a legal action, it may lose all its possessions (assets), but the owner's personal possession would not be at risk, because they are protected by limited liability.
Issuing shares
Companies have their own legal identity, their ownership is allocated by issuing shares. Shareholders invest in the company and, in return, they own a part of it, called a share. The number of shares a has a shareholder, determine how much of the company it owns. How shares are bought and issued depends on the company.
Public limited companies (PLC)
PLC issues their shares to the general public, meaning that anyone can become shareholder and then they are free to openly trade their shares in the business on one of the world’s stock exchanges. This is called floatation.
Private limited companies (Ltd)
(Ltd) issue their shares to private investors who they choose, this means that the ownership is kept private.
The law requires the companies to hold an annual general meeting (AGM). Yearly meeting with shareholders and company directors.
They prepare 2 documents...
Memorandum of the association.
Articles of association
Franchises
Is an arrangement between 2 existing organisations, normally a PLC and a Ltd. THis happens when a new franchisee, alghout a separate legal entity, trades under the name of an existing franchisor.
The arrangement
Entrepreneurs often favour a franchise arrangement, because it allows a new business to trade under an established brand name, which reduces risk of failure. In return, the franchise has to pay an initial set-up cost and yearly royalties.
Joint ventures
Is an agreement between 2 existing organisations to start a jointly owned 3rd company. When a company tries to grow into a new market but doesn't know anything about it, this happens. Rather than doing it alone and risking failure, it creates a joint venture with a local company with market experience and a well-established brand. Some businesses decide to form a joint venture to share resources and expertise.
Public sector organization
Are different from all the other organisations or arrangements previously mentioned. This is because private individuals do not own them. Instead, public sector organisations are owned and run by governments.
Private sector organization
The private sector is made up of businesses or corporations owned by people. The private sector includes malls, grocery stores, and your local diner. To make a profit in the private sector, businesses must earn our money by offering us products and services that we want or need.