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Types of Business Organization - Coggle Diagram
Types of Business Organization
Sole Trader: Business owned by one person
Advantages
Complete control over business running
You get to keep all the profits --- Incentive to keep going!!!
Business Secrecy
You get to choose your own work hours
Close contact with customers
Few regulations to worry about
Disadvantages
Cannot discuss business matters with anyone
Capital
Paradox of not having enough money to start up, and so going to bank who won't accept you since you don't have enough money...
You don't (And probably never will) have enough capital for expansion
Have to also deal with the losses
Limited Liability: Liability of shareholders limited to the amount of money invested
Or, in this case,
Unlimited Liability: The owner's of a business can be held responsible for the debts accumulated, with their liability not limited to amount invested
Cannot pass on the business once sick --- the business legally stops existing then
Who is it for
People setting up new business
Don't need much capital to get the business going
Will be dealing mainly with public and thus needs personalization
Partnership: Two or more people agree to jointly own a business
Partnership Agreement: Written, legal agreement between business partners. Not essential, but recommended
Advantages
More capital invested into business
Responsibilities shared
Both partners motivated to work hard for business --- still gets a lot of $$$
Disadvantages
Still no limited liability
Unincorporated Business: One that does not have a separate legal identity
Sorting out disagreements takes time
Can lose profits from inefficient or dishonest partners
Not many partners can be included
Private Limited Company: Business owned by shareholders who cannot sell shares to public
Advantages
Shares can be sold to a large no.of people --- friends or relatives of owners. Therefore, more capital!!!
Shareholders have limited liability
OG owners can keep control as long as they don't sell too many shares
Incorporated Business: Companies that have separate legal status from their owners
Disadvantages
Significant legal matters
Shares of private limited company cannot be sold or transferred to anyone else without agreement to other shareholders
Accounts are less secret than for sole traders
Cannot expand much due to being unable to offer its shares to general public.
Who it is for
Family businesses
Partnerships where owners wish to expand even further
Partnerships which want more $$$
Shareholders: Owners of a limited company who buy shares representing part-ownership of company
Public Limited Companies: Businesses owned by shareholders which can sell shares to public and shares are tradable on Stock Exchange
Advantages
Limited liability
Incorporated business
High amounts of capital raised
No restriction to buying, selling, or transfer of shares
Higher status and prestige
Disadvantages
Legal formalities are more complex
More regulations and controls
Selling shares is expensive
Control and Ownership in a Public Limited Company
Annual General Meting: Requirement for all companies. Shareholders may attend and vote on who they want to be on the Board of Directors that year
Director: The person who runs a private business and takes decisions, and only meets shareholders in the AGM
Managers: People who work under the Director for day-to-day business decisions
Shareholders can only impact who the director
Because of this, the director may work for their own objectives, and sometimes reduce the dividends paid to Shareholders for said objectives.
Dividends: Payments made to shareholders from the profits (after tax) of a company. Return to shareholders for investing in company.
Constantly changing the directors may lead to directors being elected when not experienced, leading to bad publicity for business
Merging/ Takeovers
Franchising
Franchise: Business based upon use of brand names, promotional logos and trading methods of an existing successful business. Franchise buys license to operate this business from the franchisor
Advantages
Franchisor
Payment from license
Faster expansion
Time free on management
Is in control of products sold
Franchisee
Less likely to fail due to using a brand ip
No payment for advertising
All products sourced from one area
Fewer decisions made
No need to train or manage staff
Banks willing to give capital
Disadvantages
Franchisee
Less independence than with operating a non-franchised business
Cannot make product decisions suiting locality
License fee paid
Franchisor
Poor management leads to bad pr for both businesses
franchisee keeps profits
Joint Ventures
Joint Ventures: Where two or more businesses start a new project together, sharing capital, risks and profit
Advantages
Sharing of costs
Cultural knowledge shared
Risks shared
Disadvantages
Profits shared
Cultural barriers
Disagreements
Public Corporation: A business in the public sector that is owned and controlled by the state
Advantages
Some industries are too important to be owned by private individuals
Prevents unwanted competition
Can nationalize failing businesses
Has important public services
Disadvantages
No profit motive, and therefore less efficiency
Government subsidies may become 'expected' and thus lead to inefficiency
Can be less motivated to add consumer choice due to no competition
Can get political