1.2 Types of organisations

1.2.1 The main types of business ownership:

Sole Trader

  • An individual who owns and operates the business alone, having complete control and responsibility.

  • This structure is simple to set up and manage but carries unlimited personal liability for any debts or legal issues.

Partnership

  • A business owned by two or more people who share the responsibilities, profits, and liabilities of the business.

  • Partners usually have unlimited liability, meaning they are personally responsible for the business's debts.

Private Limited Company (Ltd)

  • A business owned by shareholders who have limited liability (the business owner or owners are only responsible for business debts up to the value of their financial investment in the business).

  • The company cannot sell its shares to the public.

  • Ownership is typically more restricted, and shares are not traded on the stock exchange.

Public Limited Company (PLC)

  • A business owned by shareholders who have limited liability.

  • It can sell shares to the public and is often listed on a stock exchange, allowing anyone to buy and sell shares.

Public Corporation

  • A business enterprise owned and operated by the government.

  • Public corporations are set up to provide services to the public rather than to make a profit.

1.2.2 Characteristics relating to size:

Ownership and Control

  • The structure of ownership (e.g., sole trader, partnership, company)

  • Determines who has control over the business and its decision-making.

Sources of Finance

  • Businesses can raise finance through various sources such as personal savings, loans, selling shares, retained profits, or government grants.

Use of Profits

  • Profits can be reinvested into the business for growth, distributed to owners/shareholders as dividends, or saved for future needs.

Stakeholders

  • Individuals or groups with an interest in the business, such as employees, customers, suppliers, the community, and shareholders.

Shareholders

  • Owners of a company who hold shares.

  • They have a financial interest in the business and are entitled to a share of the profits (dividends).

1.2.3 Different forms of business organisation:

Franchises

Definition: A franchise is a business model where a business owner (franchisor) allows another individual or company (franchisee) to operate a branch of their business using the franchisor's brand, products, and operational methods.

  • Key Characteristics:

    • Franchisor: Provides the franchisee with a proven business model, brand, training, and ongoing support.

    • Franchisee: Pays an initial fee and ongoing royalties to the franchisor in exchange for the right to operate the business.

    • Advantages for Franchisor: Expansion with lower risk and capital, increased brand presence, and additional revenue from franchise fees.

    • Advantages for Franchisee: Access to an established brand and business model, reduced risk compared to starting an independent business, and ongoing support.

    • Disadvantages: Franchisees may have limited control over business decisions and must adhere to the franchisor's guidelines. The franchisor may face challenges maintaining quality and brand consistency across different franchise locations.

Social Enterprises

Definition: A social enterprise is a business that aims to make a positive social, environmental, or community impact while generating revenue. Unlike traditional businesses, the primary goal of a social enterprise is not profit maximization but addressing social issues.

  • Key Characteristics:

    • Social Mission: The core purpose is to address a specific social problem, such as poverty, education, or environmental sustainability.

    • Profit Reinvestment: Profits are often reinvested into the business or community rather than distributed to owners or shareholders.

    • Sustainable Business Model: Social enterprises aim to be financially sustainable, relying on business revenue rather than donations or grants.

    • Examples: Fair trade companies, community interest companies (CICs), and businesses providing employment to disadvantaged groups.

    • Advantages: Positive social impact, potential for innovation in addressing social issues, and the ability to attract socially conscious customers and investors.

    • Disadvantages: Balancing financial sustainability with social goals can be challenging, and growth may be slower compared to profit-driven businesses.

Multinationals

Definition: A multinational corporation (MNC) is a large company that operates in multiple countries through subsidiaries, branches, or production facilities. MNCs typically have a centralized head office that coordinates global operations.

  • Key Characteristics:

    • Global Presence: Operates in several countries, allowing access to new markets and customers.

    • Economies of Scale: Ability to reduce costs by producing on a large scale and sourcing materials and labor from different countries.

    • Diversification: Spreading operations across multiple countries reduces dependency on a single market and spreads risk.

    • Influence: MNCs often have significant economic and political influence in the countries where they operate, which can impact local economies and policies.

    • Advantages: Access to global markets, increased revenue opportunities, cost advantages from global operations, and the ability to tap into diverse talent pools.

    • Disadvantages: Complexity in managing operations across different countries, cultural and legal differences, potential negative impact on local businesses and communities, and criticism for exploiting labor or resources in developing countries.