Transcript CHAP 19…. - SGC Business

CHAP 19….
TYPES OF BUSINESS
ORGANISATION
CHAPTER TOPICS
1.
2.
3.
4.
5.
6.
7.
8.
9.
WHAT ARE THE DIFFERENT TYPES OF BUSINESS
ORGANISATIONS?
WHAT ARE SOLE TRADERS?
WHAT ARE PARTNERSHIPS?
WHAT IS A LIMITED COMPANY?
WHAT IS A CO-OPERATIVE?
WHAT ARE STATE OWNED ENTERPRISES?
WHAT ARE THE CHANGING TRENDS IN BUSINESS
OWNERSHIP AND STRUCTURE?
WHY HAVE AGRICULTURAL CO-OPS TURNED INTO
PLC’S?
WHY DO BUSINESSES CHANGE THEIR LEGAL
STRUCTURE OVER TIME?
1. WHAT ARE THE DIFFERENT TYPES
OF BUSINESS ORGANISATIONS?





SOLE TRADER
PARTNERSHIP
PRIVATE LIMITED COMPANY
CO-OPERATIVE
STATE OWNED ENTERPRISES
These business structures are going to be compared under the
following headings:
1.
Formation
2.
Dissolution
3.
Ownership
4.
Management & finance
5.
Profits & risk
2. What are Sole Traders?
This is a one person business run by
the owner with his/her own money.
Advantages
Disadvantages
1. Formation &
Dissolution
Very easy to form/dissolve.
It can be easily changed into
partnership, ltd company
etc.
If he/she dies then so does the
business
2. Management
& finance
Sole traders have full
control of how business is
run. Decision making is quick.
Financial records do not
have to be revealed to the
public.
Long working hours are common and
holidays are difficult to arrange due
to the commitment needed to be a
successful sole trader.
Can be difficult to raise all start up
finance and as a result loans are
required. They can be expensive on the
business start ups
3. Profit & risk
Keeps all profit.
Takes all the risk.
Takes all risk. They have unlimited
liability. They may lose assets in the
event of a debt needing to be paid.
3. What are partnerships?
Is an agreement between 2 or more people to go
into business with a view to making a profit? There
can be no less than 2 members and no more than 20.
Advantages
Disadvantages
1.Formation
&
Dissolution
Easy to form. You can start
immediately, however if
business name is different to
that of partners you must
register the company name.
If a partner leaves or a partnership
ends a new partnership must be
agreed.
2.
Management
& finance
Decision making is shared.
Responsibility is shared.
Financial details not open to
be viewed by public
Disagreements can easily occur.
If someone dies the business is
discontinued.
3. Profit &
risk
Extra capital available to
finance the
business
Unlimited liability, each partner is
responsible for the debts of the
business
Profits must be shared between
partners
4. What is a limited company?
Ltd companies are regarded as separate legal
entities from the people who own and run them.
The owners are called shareholders and only
gain/lose on the amount they put into the business .
There are two main types of company:
 Private limited company (Ltd) – HEITON BUCKLEY
 Public limited companies (PLC’s) – LIVERPOOL FC
The main difference is that shares of PLC’s can be freely
bought and sold on the stock exchange
The management structure of companies
Shareholders
Board of
directors
Managers
Marketing
Dept
Financial
Dept
Personnel
Dept
Production
Dept
How is a private limited company formed
To form a private limited company you must
1.
Have at least two shareholders and one director.
2
Prepare a Memorandum of Association. This is a document
for public use. It details name of company, company
objective, the number of shares of each shareholder. This
document is kept in the Companies Office.
3.
Prepare an Articles of Association. This is a document for
shareholders. It details the internal rules of the company,
types of shares issued, how meetings are run, the procedure
for electing/replacing directors.
4.
Register with REGISTRAR of COMPANIES in the COMPANIES
OFFICE
5.
The companies office issues a “birth certificate” called a
CERTIFICATE of INCORPORATION
6.
If you register as a public limited company you must obtain
a TRADING CERTIFICATE
7.
TRADING CAN NOW COMMENCE
How companies are run?
AGM- a meeting held once a year involving directors,
shareholders of a firm discussing events of the previous
12 months & future plans
Board of Directors BOD – this board is responsible for
overseeing the running of a company. These directors
are the most senior managers of a limited company.
Directors can be removed by a majority voting system.
The company chairperson – is a director and is elected by
the board to chair AGM’s & EGM’s. They speak on behalf of
the BOD.
The Managing Director MD/Chief Executive Officer CEO
Is in charge of overseeing all aspects of company activities.
The CEO is answerable to the BOD
Limited Company Features
Dissolution
1.
Formation
&
Dissolution
Advantages
Companies can continue
to exist even if a
shareholder or director
dies
Disadvantages
The legal formalities of
forming a company are more
complex, time consuming &
expensive than forming
other business structures
2. Ownership
Owned by its
shareholders
3. Management
& finance
Can raise finance for
business start ups or
expansion through
selling of shares.
A lot of paperwork including
financial audits, reports etc
4. Profit & risk
Shareholders have
limited liability. If
company has a lot of
shareholders risk is
minimal
Profits must be shared
5. What is a co-operative?
A co operative is business owned and run by a group of people,
AND each has a financial interest in its success.
They also have a say on how it is managed
Co-ops mainly exist in the agricultural industry .
Advantages
Disadvantages
1.Formation
Must have a minimum of 7
members. They register with
the REGISTRAR OF FRIENDLY
SOCIETIES.
Can be quite difficult to form,
time consuming and expensive.
2.
Ownership
Co-ops mainly exist in the
agricultural industry. Equal
voting system exists regardless
of the shares held.
They file an annual financial
return (report)
Conflict may exist between
members in the need for
business expansion.
What is a co-operative?
3.
Management
& finance
Management of co-ops are
inspired by a spirit of
democracy and mutual cooperation.
In some situations finance can
be difficult to raise. This can
hinder growth.
4. Profit &
risk
Members have limited liability.
Large membership of co-ops
make sure that there is high
demand for goods
Profits must be shared amongst
members.
There may be reluctance to
share profits with new members.
Risk is quite minimal.
6. What are state owned enterprises?
.These are enterprises that are set up,
financed and controlled by the government.
1. Formation
Advantages
Disadvantages
The government provides
the share capital and
subsidies. These
companies usually have a
good understanding with
financial institutions,
(banks)
Lack of funding which in turn
leads to borrowing more
from government, this is
especially true if the
business is not making a
profit (i.e IARNROD
EIREANN)
What are state owned
enterprises?
Management
and finance
They provide employment
They promote industrial
development, (e.g) IDA,
Forbairt, Bord Trachtala,
Bord Failte
They provide services of
necessity including, ESB,
VHI, CIE, Bus Eireann,
Dublin Bus.
Ownership
State owned
Examples
ESB, Coillte, An Post, Bus
Eireann
Aer Lingus
The directors of some firms
lack appropriate knowledge in
the companies particular area
(i.e agriculture), this is
because they are appointed
through political contacts
The lack of profit making,
(i.e. Iarnrod Eireann)
sometimes leads to lack of
motivation in workplace
Forms of Ownership – A summary
Sole Trader
Partnership
Limited
Company
Co-op
Formation
Easy
No paperwork
Easy
No paperwork
Paperwork
Registration fee
Paperwork
Registration fee
Ownership
Owned by sole
trader
Owned by partners
Owned by
shareholders
Owned by members
Management
&
finance
Speedy decision
making
Accounts are
private
Can be difficult to
raise finance
Shared decision
making
Disagreements
possible
Accounts are private
Raise finance through
new partners
Managed by BOD
Managed by Board
elected by members.
One member, one
vote rule.
Accounts submitted
to Register of
Friendly Societies
Raise finance through
grants, loans &
issuing of shares
Profits & risk
Keeps all the profit
Unlimited liability
Profit shared
Unlimited liability
Profits shared among
shareholders
Limited liability
Profits shares
Members have
limited liability
EXAMPLES
SHOPKEEPERS
TRADESPEOPLE
like carpenters,
plumbers
SOLICITORS,
DOCTORS,
DENTISTS.
Manchester United
Liverpool FC
AIB
Castlebar Credit
Union
NCF- Connaught Gold
BOD elected by
shareholders
Accounts submitted to
Companies Office
Raise finance through
grants, loans & issuing
of shares
7. WHAT ARE THE CHANGING TRENDS IN
BUSINESS OWNERSHIP AND STRUCTURE?
a)
b)
c)
d)
e)
Rise in the number of firms entering into alliances
Emergence of Irish TNC’s
Rise in the number of SME’s
Privatisation of state owned companies
Agricultural co-ops turning into PLC’s
a) Rise in the number of firms
entering into alliances
Many Irish firms are now entering into alliances such
as joint ventures. This helps them against larger
international firms. They can also share skills, pool
resources to further their growth.
b) Emergence of Irish TNC’s
The growth of free trade areas and Irelands
membership of the EU has led to potential
large Irish firms becoming TNC’s. They now
have access to a larger market size in which
to develop their companies.
Examples: Kerry Group
AIB
FYFFES
These companies are now set up in different
global locations such as UK, mainland
Europe, USA etc.
c) Rise in the number of SME’s
The number of SME’s operating in
Ireland is massively growing year
after year. The feature of an SME is
that has sales of €250,000 or less, it
also has employees of 50 or less.
Reasons for the growth of SME’s:

They receive state support in terms of
advice, guidance. The govt encourage
SME’s S as this will reduce unemployment,
increase competition etc.



The SME’s are developing in an
enterprise culture here in Ireland
Subcontracting (contracting out) –
Businesses are now spending more
time contracting out jobs such as
cleaning, security, maintenance
etc.
Franchising – The renting of a
successful business formula is a
common route to becoming a
LARGER company. Examples
include SUPERMACS, THE BODY
SHOP
d) Privatisation of state owned
companies
This means the selling of some or all of the shares in state –
owned company to private investors.
Examples: GREENCORE, IRISH LIFE
e) Agricultural co-ops turning into
PLC’s
PLC’S are companies that only sell shares on the stock
exchange. This makes it easier to raise much needed
finance for future business developments. In recent years
agricultural co-ops have become PLC’s
Example: KERRY GROUP
8. WHY HAVE AGRICULTURAL CO-OP’S
TURNED INTO PLC’s ?
With the international food industry getting very
competitive Irish agricultural co-ops have
become increasingly competitive.
To be able to spend large sums of money on R & D
has enabled these co-ops to increase their
economies of scale.
Existing Problems:
 The limit to equity/investors: agricultural co-ops
are owned by farmers. Under the laws governing
co-ops there is a limit on the amount of shares
each individual shareholder can have. As only
farmers can hold shares it makes it difficult to
raise finance.
 Limit to borrowings: borrowing large sums of
money would be high risk.
Solutions to the problems:
1.
2.
3.
4.
set up a PLC company on the stock market
Transfer ownership of some of the co-ops business
assets to the PLC.
The farmers own the co-op and the co-op has shares
on the stock market
When they need finance the sell shares on the stock
market. They always retain a 51% share to keep the
majority of the company.
Examples:
Kerry group, Golden Vale , Avonmore co-ops
NB: building societies are now following the trend of
these co-ops in raising finance on the stock market
9. WHY DO BUSINESSES CHANGE THEIR LEGAL
STRUCTURE OVER TIME?
Unlimited
liability
Sole
trader
Unlimited
liability
Limited liability
Limited liability
Private Ltd
Comp / Co-op
Partnership
Private Ltd
Comp / Co-op
State owned
Comp.
State owned
Comp.
PLC
Comp.
Private Ltd
Comp / Co-op
PLC Comp.
Businesses change their Business
Structure from Sole Trader to
Partnership to Private Limited
Company to a PLC because:
1.
2.
3.
It helps them bring in new skills,
experience, resources
It reduces risk as the sole trader or the
partners can now enjoy limited
liability
Helps to raise finance through
investors, stock exchange etc. for future
expansion
4.
5.
Helps to market the company. Being a
limited company enhances the image of
the business. This adds to the reputation of
the company as advertising and
promotions will be more convincing to the
intended customers.
Business profit prestige- changing a co-op
owned company to a PLC offers the
management and employees a stronger
allegiance to making profit rather than
operating for the goodwill of the local
area farmers etc.
KEY DEFINITIONS
LC EXAM QUESTION
2005 Q2. (a)
15 marks
Distinguish between a Sole Trader and a
Partnership as a form of Business organisation.
Use an example in each of your answers.
2005 – SQ
Explain the concept Limited Liability
10 marks
LC EXAM QUESTION
2004 - Q2 – (C)
20 MARKS
Explain why you would recommend a private
limited company Ltd as a type of business
organisation for a new business venture.
2001 – Q2-(A)
20 MARKS
Contrast a Private Limited Company LTD with a
Public Limited Company PLC as a form of
Business Organisation.
LC EXAM QUESTION
MOCK QUES
25 MARKS
Contrast the contents and functions of the articles
of association and memorandum of association
of a limited company.