Business Management

UNIT 1 1.1 - What do businesses do?

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Types of business organisation

Sole Trader

Public Limited Company

Partner ship Types of business

Public Ownership Private Limited Company Franchise

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Sole Trader

FEATURES OF SOLE TRADER     Aims is to make a profit Business May

owned employ

and often

run

by one person other people in the business Tend to be

small

businesses Albany Stores, Esplanade Post Office, Flower basket.

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Sole Trader ADVANTAGES:

   Owner keeps all the profits Owner controls all the decisions Easy to set up the business.

DISADVANTAGES:

   

Owner bears all the responsibilities If owner cannot work the business may suffer – lack of cash Owner may have difficulty obtaining finance Owner has unlimited liability.

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Partnership

FEATURES OF PARTNERSHIP    Aim is to make a profit Business between

two

and

twenty

partners Partners usually enter into a

legal agreement

Partnership Agreement which states  

States share of profit Which partner has most responsibility

called a  Partners may invest

different amounts

of money  This will affect their

share of profit

Examples: Dentists, vets and lawyers.

Can you name 3 partnership businesses in Oban?

Munros Garage, MacCamley and Laird, Stevenson Kennedy (lawyers) 5

Partnership

ADVANTAGES:    Partners can share workload according to skills Partnerships find it easier to raise finance than sole trader Risks are shared between partners – risk of poor profit

DISADVANTAGES:

   

Profits shared between the partners – therefore smaller share More people to run business – risks of disagreement Partners usually has unlimited liability Legal agreement needs to be set up.

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What are Shares?

 Companies are owned by people who are shareholders  Anyone over 18 can buy shares  Shareholders are given a share company profits of any  The share of profits is called a dividend as is payable once or twice yearly 7

Private Limited Company

FEATURES OF PRIVATE LIMITED COMPANY   Aim is to make a

profit

Name of the business will end with

Ltd

    Owned by

shareholders

– minimum of

one

Shares in the company are

owned privately

Run by a

Board of Directors

Such companies are often

family businesses.

Examples: MacQueen Bros had recently become a Private Ltd Company

Can you name 3 private limited companies in Oban?

Direct Footwear Services Ltd, MacQueen Ltd, Beaver Timber Ltd, 8

Private Limited Company

ADVANTAGES:    Owner keeps control of the business Private limited company can raise more finance that a smaller business Shareholders have limited liability.

DISADVANTAGES

  

Profits shared between more people A legal agreement must be set up Shares cannot be sold to the public, so raising finance can be more difficult than for a public limited company.

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Public Limited Company (plc)

FEATURES OF A PUBLIC LIMITED COMPANY   Aim is to make a profit Name of the business will end with

plc

  Owned by

shareholders

– minimum of Minimum share capital of

£50,000 two

 Shares in the company can be

bought and sold

Stock Exchange  Run by a

Board of Directors

Examples: BP plc, Boots plc, Tesco plc. on the

Can you name 3 public limited companies operating in Oban?

Tesco plc, Boots plc, W H Smith plc 10

Public Limited Company (plc)

ADVANTAGES:    Public limited company can raise more finance that PLC can borrow more money Shareholders have limited liability.

DISADVANTAGES:

   

PLC has no control over who buys its shares Profits shared between many more people Expensive to set up Accounts must be published annually.

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Limited and Unlimited Liability

Unlimited liability

 Sole trader or unlimited partners have full responsible for the debts of the business.

 If the business does not have enough money to pay its debts the owners or partners must pay the debts from their own personal funds.

 May result in the owners having to sell their own possessions to raise the money.

Limited Liability

 In a Private or Public Limited company the shareholders liability is limited to the amount they have invested, or agreed to invest in the company.

 The will not have to sell their own possessions to pay the debts of the business.

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Limited Partner

A limited partner is someone who:     Invests money in the partnership Takes no part in the running of the business Gets a share of any profits Has limited liability – if the business fails they will only loose the money they have invested in the business and nothing else.

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FRANCHISE

What is a Franchise?

  A franchise is an agreement or license parties which gives a person or group of people the rights to market a product or service trademark of another business. Examples of a Franchise are: between two using the 

McDonalds



Domino Pizza



Body Shop

Can you name 2 franchises in Oban?

Subway, BSM 14

Franchise

There are 2 parties to a franchise agreement: Franchisor – the person owning the rights to the product or service being offered Franchisee – person or group of people purchasing the rights to sell the product or operate the service.

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Features of a Franchise

    The Franchisee pays to copy the business idea, image, name of an existing company A MacDonald’s burger in Fort William will be look and taste exactly the same as one bought in Glasgow The franchisee pays a licence and shares profits with the franchisor Franchisee is restricted on what they can charge for the goods and what they can sell.

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Advantages of a Franchise

         Reduces the risk of business failure The business has been tested and proven on the market Allows small businessman to compete with larger business concerns Economies of scale Support offered by franchisor – advertising etc Trade under a recognised brand. Training provided by franchisor No previous experience required Exclusive territorial rights Back-up provided for administration and trouble shooting.

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Disadvantages of a Franchise

 Franchisee may suffer from bad service provided by another of the franchisees in a different area  Highly specialised business and limited to what the franchisor wants to do – no room to expand products  If the franchisee wishes to sell their business they must gain consent of franchisor  Franchisee may not like the interference.

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Public Ownership

FEATURES OF A PUBLICLY OWNED ORGANISATION      Main aim is to provide a service Funded by

taxpayers

Controlled by

government

Provide

essential services

for the whole population

Non profit making

Examples: BBC , National Health Service, Education Services Local Government, 19

Public Ownership

ADVANTAGES:  Less competition

DISADVANTAGES



May not be as profitable as private sector businesses.

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