Transcript FUNCTIONAL AREAS

BUSINESS
OWNERSHIP
Sole Trader
Partnership
Franchise
TYPES OF OWNERSHIP
Co-operative
Public
Ownership
Private Limited
Company Ltd
Public Limited
Company (plc)
LIABILITY
Unlimited Liability
Limited Liability
The owners of the business
are responsible for any
debt. They may lose their
personal possessions to pay
any debts the business
might run up.
The owners are only
responsible for the debt
equal to the value of their
shares. (They will only lose
the amount they invested in
the business)
SOLE TRADER
Business owned by one owner
 Also known as a proprietor
 Can employ people but they will not be
involved in control of business
 Small businesses
 Has unlimited liability
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Examples of sole traders:
Small shops
 Plumbers
 Electricians
 Cleaners
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Advantages of setting up as a sole
trader
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Easy to set up – no complicated forms
Make decisions quickly – no agreement needed
Less capital needed
Taxed differently – National Insurance contributions are
lower
All profits kept.
Can offer personal attention
Don’t have to make any information about the company
public
They are their own boss.
Disadvantages of setting up as a
sole trader
Unlimited liability
 Difficult to raise money – seen as a risk
 Don’t have economies of scale (buying in
bulk)
 No one to take over for ill-health or
holidays
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Activity:
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List all the sole trader businesses that are
in your area (Torfaen) ……
PARTNERSHIP
Between 2 – 20 partners
 Partners = joint owners of the business
 May do decision making themselves or
employ manager
 Unlimited liability
 Profits shared = to capital invested (unless
stated otherwise in Deed of Partnership)
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Examples of partnership
businesses:
Doctors
 Dentists
 Accountants
 Solicitors
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Partnership Act of 1890
Lays of rules if Deed of Partnership is not
drawn up.
Setting up a partnership
Deed of Partnership. Should include:
Names of all the partners
 Capital invested by each partner
 How profits & losses will be shared
 Duties of each partner
 Procedures for adding new partners
 Procedures for partners leaving partnership
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Sleeping Partners
May want to invest in the business but not
be involved in the running of it.
 Can register with Registrar of Companies
as a limited partner
 Have limited liability
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Must have one partner who has unlimited liability
Advantages of a Partnership
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Easy to set up
Capital needed = small
Easier to raise extra capital
Profits go to partners = motivation
Smaller = good working relationships
No need to make public and information
Partners contribute with range of skills
Share problems and decisions
Disadvantages of a Partnership
Unlimited liability
 Partners have disagreements;
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Control of business
 Sharing of profits
 Withdrawal from the partnership
 Inviting new partners into the business
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If partner dies or becomes bankrupt =
partnership is dissolved
Activity:

List all the partnership businesses that are
in your area (Torfaen) ……
PRIVATE LIMITED COMPANY
LTD
Made up of people who know each other.
 Buy shares in the company = part owners
 Shares cannot be bought by the public
 Owners control who buys the shares
 Minimum 2 people – no maximum
 Expany by selling more shares = capital
 Normally medium sized businesses
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Requirements:
Hold AGM (Annual General Meeting)
 Independently audited copy of company
accounts
Registrar of Companies
 Shareholders need permission to sell their
shares
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LIABILITY
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Limited liability
Company has its own legal identity,
separate from the shareholders.
 Shareholders run company themselves or
appoint a manager
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Examples of LTD businesses:
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Eddie Stobart Ltd
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Raleigh
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Cineworld
Setting up a LTD company
Comply with the Companies Act
 Register with Registrar of Companies
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Documents required:
Memorandum of Association
 Articles of Association
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Memorandum or Association
Company’s name
 Address of its registered office
 States shareholders have limited liability
 Amount of share capital to be raised
 Purpose of the company (main activity)
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Articles of Association
Names of directors and their role
 How profits will be distributed
 Internal rules for running the business –
rules about meetings & voting rights of
shareholders
 Procedure to be followed at AGM
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MEMORANDUM OF ASSOCIATION
ARTICLES OF ASSOCIATION SENT TO REGISTRAR OF COMPANIES
REGISTRAR ISSUES CERTIFICATE OF INCORPORATION
Advantages:
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Limited liability
Can raise extra capital by selling more shares – easier to
expand
Can employ managers to run business if don’t want to do
it themselves
Can continue trading if shareholder dies (unlike
partnership)
Has its own legal status – separate from the shareholder
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Can sue and be sued
Can own property
Disadvantages:
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Accounts of the company cannot be kept private
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Audited each year
Copy sent to Registrar of Companies
Available for public to see
More difficult and expensive to set up - more
administration
Cannot sell shares on stock exchange
Limited by Articles of Association As to type of
business it can undertake
Activity:
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List all the private limited company (LTD)
businesses that are in your area (Torfaen)
……
PUBLIC LIMITED COMPANY
PLC
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Only 2 people needed to set up – no upper limit
People who can buy shares:
 Public
 Businesses
 Financial institutions
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Most shares in a plc owned by organisations rather than individuals
Shares bought the Stock Exchange
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Share prices printed in national newspapers daily
Can expand by selling more shares
Limited liability
Company has its own legal status
Normally start as LTD then become PLC
Setting up a PLC
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More rules and regulations
Similar to a LTD
Draw up a Memorandum of Association & Articles of
Association – send to Registrar of Companies to apply
for Certificate of Incorporation = company has registered.
Before COI is issued must raise £50,000
Must be approved by Stock Exchange Council
Once COI received the company issues a prospectus =
advertisement inviting public to buy shares in the co.
Once shares issued the ROC will draw up Certificate of
Trading.
MEMORANDUM OF ASSOCIATION
ARTICLES OF ASSOCIATION – SENT – REGISTRAR OF COMPANIES
REGISTRAR ISSUES CERTIFICATE OF INCORPORATION
COMPANY ISSUES PROSPECTUS
SHARES ARE ISSUED
ROC DRAWS UP CERTIFICATE OF TRADING
COMPANY BEGINS TRADING
Advantages:
Limited Liability
 Easy to raise capital – issue more shares
 Banks more willing to lend money to a
large well-established company – less risk
 Easier to grow and expand
 Shareholders will appoint specialists to
manage and run the company for them
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Disadvantages:
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Expensive
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a lot administrative work (paper work)
Raise at least £50,000
Issue more information about itself – expensive
to produce
Has to prepare Annual Accounts – printed and
sent to all shareholders
Also make them available for general public and
competitors to see.
Activity:
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List all the public limited company (PLC)
businesses that are in your area (Torfaen)
……
FRANCHISE
Where a small business owner buys the
rights to sell the goods and services of a
large, well-established company.
Franchisee = small business buying the rights.
Franchisor = large business selling the rights
Examples of types of businesses:
Body Shop
 British School of Motoring (BSM)
 KFC
 McDonalds
 Burger King
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Setting up a Franchise
Franchisor sets out the rules for the running of the business ensure quality and standards are maintained.
In return, the franchisor will:
 Give a well-known name to the new business
 Provide advice on running of business
 Provide training to start the business
 Organise the advertising campaigns
 Supply the materials used fro the goods or services
 Proved equipment, eg; shop fittings so that all look the same and
same standards
Small business has to pay for the privilege
of a stake in the large owner’s business.
It has to pay:
Start-up fee – for licence from franchisor to
run business
 Royalty – in form of a percentage of annual
profits to the franchisor
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Advantages:
The franchisor chooses the franchisees
carefully – knows what characteristic that
make a successful franchisee
 The franchisor decides how much money
the franchisee must invest in the business
 The franchisor provides support –
management advice & training – help
franchisee solve problems.
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Disadvantages:
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Franchisee’s do not have freedom of running
their own business;
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Bound by rules e.g. Can’t vary product or price
Franchisee cannot sell the business without
franchisors permission
Franchisor can end franchise without consulting
franchisee
Franchisee pays percentage of profits in
royalties
Franchisee will never own the business outright
Activity:
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List all the Franchise businesses that are
in your area (Torfaen) ……
CO-OPERATIVES
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Worker co-operatives are businesses owned by all the
workers in the business.
Each worker has shares based on how much he or she
has invested in the business
All workers are involved in making the decisions
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Each worker has one vote
Votes are not related to number of shares they own
Unless it is a limited company = one vote per share
All share in the profits
All must contribute to the running of the business
No limit to the number of members
Types of businesses
Fruit growers
 Play groups
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Advantages:
Fewer disagreements because workers
are the owners
 All have interest in making business
successful, improving morale and
productivity
 Increases in profits are share equally
among all the workers
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Disadvantages:
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New workers have to buy shares and become part
owners
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New employees may find it difficult to raise money to buy shares
when they first start work
Successful worker co-operatives are often pressured to
sell the business – lose all the freedoms they have
To expand – find new workers willing to invest in
business
All workers are paid the same. In other businesses the
managers are paid more.
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Difficult to recruit best managers due to pay limitations
Activity:

List all the co-operative businesses that
are in your area (Torfaen) ……
PUBLIC OWNERSHIP
Some enterprises in the UK are owned or
controlled by the state such as government
departments and organisations funded by the
government.
They include:
 Government departments
 Local authorities
 Health trusts
 Public corporations
 Charities
and voluntary organisations
Government departments
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Deals with different matters at national level. These
include:
NHS
Social security benefits
Defence
Police
Prison service
Environmental issues and concerns
Major road building programmes
Collection of taxes
Local Authorities
Provide services for the local community.
These vary, depending upon the area, so
that the services in a rural community are
different from those offered in a city.
The range of services offered:
Probation
Service
Magistrate
Courts
Social
Services
Economic
Development
Schools
Fire
Service
Road
Maintenance
Local
Council
Refuse
Collection
Environmental
Health
Libraries
Police
Recreation
& Tourism
Health Trusts
Receive money from the government to
deliver health care without making a profit
Public Corporations
Are government owned businesses, such
as the BBC and the Royal Mail service.
These businesses are expected to operate
profitably, just like private organisations.
Charities and voluntary
organisations
Many staff are work voluntarily (don’t get
paid)
Also called not-for-profit organisations
because they focus on using their income
to provide a service to those in need.
How charities raise their money
Buying goods (at
sales/from
shops/catalogues), 9%
Other, 14%
Collection at
work/pubs, 6%
Street/door-to-door
collections, 8%
Appeals by
letter/phone/press/TV/
radio, 9%, 9%
Raffle/lottery tickets,
5%
Charity Events, 8%
Charity Shops, 8%
Sponsorship, 12%
Activity:
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List all the public sector businesses that
are in your area (Torfaen) ……