Chapter 4 : Types of business organizations
Business organizations: The private sector
• Forms of nosiness organizations in the private sector:-
o Sole traders
o Partnerships
o Private limited companies
o Public limited companies
o Franchises
o Joint ventures
Sole traders
• Sole trader is a business owned by one person. One
reason it is so common is because it has very few legal
requirements to set it up which include: -
• The owner must register with and send annual tax
accounts to the government tax office
• The name of the business is significant
• In some industries the sole trader must observe laws
which apply to all businesses in that industry.(health and
safety laws and obtaining proper licenses)
Advantages of being a sole trader
• Very few legal regulations to worry about
• his own boss and has complete control over business.
• Freedom to chose his own holidays and work hours
• Mike has close contact with his customers and has the
satisfaction of knowing his regular customer
• Has incentive to work hard as he gets to keep all the
profits
Disadvantages of being a sole trader
• No one to discuss business matters with
• No benefit of limited liability amd is responsible for his
own debts
• Limited liability : The liability of share holders in a
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company is limited to only the amount they invested.
• Unlimited liability : If a business cant pay the people it
owns money to can legally force the business to sell all
his possessions in order to pay them
• The sources of a finance of a sole trader are limited to the
owners savings made by the business and small bank
loans hence the company cannot expand because the
capital for expansion is so restricted.
• Sole traders can hire employees but there is only one
person who owns the business
Partnerships
• A partnership is a form of business in which 2 or more
people own the business. In some countries there is
maximum limit of 20 people. Partners will contribute to
the business and have a say in the business
• Partnerships are very easy to set up. You can just ask
anyone to be yor partner. This is known as verbal
agreement
• However, it is recommended to make a partnership
agreement. A partnership agreement is a written and
legal agreement between business partners.
Advantages of a partner ship
• More capital can be invested expanding the business
• Responsibilities would now be shared
• Both partners would work hard as they would benefit
from the profits.
Disadvantages of a partnership
• Still don’t have limited liability and might sell possesions
• It is an unincorporated business ( a business that does not
have separate legal identity.
• Partners can disagree of business decisions
• If one partner is dishonest the others could face loses
Limited partnerships
• Limited partnership (LP) is a type of partnership
organization that limits the personal liability of some
partners.
Private limited companies
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• An incorporated business is when a company has a
separate legal status from its owner this means that :-
o A company exists separately from owners and will
continue to exist if one owner dies
o Company can make contracts and legal agreements
o Company accounts are seprate from accounts of the
owners
• Companies are jointly owned by people who invested in
the business. They are known as shareholders.
• A private limited company are business owned by
shareholders but they can’t sell shares to the public.
Advantages of private limited companies
• Shares can be sold to a larger number of people meaning
more capital can be invested
• Shareholders have limited liability, meaning if company
goes in debt the shareholders wont be forced to sell their
possessions to pay the debts
Disadvantages of a private limited company
• The shares in private limited company can not be shared
or transferred to anyone else without agreement between
all shareholders.
• Private limited companies cannot offer their shares to the
general public, so its not possible to raise really large
sums of capital to invest back into the business
Public limited companies
• Public limited companies are businesses owned by
shareholders but they can sell shares to the public and
their shares are tradeable on the stock exchange.
o Public limited companies are not owned by the
government but my private individuals hence it is
not in the private sector
o Public limited companies = PLC
o Private limited companies = limited
Advantages of plc
• PLC offers limited liability to shareholders
• It is an incorporated business and has separate legal
identity to the owners or shareholders.
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• No limit on the number of shareholders so very large
capital can be invested in the business
• No restriction on the buying, selling and transfer of shares
Disadvantages of a plc
• Legal formalities of forming such a company are quite
complicated and time consuming
• There are many more regulations and control over plc in
order to try and protect interests of shareholders
• Selling shares to public is expensive
• Real owners may lose control of the business when it
goes public
Control and ownership in plc
Other private sector business organization
Franchising
• Is a business with a product or service that it does not
want to sell directly so it appoints a franchise to sell it to
the public
• A franchise is a business based upon brand name and
logo of an existing successful business
Learn table on page 46
Joint ventures
• A joint venture is when two or more businesses agree to
start a new project together
• Learn table on pg 47
Business organizations in a public sector
Public corporation
• Public corporations are owned completely by the state or
government. These are usually business that were started
by private individuals but then purchased from
government
• Government ministers appoint a board of directors who
will be responsible for managing the business
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