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Types of Business Organization Cheat Sheet (DRAFT) by

Focusing on different types of business firms

This is a draft cheat sheet. It is a work in progress and is not finished yet.

Different types of businesses

Why are there different types of busine­sses?
resources on their own cannot satisfy our N&W, they need to be organized
decisions need to be made
a person who makes decisions on how to organized resources and owns a business

Types of firms

Public corpor­ation or nation­alized industries
owned by government and part of public sector
either owned by shoppers or by workers
Private firms
owned by indivi­duals and can vary in size
Co-ope­ratives and private firms are part of the private sector.

Main types of private sector BOs in the UK

Private sector business organi­zations
Uncorp­orated business
don't have separate legal identity from their owners
soletr­ader, partne­rship - unlimited liability
Incorp­orated business
limited company with its own legal identity, separate from the identity of shareh­old­ers­/owners
private limited company (Ltd), public limited company (PLC)
the owners­/sh­are­holders have limited liability

Starting a business

**What should entrep­reneur consider?
how to finance and manage the new business, and how much risk he or she is willing to take
4 questions
Will I have enough money?
to start a business entrep­reneur needs capital (financial assets)
capital is fixed (capital goods - DM) or working (money used to pay running costs like wages, bills for electr­icity, teleph­ones, purchasing material, etc.)
soletr­aders have enough money on their own (savings, loan, etc.) but in partne­rship or limited company each person gives in a sum of money and the capital is sum of that money
Can I manage the bussines alone?
disadv­antages - long working hours, not enough skills, etc.
advantages - no sharing profit, easier decisi­on-­making, etc.
Do I want to share ownership of my business and any profits?
Am I prepared to risk everything I own?
different types of organi­zations involve different levels of risk, there is limited or unlimited liability
Owner's liability
financial respon­sib­ility of the owner for business failrs or debts
Unlimited liability
the owner of a business are legally respon­sible for the full mount of its debts
Limited liability
their legal respon­sib­ility to repay its debts is limited to the amount of capital they invest in the business

Sole trader

sole trader
a business organi­zation owned and controlled by one person, he may employ other people to work in the business, but it will have only one owner
most sole traders finance their business alone, they operate form home, modern technology is decreacing their costs and allows them to keep in touch with people
banks are unwilling to lend money to them due to a high risk of failure, many close down during their first months or year of operation
unlimited liability
capital is owned by sole trader, small range of Gs&Ss produced, profit belongs to sole trader, makes decisions alone, personal attitude to customers
Provides personal service for customers
The sole trader is his own boss
The sole trader receives all the profit
It is easy to set up a sole trader business
Unlimited liability
The sole trader has full respon­sib­ility
Sole trader lacks capital


legal agreement between two or more people, usually no more than 20
they run business jointly, share profits
the deed if partne­rship
a legal document where partne­rship is set up, it sets out the terms of the partne­rship (how much moeny each partner invested, what is their role, etc.)
Ordinary partne­rship
unlimited liabitly
Limited partne­rship
some partners have limited liability while some are sleeping partners (a partner who invests money but is not involved in the day-to-day running of the firm)
New skills and ideas to the business
More partners mean more money for the business
Partners can help in decisi­on-­making
Partners may disagree
Unlimited liability
Lacks capital (is limited by 20 people)

Join stock company

Joint stock company
limited companies
they sell shares to investors in order to raise capital
they are incorp­orated (they have their own legal identity and can sue and own assets)
partne­rship is divided into equal parts called shares
Board of directors
shareh­olders are allowed to choose BoD to run the company on a daily basis
this is done by voting at shareh­olders' meeting (annual general meeting), the contro­lling interest is when over 50% of companies shares are bought by one person
a piece of paper that states that the person who holds it has paid fot part of the company and now has a share in its ownership
the value printed on the share (its face value) is the price at which the company first sold the share
profit is paid to shareh­olders in form of dividends

Ltd - Private limited company

only sell shares privately to investors known to the existing shareh­olders
1 or more shareh­olders who own the business and receive profits
shareh­olders cannot be sued
limited liability
shares are sold privately
publish annual accounts
Limited liability
No managment worries - dealt with by AGM
Company has a separate legal identity - the name of the company can be sued but not owners
Must disclose info about them to the general public
Must hold an AGM
Original owners may lose control (lose 51%)
Profit is taxed twice by the government (profit is taxed and dividends are taxed as well)
Can't sell shares on the Stock Exchange Market

Plc - Public limited company

minimum of 2 shareh­olders, who own the company and receive profits
shares can be sold on Stock Exchange Market, public listing and issue of new shares for sale in a company is callef flotation
going poublic means company obtains a full listing allowing it to be listed on the SEM as a business that is able to sell shares on the market
shareh­olders cannot be sued
limited liability
publish annual accounts
hold AGMs, directors run the company
Can sell shares on the Stock Exchange Market
Can advertise their shares
Expensive to form - many legal documents, advert­ise­ment, etc.
Original owners may lose control (lose 51%)
May be a divorce of ownership form control (own the shares but do not control or vote)
May face management problems - may be too large to manage


autonomous associ­ation of persons united volunt­arily to meet their common economic, social, and cultural needs and aspira­tions through a jointl­y-owned and democr­ati­cal­ly-­con­trolled interpirse
cooper­atives have members not shareh­olders
main aim is to provide benefits for its owners (members) and each member has an equal share regardless of how much money they put in
Worker co-ope­ratives
organi­zations owned by their workers (famring co-ope­rat­ives)
they pool money to buy equipment and share equally in decision making and any business profits
Co-ope­rative Develo­pment Agency - CDA
provides advice and financial assistance to help employees to buy the firm the woekd for - most WC are formed by taking over small manufa­cturing business that were facing closure
popular - workers themselves are in charge and everyone has an equal say
workers receive the profit they make - paid out as dividends; there are two was how to split the profit - workers get shares regardless of how much money they put it or they get according to how much they put in
difficult to raise money
have a tendency to be badly run due to lack of skills

Consumer co-ope­ratives

Consumer co-ope­ratives
retailing businesses run for the benefit of their consumers
any profit made in retail co-ope­ratives is given back to their consumers as dividens or by keeping low costs
modern co-ope­ratives we owned by their members
anyone can become a member for as much as 1€
members elect a board of directors to run the co-ope­rative
each member is allowed one vote regardless of the number of shares they hold
profits are shared among members
are managed by organi­zation


arrang­ement in which the owner of a business system grants to and individual or a group of indivi­duals the right to run a business selling a product or providing a service using the franch­isor's business system
the franchisor
person who owns a business
the franchisee
individual or a group of people given the approval to run certain business from the franchisor using his methods
they sell the same products (+-), use tradem­arks, expensive equipment, goods and services
in return franchisee pays one-time fee or commission to franchisor and some share of revenue


firm is in more than one country, its HQs are in one country
usually some of the largest firms (Coca-­Cola, Nike, etc.)
Advantages for countries
they provide jobs
bring business knowle­adge, skills and technology
may pay taxes that boost government funds
bring money to the country by selling Gs&Ss
Disadv­antages for a country
they move factories accornig to how profitable it is for them
may force local compet­itors out of business
move profit between countries to avoid paying taxes
some may exploit their workers
they may exploit natural resources and damage enviro­nment
they may use their power to get generous subsidies and tax advantages from host countries
some may interfere in the government of a country
Advantages of being a multin­ational
reach more consumers globally
avoid trade barriers by strategic locations
minimize transport costs
minimize wage costs
raise signif­icant amount of new capital
great economies of scale
lower chance of going bankrupt

Public corpor­ation

Public corpor­ation
controlled by government minister
most are respon­sible for producing day-to-day running of industries owned and controlled by central government which sells Gs&Ss directly to the consumers
each has a BoD respon­sible for day-to-day running
separate legal identity apart from state
financed by revenues from the sale of its services to consumers and by government grants
Must disclose info about them to the general public
do not have to make an overall profit
may be allowed by central government to retain all or some profit to improve their services


transfer of an ownership of industry from private to public sector
Why were industries nation­alized?
to control natural monopolies
for safety reasons (nuclear energy, etc.)
to protect employment
to maintain a public service


the sale of shares in government owned nation­alized industried to the general public and private sector firms
higher compet­ition
wider range of Gs&Ss
sale of shares raises revenue for the government
private indivi­duals can ows shares and vote on how they should be run
privatized industries still dominate the market and raise prices and cut services
private sector will no protect public services
most shares in privatized oganiz­ations have been bought by large financial organi­zations such as bankc, insurance companies which are interested only in making big profits or storing money