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 |
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decisions need to be made |
Entrepreneur |
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 |
Co-operatives |
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 |
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soletrader, partnership - unlimited liability |
Incorporated business |
limited company with its own legal identity, separate from the identity of shareholders/owners |
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private limited company (Ltd), public limited company (PLC) |
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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) |
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capital is fixed (capital goods - DM) or working (money used to pay running costs like wages, bills for electricity, telephones, purchasing material, etc.) |
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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. |
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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 |
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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 |
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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 |
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unlimited liability |
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capital is owned by sole trader, small range of Gs&Ss produced, profit belongs to sole trader, makes decisions alone, personal attitude to customers |
Advantages |
Provides personal service for customers |
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The sole trader is his own boss |
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The sole trader receives all the profit |
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It is easy to set up a sole trader business |
Disadvantages |
Unlimited liability |
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The sole trader has full responsibility |
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Sole trader lacks capital |
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Partnership
partnership |
legal agreement between two or more people, usually no more than 20 |
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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) |
Advantages |
New skills and ideas to the business |
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More partners mean more money for the business |
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Partners can help in decision-making |
Disadvantages |
Partners may disagree |
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Unlimited liability |
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Lacks capital (is limited by 20 people) |
Join stock company
Joint stock company |
limited companies |
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they sell shares to investors in order to raise capital |
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they are incorporated (they have their own legal identity and can sue and own assets) |
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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 |
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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 |
Share |
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 |
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the value printed on the share (its face value) is the price at which the company first sold the share |
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profit is paid to shareholders in form of dividends |
Ltd - Private limited company
Ltd |
only sell shares privately to investors known to the existing shareholders |
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1 or more shareholders who own the business and receive profits |
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shareholders cannot be sued |
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limited liability |
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shares are sold privately |
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publish annual accounts |
Advantages |
Limited liability |
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No managment worries - dealt with by AGM |
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Company has a separate legal identity - the name of the company can be sued but not owners |
Disadvantages |
Must disclose info about them to the general public |
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Must hold an AGM |
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Original owners may lose control (lose 51%) |
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Profit is taxed twice by the government (profit is taxed and dividends are taxed as well) |
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Can't sell shares on the Stock Exchange Market |
Plc - Public limited company
Plc |
minimum of 2 shareholders, who own the company and receive profits |
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shares can be sold on Stock Exchange Market, public listing and issue of new shares for sale in a company is callef flotation |
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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 |
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shareholders cannot be sued |
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limited liability |
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publish annual accounts |
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hold AGMs, directors run the company |
Advantages |
Can sell shares on the Stock Exchange Market |
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Can advertise their shares |
Disadvantages |
Expensive to form - many legal documents, advertisement, etc. |
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Original owners may lose control (lose 51%) |
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May be a divorce of ownership form control (own the shares but do not control or vote) |
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May face management problems - may be too large to manage |
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Co-operatives
Co-operatives |
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 |
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cooperatives have members not shareholders |
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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) |
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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 |
Advantages |
popular - workers themselves are in charge and everyone has an equal say |
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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 |
Disadvantages |
difficult to raise money |
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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 |
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any profit made in retail co-operatives is given back to their consumers as dividens or by keeping low costs |
Principles |
modern co-operatives we owned by their members |
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anyone can become a member for as much as 1€ |
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members elect a board of directors to run the co-operative |
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each member is allowed one vote regardless of the number of shares they hold |
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profits are shared among members |
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are managed by organization |
Franchising
Franchising |
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 |
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they sell the same products (+-), use trademarks, expensive equipment, goods and services |
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in return franchisee pays one-time fee or commission to franchisor and some share of revenue |
Multinationals
Multinationals |
firm is in more than one country, its HQs are in one country |
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usually some of the largest firms (Coca-Cola, Nike, etc.) |
Advantages for countries |
they provide jobs |
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bring business knowleadge, skills and technology |
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may pay taxes that boost government funds |
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bring money to the country by selling Gs&Ss |
Disadvantages for a country |
they move factories accornig to how profitable it is for them |
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may force local competitors out of business |
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move profit between countries to avoid paying taxes |
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some may exploit their workers |
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they may exploit natural resources and damage environment |
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they may use their power to get generous subsidies and tax advantages from host countries |
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some may interfere in the government of a country |
Advantages of being a multinational |
reach more consumers globally |
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avoid trade barriers by strategic locations |
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minimize transport costs |
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minimize wage costs |
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raise significant amount of new capital |
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great economies of scale |
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lower chance of going bankrupt |
Public corporation
Public corporation |
controlled by government minister |
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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 |
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each has a BoD responsible for day-to-day running |
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separate legal identity apart from state |
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financed by revenues from the sale of its services to consumers and by government grants |
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Must disclose info about them to the general public |
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do not have to make an overall profit |
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may be allowed by central government to retain all or some profit to improve their services |
Nationalization
Nationalization |
transfer of an ownership of industry from private to public sector |
Why were industries nationalized? |
to control natural monopolies |
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for safety reasons (nuclear energy, etc.) |
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to protect employment |
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to maintain a public service |
Privatization
Privatization |
the sale of shares in government owned nationalized industried to the general public and private sector firms |
Supporters |
higher competition |
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wider range of Gs&Ss |
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sale of shares raises revenue for the government |
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private individuals can ows shares and vote on how they should be run |
Objectors |
privatized industries still dominate the market and raise prices and cut services |
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private sector will no protect public services |
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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 |
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