Golspie High School. Business Management National 4/5. Understanding Business 1 Types of business organisation Pupil Notes

Transcription

1 Golspie High School Business Management National 4/5 Understanding Business 1 Types of business organisation Pupil Notes

2 TYPES OF BUSINESS ORGANISATION Their differing aims, objectives, sources of finance, industrial and economic sectors they operate in sole trader partnerships private limited company social enterprises charities public organisations and how enterprising skills and qualities help business development Sectors of the Economy As we have already seen, every organisation in the UK belongs in one of 3 categories. These categories are known as the sectors of the economy. Private Sector Owned by owners or shareholders Controlled by owners or shareholders Aim to survive, maximise profits/sales, be socially responsible Public Sector Owned by Government on behalf of the taxpayers Controlled by Government bodies Aim to provide a service to the general public Third Sector Owned by the members of the organisation Controlled by Committees or paid professionals who act as Managers/Directors Aim to survive, increase awareness, raise funds, provide assistance, etc National Business Management Page 2 18 May 2015

3 Private Sector Businesses Private sector organisations are owned by individuals and aim to make a profit. Sole Trader Partnership Private Limited Company A company owned What is it? A business owned by A business owned by by people who have one person 2-20 people been invited to buy shares. Who owns it? The sole trader The partners The shareholders Who runs it? The sole trader The partners Board of Directors Examples William Macbeath Mackay & Co Mowat Print & Joinery Contractor Accountancy Design Ltd Sole Trader A business owned and managed by one person (e.g. small shops, hairdressers, tradespeople). Finance: A sole trader may use personal savings to start in business. He may also borrow money from friends or family or the bank or get a business start-up loan. Aims and objectives: To survive, maximise profits, improve the owner s personal status, to give the community a good image of the firm. These businesses often employ people, but the owner is in charge and takes the risks all the profits the business makes belong to the owner. The business has unlimited liability the owner (sole trader) will be liable for the debts of the company. Advantages It is cheap and easy to set up compared to other types of business organisation The owner makes all the decisions the business can run smoothly as there is no-one to argue with over decisions which need to be made. The owner keeps all the profits Disadvantages Harder to get loans from banks, and they usually charge higher rates of interest if they do give you a loan. The bank views a sole trader as a higher risk Unlimited liability if the business is not successful the owner could not only lose the business but also his/her home, car and possessions to pay off the business debts. If this was not enough they could be made bankrupt by the courts They have to manage the business themselves, working long hours with few holidays, and may have problems if they fall ill even for a short time. No-one to share decisions with or talk over ideas. National Business Management Page 3 18 May 2015

4 Partnerships This is a business which is owned and controlled by 2 or more people but less than 20 (except for solicitors and accountancy firms who are allowed more). It is the preferred type of organisation by the professions, eg. accountants, lawyers, doctors, vets, etc. People starting their own business now rarely use this type of business organisation. The partners have a partnership agreement which is a legal document. It sets out things like how profits are to be shared. Finance: Again the partners use their personal savings and bank loans to set up and run the business. After the business has been operating, partnership profits may be reinvested, new partners may bring in money, Government grants may be available. Aims and objectives: Tend to be the same as a sole trader to survive; to maximise profits; improve the partner s personal status; give the community a good image of their organisation. Advantages The work involved in running the business can be shared Partners can specialise in certain areas of the business (e.g. one partner makes something, another partner sells it) Partners may bring different skills/expertise to the partnership More money can be invested in the business because there are more owners Customers and suppliers might see a partnership as being less of a risk to deal with compared to a sole trader Disadvantages Like sole traders they will have unlimited liability and could lose everything (except for certain types of sleeping partners in a Limited Liability Partnership LLP) There may be arguments between the partners on how to run the business. Partners are liable for the decisions made by each other this means if one partner makes a decision which causes the business to lose money then all partners are affected Partners can leave or new partners can be taken on, which can upset the running of the business Profits must be shared National Business Management Page 4 18 May 2015

5 Private Limited Company (Ltd) Most new businesses now prefer to set up as a limited company rather than a sole trader or partnership. Costs involved have decreased and it is becoming much simpler you can now set up a new limited company over the internet. The company must have at least one Director who is the person in charge of running the business. The shareholders, are the owners of the business. Shareholders are usually all members of one family or a very small group of associates. They all own SHARES. The number of shares they have will determine how much say they have in running the business. The responsibility for running the business is delegated (given to) to a Board of Directors who have the job of managing the company. The shares in these businesses cannot be sold, without all of the other shareholders agreeing to the sale. Many medium sized manufacturers eg Baxters are private limited companies. To become a limited company you must register and complete 2 documents the Memorandum of Association and Articles of Association. These set out the aims of the business and how they will run and be financed. A company must register with the Companies House in Edinburgh. The shareholders receive dividends, which is their share of the profits, in return for investing in the business. Finance: Personal investments are made and once the company is up and running profits from previous years may be reinvested, new shareholders may be invited to join, bank loans, grants, etc. Aims and Objectives: Maximise profits; to grow; to have a strong status; high sales revenue; etc. Advantages Shareholders have limited liability unlike sole traders and partnerships, if the business fails, shareholders only lose the money they have invested and no more. Finance can be raised by selling more shares to existing shareholders or inviting new people to buy. Shareholders and Directors can bring different experiences and skills. Can keep private most of the information about their company including finances Disadvantages Companies must register with the Registrar of Companies. More complicated to set up than a sole trader or partnership because of the legal process involved. The rules laid down by the law The Companies Act have to be followed. Each year, accounts showing the financial position of the company must be published. The cost of setting up a limited company can be high. National Business Management Page 5 18 May 2015

6 Public Sector Organisations These are organisations set up and owned by the government on behalf of the people. The main aim of these organisations is to provide services to the general public. These are services, which the private sector could not provide very well or could not provide at all. They are funded by taxes that individuals and businesses have to pay. Different taxes exist including income tax, road tax and council tax. There are different levels of government in the UK. The UK parliament has overall responsibility for what happens in the UK. It is made up of Members of Parliament (MPs), who are elected by the public. The Scottish Government has delegated responsibility for issues such as education, health (NHS), Police, Fire Brigade and transport. It is run by Members of the Scottish Parliament (MSPs), who are also elected by the public. The services are run by a Board of Directors and chairperson normally appointed by the Government. Local Government (or local authorities) get funding to deliver specific services in a specific area of Scotland. These include running schools, providing leisure facilities and libraries, road maintenance, refuse collection and recycling facilities. There are 32 local authorities in Scotland and each has to report to the Scottish Government. Each local authority has a council that is made up of local councillors who have been voted in by people living in the local area. Our local authority is the Highland Council, whose headquarters are in Inverness. Highland Council receives funding through: Council Tax, which is a tax based on the value of the house you live in; Business Rates, a form of local taxation on business properties; and Grants from the Scottish Government Approximately 80% of the Highland Council s funding comes from the Scottish Government. Each year the Highland Council will spend around 600 million. Public Corporations These are business organisations which are owned and run by the government for us, such as the BBC. The government appoints a chairman and board of directors to run them on our behalf. National Business Management Page 6 18 May 2015

7 Third Sector Organisations Non-profit making organisations Charities These organisations main aim is not to make profits, but to raise money for good causes. Most voluntary organisations are set up as charities such as Blythswood Care, RSPCA, Young Enterprise Scotland, Highland Hospice etc. They are formed by people sharing similar beliefs or concerns who then become members of the charity. Charities raise money through donations, fundraising events and retail outlets. When donating money to a charity you can Gift Aid it if you are a UK taxpayer. This means the charity can claim back the basic rate of tax paid on the amount donated. Charities have to be registered with the Charity Commissioners who watch over their activities. To be recognised as a charity the organisation has to have one or more of the following as their main objectives: To relieve poverty To advance education To advance religion To carry out activities beneficial to the community Once they have been recognised as a charity they are given charitable status which means they do not have to pay some taxes such as VAT. Charities provide aid in a number of innovative ways. Read below to find out how Blythswood Care works with schools to provide aid: BUCKETS OF LOVE The Buckets of Love project involves your school filling buckets with aid-relief items for families living in extreme poverty throughout Asia, Africa and Eastern Europe. We provide your school with the number of buckets you request. You are asked to fill each bucket with 26 specific items which will make a huge difference to families who have very little. One way your school can participate in the Buckets of Love appeal week, is by filling one bucket per class. There are 26 items on the Buckets of Love shopping list, which are stated in their leaflet. Therefore each child can be responsible for bringing one particular item into school, to place into the class bucket. This way, each class are filling one bucket for a family living in extreme poverty. National Business Management Page 7 18 May 2015

8 Voluntary Organisations Voluntary organisations such as community football clubs or youth clubs aim to provide a service to people, but without a profit-making motive. They are financed by donations from public and companies; Government grants; lottery grants; profits from own shops; sale of mail order goods; raffles; fetes; jumble sales, etc Social Enterprises Social enterprises are businesses that trade specifically for social and/or environmental purposes. They operate in all markets, selling goods and services to local authorities, central government, private businesses and individual consumers. Social enterprises exist to make a profit just like any private sector business. However, profits or surpluses they make are reinvested into social and environmental purposes; for example providing employment opportunities to the long term unemployed. Without making a profit, social enterprises cannot meet their social and environmental objectives; they must trade, to be sustainable. Co-operatives Credit Unions Housing Associations Social Firms Development Trusts Community Interest Companies Co-ops are businesses which give employees, customers or members a stake in the business. There are now more than 400 co-ops, employing 27,000 people, turning over more than 4.6bn per year. A type of co-operative which provide financial services to members, often in poorer areas. There are more than 130 Credit Unions currently operating across Scotland with over 170,000 members. Companies providing affordable housing for rent and for sale. They give priority to those in greatest need and reinvest any surplus income in maintaining or adding to their housing stock. There are over 200 Housing Associations in Scotland. Commercial businesses that provide employment for people with disabilities or other disadvantages in the work place. Development Trusts are community run organisations that are concerned with the economic, social, environmental and cultural needs of their community. They are owned and managed by the local community and aim to raise income through trading so that they do rely on money from grants. CICs are limited companies created for the use of people who want to conduct a business or other activity for community benefit, and not purely for private gain. Examples of social enterprises include Ness Soap and Highland Blindcraft. National Business Management Page 8 18 May 2015