Topic 3 - Types of Business Organisations N5 Business Management 1
Learning Intentions / Success Criteria Learning Intentions Types of business organisations Success Criteria By end of this topic you will be able to explain 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. 2
Types of Organisations Private - Sole traders - Partnerships - Private Limited Companies Public - National government - Local government organisations Third - Non-profit making organisations - Social enterprises 3
Private Sector 4
Unlimited Liability Both sole traders and partnerships have unlimited liability. This means that if the business fails then the owners must pay all the debts and liabilities even to the point that their personal possessions (such as houses and cars) can be sold off. 5
Limited Liability This means that if the business fails then the shareholders can only lose the value of their investment in the company. Warburtons, IKEA and New Look are examples of well-known private limited companies. 6
Sole Traders Sole traders are businesses that are owned and controlled by one individual. The sole trader: - provide the finance and run the business on a daily basis - may employ other people, but basically the business belongs to them - makes all of their own decisions - keeps all the profit from the business - decides when to work - doesn t have to answer to anyone. Examples of sole traders include corner shops, hairdressers and painters. Disadvantages The sole trader: find it harder to raise finance don t earn any money if they go on holiday or are sick can get stressed with no one to help have unlimited liability. 7
Partnerships A partnership is a business that is owned by between two and twenty partners. A partnership: - provide the finance and run the business on a daily basis - shares responsibilities and workload - contains the different knowledge and experience from each of the partners - has cover when one of them is off on holiday or ill - has more than one person putting money into the business - finds it easier and cheaper to borrow money from the bank than a sole trader. Examples of partnerships include accountants, lawyers, doctors etc. Disadvantages A partnership: has to share the profits can fall out ending the partnership has unlimited liability. 8
Private Limited Companies (Ltd) A private limited company is owned by shareholders. The company name is usually followed by Ltd. The share ownership of the company is by invitation only and the shares are not sold on the stock exchange. Typically, private limited companies are owned by families and friends and they are run by a board of directors and managers. All the finance for the business come from the shareholders but shareholders all have limited liability. Disadvantages The profits have to be split amongst the shareholders It can be difficult for a shareholder to sell their shares if they want to The business has to submit final accounts to a register There are legal formalities in setting up the business. 9
Public Sector 10
National Government Public sector organisations are owned by the government on behalf of the taxpayer and aim to provide a service to the general public. They are funded by taxes that individuals and businesses have to pay. Different types of taxes exist including income tax, road tax and council tax. 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 and transport. It is run by Members of the Scottish Parliament (MSPs), who are also elected by the public. 11
Local Government Organisations Local government organisations (or local authorities) get funding from the Scottish government to deliver specific services in a specific area of Scotland. These include running schools, providing leisure facilities and emptying our bins! 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. 12
Third Sector 13
Non-profit Making Organisations Non-profit making organisations such as charities and voluntary organisations are set up to support specific causes. Charities are regulated by the government and the income they make is put towards a specific cause. For example, The RSPCA uses the income they make to prevent animal cruelty and to promote animal welfare. Voluntary organisations such as community football clubs or youth clubs aim to provide a service to people, but without a profit-making motive. 14
Social Enterprises Social enterprises have a main social or environmental aim rather than to make profit for owners or shareholders but they are run in a business-like way. People know what social enterprises try to do and who they are trying to help. At least half of the profit that social enterprises make, through selling goods and services, must be invested into meeting the stated aim of the social enterprise. Unlike some charities, they don t rely on grants and donations but some social enterprises do become charities. The main difference between a social enterprise and a charity is its legal structure and the fact that social enterprises are less regulated by the government. 15
Summary Type Ownership Control Finance Sole Traders One owner Owner makes all the decisions Partnerships 2 20 owners Partners make agreed decisions Private Limited Company Ltd Non-profit Making Organisations Invest own money Bank loan Borrow money from family or friends Invest own money Bank loan Shareholders Board of directors Selling shares Bank loan Government grant Members or founders Appointed members Membership fees Donations Bank loan Government grant Social Enterprises Shareholders Managing Director Selling shares Bank loan Government grant Local Government Council Councillors/Appointed Managers Council Tax National Government funding Charges 16