Unit 6: Chapter 19 Business Organisations. Aims You need to know the following for each type of...
-
Upload
julius-morgan -
Category
Documents
-
view
215 -
download
0
Transcript of Unit 6: Chapter 19 Business Organisations. Aims You need to know the following for each type of...
Aims
You need to know the following for each type of business organisation
1. Definition2. Examples3. Formation4. Characteristics5. Advantages/Disadvantages
The following types of business organisations will be discussed:
Sole Trader Partnership Private Limited Company Stage One
Franchising Co-operatives Public Limited Company Alliances Stage Two
Transnationals State-owned Companies Stage
Three Indigenous Firms
Factors affecting choice of Business Structure
1. The investment needed2. Finance available, or that needs to
be borrowed or raised from investors
3. The tax it will have to pay on its profits
4. The effect a business collapse will have on their invested funds
1. Sole Trader A business owned and run by one person
eg. farmer, grocer, hairdresser, publican, local chemist, newsagent, etc
Regulations The health regulations when supplying food All safety regulations When turnover exceeds certain levels then the
business must register to collect and pay VAT When employing workers, all labour laws must be
obeyed
Characteristics Common for of business Easy to set up Unlimited Liability Capital provided by owner Owner controls all aspects of the business.
Formation
If the sole trader trades under his own name, he may start immediately
eg.: Wilson’s Wine Bar. If he is using a name different to his
own, eg, The Vineyard, then he must register the business under the Business Names act 1963.
A business must register for PAYE and PRSI if there are employees and it must also register for VAT if turnover is greater than a certain amount.
Advantages1. Easy to set up
Few legal requirements No permission is needed
2. Keeps all profits3. Independence
Full Independence.4. Confidentiality of
InformationThey do not have to publish accounts.
5. CustomersThe sole traders usually know their customers personally. This ensures customer loyalty.
Disadvantages1. Unlimited Liability
Owner personally responsible for all debts
2. Work Load, Long Hours and Stress
3. Finance – difficult to raise
4. Taxation
5. Responsibility
2. Partnership
A Partnership is a business relationship that exists between at least 2 and 20 people eg.: solicitors, doctors, accountants
Characteristics partnerships have between 2 & 20 partners Easy to set up Unlimited Liability Not separate legal entity Owners provide the capital and run the
business.
Formation If the partners operate under their own
names, the partnership can immediately start. Otherwise it must be registered under the Business Names act 1963.
The partners will usually draw up their own rules. This is called a Deed of Partnership. This sets down: Financial arrangements Share of profits Duties of each partner.
Advantages:
1. Easy to Set up and run
2. Easier to raise capital
3. More Skills and Experience in the group
4. Confidentiality of Accounts
5. Losses are shared
Disadvantages
1. Unlimited Liability – partners responsible for all losses
2. Slow Decision-making among many partners
3. Disagreements – among many partners
4. Profits shared among all based on investment
3. Private Limited Company A business owned by between 1 - 50 shareholders:
has limited liability seen as a separate legal identity in the eyes of the law.
Formation The rules for setting up a private limited company are
contained in the Companies Act 1990
1. The company needs to decide on its name and use this name on all documentation together with the word ltd at the end of the name.
2. A number of documents have to be prepared and sent to the Registrar of Companies at the Companies Registration Office.
3. The Companies Registration Office will give it a certificate of incorporation (a ‘birth cert’ of a private limited company.)
4. The company calls its first meeting (statutory meeting) and begins trading
Memorandum of Association
It contains:
1. The name and address of the company. 2. The objectives of the company3. A statement that the shareholders have
limited liability. 4. The amount of authorised share capital
(the maximum no. of shares to be sold)5. A list of all the founding shareholders
names, addresses, shares and signatures
Articles of Association
This document sets out the internal rules and regulations for running the company.
It contains:1. Details of Share Capital and voting rights
attaching to shareholders2. Details of how meetings are to be called and
conducted3. Details of how the directors are to be elected
and removed4. The powers and duties of the directors5. How the company can be wound up (closed
down)
Characteristics
Shareholders: Between 1 and 50 shareholders
Limited Liability
Separate Legal EntityThe company is separate from its shareholders.The firm can be sued, its owners can’t.
Shares are not bought and sold by members of the public
SizePrivate limited companies are often small or
medium sized, run by directors who are appointed by the shareholders.
Advantages
Limited LiabilityThey only loose the amount of money they put into the business.
Capitaleasier to raise
TaxThe rate of corporation tax is low.
Separate Legal Entity The firm can be sued, its owners can’t.
Skills and ExperienceThey can split the workload between them, with each director having different skills and experience.
Disadvantages
Legal RegulationsThey cannot begin trading until they receive a certificate of incorporation.
ConfidentialityDetailed accounts have to be published each year - employees, customers, competitors, etc have access to sensitive information on the company.
ProfitsShared between share holders in the ratio of investments not effort
CostsThe costs involved in forming a private limited company and complying with the Companies Act are higher than sole traders
4. Franchise
A franchise is when an established business allows another business to set up and use its name and idea in exchange for a fee and a percentage of the sales.
It is a licence to sell another firms product or service.
Examples of franchises include McDonald’s, Eddie Rockets, Subway, Pizza Hut, O’Briens Sandwich Bars, Spar,
Formation1. The franchiser is an expanding
business and wants to open new branches but does not want to manage these branches.
2. She seeks out an interested party (franchisee).
3. The franchiser charges the franchisee a large once off fee for permission to open up the franchise business.
4. They sign an agreement setting out how the business should be run.
5. Every year the franchisee pays the franchiser a percentage of the profits.
Characteristics The franchisee pays a fee to the franchiser
and then a percentage of the sales revenue each year.
The franchiser provides the following in return:
1. Building specifications and designs that lay down the type of structure in which the business can operate
2. Management and accounting support3. Site recommendations for the location of the
new business4. Product specifications to ensure the product
being sold is the same as in every other outlet5. Raw materials to ensure standardised
products and continuity of supply6. Each branch contains the same standard
décor, logo, method of operation product range, pricing strategy, etc.
Advantages
AdvertisingThe franchisee (individual branch) benefits from national advertising and promotions.eg.: Domino’s Pizza sponsors The Simpsons on Sky One..
RiskDue to established name, the risk of failure is small.
Economies of Scale – lower costsHead office buys all stock for the individual franchisee.
Expansion and CapitalThe franchiser can open new branches without major expense, as the franchisee pays an initial fee. The individual franchisee provides the capital and labour.
Training and Ongoing SupportThe management team receives valuable professional training and advice from the franchiser.
Disadvantages
Image at RiskThe franchiser is taking the risk of the franchisee not running the business properly
CostsThe costs to the franchisee are high. An initial fee must be paid and an annual percentage of sales.
RestrictionsThere is not much room for the individual franchisee to be creative, as a standard formula must be followed.
4. Co-operative A co-operative is a business set up by a group
of people with a common need. Each member has an equal say in the running of the business.
Eg: Wexford Farmers Co-op,
Formation The members (a minimum of 7) who purchase
one share of €1 and choose a name and registers office for the co-op and draw up rules (similar to the memorandum and articles of association) of the co-op.
They send these, with a fee, to the Registrar of Friendly Societies.
If these are in order a certificate of registration is issued and the co-op can begin trading.
Characteristics Minimum of 7 owners – no
maximum Members of a co-op enjoy limited liability Co-ops are democratically run
i.e. each member has one vote regardless of the number of shares held.
Profits are distributed to the members based on the proportion of business they do with the co-op.
The co-op cannot sell shares to the general public.
Types of Co-operatives Credit Unions: a financial credit union Producer Co-operatives: A group of producers (eg.:
farmers) Worker Co-operatives: owned and controlled by
those who work in it.
Advantages
1. Democratic Control
2. Limited Liability3. Share of Profits4. Contribution to
the Economy5. Credit Rating
Disadvantages
1. Formality and Regulations
2. Capital3. Confidentiality4. Profits5. Conflict
STAGE 2 – EXPANDING BUSINESSES Organic/Natural Growth
As a business grows, profits can be re-invested or ploughed back into the company (it expands). New machinery, equipments, land etc can be purchased. These profits are also known as retained earnings.
Other Forms of Growth Businesses can also grow by joining an alliance or if
it is a ltd, co-operative or semi state company it can turn itself into a public limited company.
Benefits of Growth1. Economies of scale; -costs fall and profits rise2. The business will be better able to seek out
new markets3. The business will have the funds to pay better
sallies and attract better works4. Greater profits will allow it to expand further
6. Public Limited Company (PLC)
This is a business owned by at least 7 shareholders.
There is no limit to the amount of shareholders in a plc.
Shares are bought and sold freely on the stock exchange.
eg.: Bank of Ireland plc, AIB plc, Aer Lingus plc, Glanbia, Kerry Group and Ryanair
Formation
A Public Limited Company grows from a private limited company, a co-operative or a semi-state body.
It has a memorandum of association, articles of association and a certificate of incorporation.
The company must have 7 shareholders willing to buy shares
Must get a trading certificate from Registrar of companies
They sell shares to the public and must get a quotation on the stock exchange.
When a company makes a decision about becoming a PLC it must:
i) Decide on the amount of money that it wishes to raise form the public.
ii) Produce a prospectus. This is a book that details the history of the company and invites members of the public to buy shares.
Characteristics
At least 7 shareholders and no maximum The letters PLC must appear after the
name Shares are bought and sold freely on the
stock exchange by whoever wants to buy them.
Accounts must be published each year. It must publish a prospectus.
Advantages:1. Limited Liability2. Tax:
The rate of corporation tax is low. How will this affect a company?
3. Capital : Plc’s can raise a lot of
capital as a result of being able to sell shares to the public on the stock exchange.
4. Publicity There is a freely
publicity with being quoted on the stock exchange.
5. Separate Legal Entity
Disadvantages:1. Legal Regulations
A lot of legislation governs running of a company
2. Confidentiality: full set of accounts must be published
3. Expense: huge expense to set up on stock exchange
4. Takeover’s: small PLC’s become the target of a takeover
5. Ownership and Control:As share numbers increase there is a big turnover and dilution of control
People involved in Companies1. Shareholders They own the company. They put their money into the company. They receive a share of the profits called a
dividend They vote in the Board of Directors and can
vote at AGM’s.2. Board of Directors They run the company for the shareholders. They are voted in by the shareholders, are
responsible for making the business a success and report back to shareholders.
They decide on the dividend.
3. Managing Director (MD)/Chief Executive Officer (CEO)
This person is in overall charge of the company
They are answerable to the board of directors. They appoint senior managers and delegate
duties to them
4. Chairperson This person is selected by the Board of
Directors to run the companies meetings. They act as a figurehead for the company.
5. Secretary This person is in charge of administration in the
company. They organise company meetings and send out the
notice and agenda for each. They take the minutes of meetings.
7. Alliance An alliance is an arrangement where
two firms agree to co-operate with each other on a single business project.
An alliance benefits both businesses. The businesses agree to come
together to share skills, expertise, costs, etc.
Example Postbank is a joint venture between
An Post and Fortis (a major international bank).
Formation An alliance is formed when two firms
decide that it would be beneficial for both of them to join up for some activity on a temporary basis.
Characteristics These are not an option for new
businesses, but are extensively used by existing firms as a method of entering new markets or acquiring new technology or products
Both firms retain their own identities The alliance may be short or long term.
Advantages1. Expertise, Costs
and Skills are shared
2. New Markets – increase market share
3. Easy to Form4. Economies of
Scale5. Brand Name of
both creates recognition
Disadvantages1. Profits and
Control Shared2. Lack of Choice
for consumers3. Disagreements
among management and employees
8. Transnational Companies A transnational/multinational is a company
with its headquarters in one country and branches in many other countries.
Some firms become transnational companies as a result of natural growth whilst others set out to conquer the world.
eg.: Dell, Intel, Sony, Ford, Toyota, etc Formation Firms become transnationals due to
growth and expansion of the business. They increase their profits and market
share by supplying world markets.
Characteristics
They tend to be the largest companies in the world.
example Sony, Shell, Coca Cola, Microsoft and
McDonald’s They sell standardised products all over the
world, sometimes with slight modifications to suit different countries – eg McDonald’s Irish Beef
All major decisions are usually made abroad for the good of the company.
Good communications and infrastructural networks are important for the success of transnational companies
Ireland and Transnationals The Industrial Development Authority (IDA)
attracts foreign companies to set up in Ireland.
E.g. Intel, Hewlett Packard, Google (European HQ. in Dublin), Amazon and eBay.
Reasons why they choose Ireland1. Tax Concessions2. Access to the EU Market3. Educated Workforce4. Grants5. Stable Currency
Advantages1. Create Employment2. Contribute Tax
Revenue 3. High level of
technologies, Products and Skills
4. Local Suppliers are available and benefit
5. Competition increases choice and lowers prices e.g. supermarkets
Disadvantages1. No loyalty to Ireland
– DELL moved to Poland
2. Repatriation of Profits
3. Competition - Irish firms suffer
4. Size and Power can influence government
9. State-owned Enterprises These are companies set-up,
owned, financed and controlled by the government.
E.G. Bus Eireann semi-state companies are part
owned by government E.g. Aer Lingus
Formation These companies are usually set
up by an Act of the Oireachtas (eg.: CIE, ESB, RTE, etc).
These don’t have shareholders but have a board of directors appointed by the relevant minister.
They may be set up as limited companies with the government as the major shareholder
E.g. Dublin Port Company
Characteristics Each state company is under the
control of a government minister, who appoints a board of directors to run the company.
The annual reports and accounts of these bodies are sent each year to the relevant Government minister
State firms are both commercial and non-commercial.
Reasons for the Establishment of State-Owned Enterprises
1. Many bodies were set up to develop vital sectors of the economy such as tourism (Bord Failte)
2. The I.D.A. attracts foreign firms into the country
3. Enterprise Ireland encourages the establishment of home-based firms.
4. To provide a particular good or service, eg.: Coillte - Forestry
5. Provides essential services which are neededeg.: buses to rural areas, An Post
Advantages1. Create
Employment2. Provide Essential
Services3. Increase
Economic Development
4. Develop Natural Resources
5. Profit made goes to government
Disadvantages1. Not profit
motivated2. Losses are
common3. Capital from
taxpayers 4. Government
Interference
10. Indigenous Firms Firms which are set up, owned and run
by Irish people. Their main place of business is Ireland. eg.: Lily O’Brien’s, Supermacs, Pat the
Baker, etc Characteristics The government supports the creation of
indigenous firms through Enterprise Ireland. The aim is to lesson our dependence on multinationals
Enterprise Ireland gives grants, advice and start up finance to indigenous firms.
Advantages1. Create
Employment2. Loyalty to Irish
produce3. Profits are kept
in Ireland4. Promotes
Culture of Enterprise
5. Tax Revenue for government
Disadvantages1. Competition –
difficult to compete against multinationals
2. Grants required from taxpayers money – failure brings no return
Changing Trends in Ownership and Structure
1. Increase in Franchises – less risk2. Mergers and Alliances –
Economies of scale3. Privatisation – raise finance for
govt 4. Co-operatives becoming Public
Limited Companies 5. Irish Businesses becoming
Transnationals – increase exports