BUSINESS OWNERSHIP
TYPES OF OWNERSHIP
Franchise
Co-operative
Public Ownership
Public Limited Company (plc)
Private Limited Company Ltd
Partnership
Sole Trader
LIABILITY
Unlimited Liability
The owners of the business
are responsible for any
debt. They may lose their
personal possessions to pay
any debts the business
might run up.
Limited Liability
The owners are only
responsible for the debt
equal to the value of their
shares. (They will only lose
the amount they invested in
the business)
SOLE TRADER
Business owned by one owner Also known as a proprietor Can employ people but they will not be
involved in control of business Small businesses Has unlimited liability
Examples of sole traders:
Small shops Plumbers Electricians Cleaners
Advantages of setting up as a sole trader Easy to set up – no complicated forms Make decisions quickly – no agreement needed Less capital needed Taxed differently – National Insurance contributions are
lower All profits kept. Can offer personal attention Don’t have to make any information about the company
public They are their own boss.
Disadvantages of setting up as a sole trader Unlimited liability Difficult to raise money – seen as a risk Don’t have economies of scale (buying in
bulk) No one to take over for ill-health or
holidays
Activity:
List all the sole trader businesses that are in your area (Torfaen) ……
PARTNERSHIP
Between 2 – 20 partners Partners = joint owners of the business May do decision making themselves or
employ manager Unlimited liability Profits shared = to capital invested (unless
stated otherwise in Deed of Partnership)
Examples of partnership businesses: Doctors Dentists Accountants Solicitors
Partnership Act of 1890
Lays of rules if Deed of Partnership is not drawn up.
Setting up a partnership
Deed of Partnership. Should include: Names of all the partners Capital invested by each partner How profits & losses will be shared Duties of each partner Procedures for adding new partners Procedures for partners leaving partnership
Sleeping Partners
May want to invest in the business but not be involved in the running of it.
Can register with Registrar of Companies as a limited partner
Have limited liability Must have one partner who has unlimited liability
Advantages of a Partnership
Easy to set up Capital needed = small Easier to raise extra capital Profits go to partners = motivation Smaller = good working relationships No need to make public and information Partners contribute with range of skills Share problems and decisions
Disadvantages of a Partnership
Unlimited liability Partners have disagreements;
Control of business Sharing of profits Withdrawal from the partnership Inviting new partners into the business
If partner dies or becomes bankrupt = partnership is dissolved
Activity:
List all the partnership businesses that are in your area (Torfaen) ……
PRIVATE LIMITED COMPANYLTD
Made up of people who know each other. Buy shares in the company = part owners Shares cannot be bought by the public Owners control who buys the shares Minimum 2 people – no maximum Expany by selling more shares = capital Normally medium sized businesses
Requirements:
Hold AGM (Annual General Meeting) Independently audited copy of company
accounts Registrar of Companies Shareholders need permission to sell their
shares
LIABILITY
Limited liability
Company has its own legal identity, separate from the shareholders.
Shareholders run company themselves or appoint a manager
Examples of LTD businesses:
Eddie Stobart Ltd
Raleigh
Cineworld
Setting up a LTD company
Comply with the Companies Act Register with Registrar of Companies
Documents required: Memorandum of Association Articles of Association
Memorandum or Association
Company’s name Address of its registered office States shareholders have limited liability Amount of share capital to be raised Purpose of the company (main activity)
Articles of Association
Names of directors and their role How profits will be distributed Internal rules for running the business –
rules about meetings & voting rights of shareholders
Procedure to be followed at AGM
MEMORANDUM OF ASSOCIATION
ARTICLES OF ASSOCIATION SENT TO REGISTRAR OF COMPANIES
REGISTRAR ISSUES CERTIFICATE OF INCORPORATION
Advantages:
Limited liability Can raise extra capital by selling more shares – easier to
expand Can employ managers to run business if don’t want to do
it themselves Can continue trading if shareholder dies (unlike
partnership) Has its own legal status – separate from the shareholder
Can sue and be sued Can own property
Disadvantages:
Accounts of the company cannot be kept private Audited each year Copy sent to Registrar of Companies Available for public to see
More difficult and expensive to set up - more administration
Cannot sell shares on stock exchange Limited by Articles of Association As to type of
business it can undertake
Activity:
List all the private limited company (LTD) businesses that are in your area (Torfaen) ……
PUBLIC LIMITED COMPANYPLC
Only 2 people needed to set up – no upper limit People who can buy shares:
Public Businesses Financial institutions
Most shares in a plc owned by organisations rather than individuals Shares bought the Stock Exchange
Share prices printed in national newspapers daily Can expand by selling more shares Limited liability Company has its own legal status Normally start as LTD then become PLC
Setting up a PLC
More rules and regulations Similar to a LTD Draw up a Memorandum of Association & Articles of
Association – send to Registrar of Companies to apply for Certificate of Incorporation = company has registered.
Before COI is issued must raise £50,000 Must be approved by Stock Exchange Council Once COI received the company issues a prospectus =
advertisement inviting public to buy shares in the co. Once shares issued the ROC will draw up Certificate of
Trading.
MEMORANDUM OF ASSOCIATION
ARTICLES OF ASSOCIATION – SENT – REGISTRAR OF COMPANIES
REGISTRAR ISSUES CERTIFICATE OF INCORPORATION
COMPANY ISSUES PROSPECTUS
SHARES ARE ISSUED
ROC DRAWS UP CERTIFICATE OF TRADING
COMPANY BEGINS TRADING
Advantages:
Limited Liability Easy to raise capital – issue more shares Banks more willing to lend money to a
large well-established company – less risk Easier to grow and expand Shareholders will appoint specialists to
manage and run the company for them
Disadvantages:
Expensive a lot administrative work (paper work) Raise at least £50,000
Issue more information about itself – expensive to produce
Has to prepare Annual Accounts – printed and sent to all shareholders
Also make them available for general public and competitors to see.
Activity:
List all the public limited company (PLC) businesses that are in your area (Torfaen) ……
FRANCHISE
Where a small business owner buys the rights to sell the goods and services of a large, well-established company.
Franchisee = small business buying the rights.
Franchisor = large business selling the rights
Examples of types of businesses:
Body Shop British School of Motoring (BSM) KFC McDonalds Burger King
Setting up a Franchise
Franchisor sets out the rules for the running of the business - ensure quality and standards are maintained.
In return, the franchisor will: Give a well-known name to the new business Provide advice on running of business Provide training to start the business Organise the advertising campaigns Supply the materials used fro the goods or services Proved equipment, eg; shop fittings so that all look the same and
same standards
Small business has to pay for the privilege of a stake in the large owner’s business.
It has to pay: Start-up fee – for licence from franchisor to
run business Royalty – in form of a percentage of annual
profits to the franchisor
Advantages:
The franchisor chooses the franchisees carefully – knows what characteristic that make a successful franchisee
The franchisor decides how much money the franchisee must invest in the business
The franchisor provides support – management advice & training – help franchisee solve problems.
Disadvantages:
Franchisee’s do not have freedom of running their own business;
Bound by rules e.g. Can’t vary product or price Franchisee cannot sell the business without
franchisors permission Franchisor can end franchise without consulting
franchisee Franchisee pays percentage of profits in
royalties Franchisee will never own the business outright
Activity:
List all the Franchise businesses that are in your area (Torfaen) ……
CO-OPERATIVES
Worker co-operatives are businesses owned by all the workers in the business.
Each worker has shares based on how much he or she has invested in the business
All workers are involved in making the decisions Each worker has one vote Votes are not related to number of shares they own Unless it is a limited company = one vote per share
All share in the profits All must contribute to the running of the business No limit to the number of members
Types of businesses
Fruit growers Play groups
Advantages:
Fewer disagreements because workers are the owners
All have interest in making business successful, improving morale and productivity
Increases in profits are share equally among all the workers
Disadvantages:
New workers have to buy shares and become part owners
New employees may find it difficult to raise money to buy shares when they first start work
Successful worker co-operatives are often pressured to sell the business – lose all the freedoms they have
To expand – find new workers willing to invest in business
All workers are paid the same. In other businesses the managers are paid more.
Difficult to recruit best managers due to pay limitations
Activity:
List all the co-operative businesses that are in your area (Torfaen) ……
PUBLIC OWNERSHIP
Some enterprises in the UK are owned or controlled by the state such as government departments and organisations funded by the government.They include: Government departments Local authorities Health trusts Public corporations Charities and voluntary organisations
Government departments
Deals with different matters at national level. These include:
NHS Social security benefits Defence Police Prison service Environmental issues and concerns Major road building programmes Collection of taxes
Local Authorities
Provide services for the local community. These vary, depending upon the area, so that the services in a rural community are different from those offered in a city.
The range of services offered:
ProbationService
EconomicDevelopment
Fire Service
EnvironmentalHealth
Libraries
Police
Recreation & Tourism
RefuseCollection
Road Maintenance
Schools
Social Services
Magistrate Courts
LocalCouncil
Health Trusts
Receive money from the government to deliver health care without making a profit
Public Corporations
Are government owned businesses, such as the BBC and the Royal Mail service. These businesses are expected to operate profitably, just like private organisations.
Charities and voluntary organisations
Many staff are work voluntarily (don’t get paid)
Also called not-for-profit organisations because they focus on using their income to provide a service to those in need.
How charities raise their money
Other, 14%
Street/door-to-door collections, 8%
Raffle/lottery tickets, 5%
Charity Shops, 8%
Sponsorship, 12%
Charity Events, 8%
Appeals by letter/phone/press/TV/
radio, 9%, 9%
Collection at work/pubs, 6%
Buying goods (at sales/from
shops/catalogues), 9%
Activity:
List all the public sector businesses that are in your area (Torfaen) ……
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