Types of Business Organization

queeniechan
Mind Map by queeniechan, updated more than 1 year ago
queeniechan
Created by queeniechan over 6 years ago
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Mind Map on Types of Business Organization, created by queeniechan on 11/30/2014.

Resource summary

Types of Business Organization
  1. Public Sector Businesses
    1. Joint Ventures
      1. Benefits
        1. reduces the risk for each business and cuts costs
          1. each business brings different expertise to the joint venture
            1. Market and product knowledge can be shared to the benefit of the business in the joint venture
            2. Limitations
              1. Mistakes made may damage the reputation of all firms in the joint venture, even if they were not the cause of the mistake
                1. The business may have different business cultures or styles of leadership, making decision making difficult
              2. Sole Trader
                1. A business owned and managed by one person
                  1. Why?
                    1. Be their own boss and make their own decisions
                      1. Decide when and how many hours to work
                        1. Have a business that uses their skills and interests
                        2. Advantages
                          1. Easy to set up business
                            1. Makes all the decisions
                              1. Has complete control
                                1. Keeps the profit
                                2. Disadvantages
                                  1. Unlimited liability
                                    1. May not be able to raise funds to expand the business
                                      1. May have to work long hours
                                        1. Difficult to compete with larger firms
                                          1. May not have business skills to run a business
                                        2. Limited Companies
                                          1. Private Limited Company
                                            1. Usually a very small number of shareholders. Often members of the same family or friends
                                              1. Usually fairly small
                                                1. can only be sold privately, often to family members, friends or employees
                                                  1. Only a few shareholders. One shareholder may own 51% of the shares in the company and so has control over major decisions. Ownership is not separated from control
                                                    1. Even if successful it may be difficult to raise additional capital as shares cannot be sold to the general public
                                                      1. Often find it difficult to raise finance as unincorporated businesses because they are usually small business with low value assets to offer as security - known as collateral
                                                      2. Public Limited Comany
                                                        1. Usually a very large number of shareholders
                                                          1. Most common form of organisations for very large companies
                                                            1. Can be offered for sale to the general public and other organisations
                                                              1. Quick and easy to sell as they can be offered for sale to the public
                                                                1. Often thousands of shareholders. The board of directors appointed by shareholders at the annual general meeting control major decision. Ownership and control are separated
                                                                  1. If successful then can often raise very large sums quite easily through the sale of additional shares
                                                                    1. Can often raise very large sums at good rates of interest because of their reputation and valuable collateral
                                                                  2. Franchises
                                                                    1. Benifits
                                                                      1. Franchisor often provides advice and training to the franchisee as part of the franchise agreement
                                                                        1. Less chance of business failure because the product and brand are already well established
                                                                          1. Franchisor will finance the promotion of the brand through national advertising
                                                                            1. The franchisor will already have checked the quality of suppliers, so the franchisee is guaranteed quality suppliers
                                                                            2. Limitations
                                                                              1. Initial cost of buying into a franchise can be very expensive
                                                                                1. franchisor will take a percentage of the revenue or profits made by the franchisee each year
                                                                                  1. Very strict controls over what the franchisee is allowed to do with the product, pricing and store layout
                                                                                    1. franchisee will still have to pay for any local promotions if they decide to do
                                                                                  2. Parternership
                                                                                    1. A business owned and managed by two or more people
                                                                                      1. Formed to overcome some disadvantages of sole traders
                                                                                        1. Advantages
                                                                                          1. Easy to set up a deed of partnership
                                                                                            1. Partners invest in the business so greater access to funds
                                                                                              1. Shared decision making
                                                                                                1. Shared managements and workload
                                                                                                2. Disadvantages
                                                                                                  1. Unlimited liability
                                                                                                    1. Share the profits
                                                                                                      1. Business ceases to exist if one parter leaves
                                                                                                        1. Decisions binding on all partners
                                                                                                          1. Difficult to raise finance
                                                                                                      2. Public cooporations
                                                                                                        1. They are owned and controlled by the state
                                                                                                          1. They are financed mainly through taxation
                                                                                                            1. In many countries they have social objectives rather than profit objectives
                                                                                                              1. The services of public corporations are often provided free or at a low price to the population
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