Types of Business Organization

Types of Business Organization

1. Public Sector Businesses

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

2. Public cooporations

   • They are owned and controlled by the state
   • They are financed mainly through taxation
   • In many countries they have social objectives rather than profit objectives
   • The services of public corporations are often provided free or at a low price to the population