UBO - Lecture 01 - Different Types of Organisation

Lecture 1 Different Types of Organisation Understanding Business Organisations
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UnderstandingBusiness
NCC Education Limited V1.0
Understanding Business
Organisations
Lecture 1:
Different Types of Organisation
Different Types of Organisation Lecture 1 - 1.2
This topic will cover:
The different categories of non-incorporated
business organisations
The importance of limited liability
Scope and Coverage
The importance of limited liability
The different types of limited companies
The advantages and disadvantages of the various
types of business organisation
Other categories of business organisation,
including not-for-profit
By the end of this topic, students will be able to:
Describe the different types of non-incorporated
organisations
Explain the importance of limited liability when
Learning Outcomes
Explain the importance of limited liability when
setting up a business organisation
Understand the key differences between a public
limited company and a private limited company
Explain how the franchise business model operates
Private Sector Business
Organisations
Business Organisations
Non-incorporated Incorporated
Sole Partnerships Private Public
Proprietors Limited Companies
Simplest form of business arrangement
Typically a one-person business
Examples include:
Trades people
Sole Proprietor
Market stall holders
Small independent retailers
Farmers
No legally required set-up procedures
Sole proprietor is the owner of the business
All profits and earnings belong to the owner
Advantages of Sole Proprietor
Status
All profits and earnings belong to the owner
The owner can take all necessary decisions
No requirement to submit formal documentation,
except for tax returns
All the tasks must be performed by the owner
operations, marketing, finance etc.
Skills and abilities are limited to those of the owner
Disadvantages of Sole Proprietor
Status
Pressure to keep working to bring in money
Poor economies of scale little buying power
Unlimited liability the owner is liable for all of the
businesss losses, without limit
Must be at least two partners
Legally recognised form of business organisation
More common amongst professionals:
Surveyors
Partnership Agreements
Architects
Accountants
No upper limit of partners, though rarely exceeds
20
All partners sign a legally binding agreement
All partners are equal, unless it is agreed to elevate
Characteristics of a Partnership
p q , g
one to senior partner
All profits are equally divisable between partners
Is not incorporated and so does not have limited
liability
More people in a partnership means that more
capital can be raised
No requirement to submit accounts and have these
externally audited
Advantages of Partnership Status
Profits can be distributed between the partners
Greater breadth of skills and abilities than a sole
trader
Any losses can be shared equally between
partners
Unlimited liability
Losses have to be borne by all partners even if
they are caused by the actions of just one
Decisions have to be reachedby consultation and
Disadvantages of Partnership
Status
Decisions have to be reached by consultation and
agreement, which can be slow
No requirement to submit accounts and have these
externally audited
If one partner leaves for any reason, the
partnership is automatically dissolved
Separate legal entity
Owned by shareholders
Run by directors
Has its own companyregistration number
Limited Company
Has its own company registration number
Limited liability
Allows many people to invest in a business by
purchasing shares
If the business succeeds, the value of the
investment will grow
What is Limited Liability?
If the business fails, the shareholders will not be
liable for anything more than their initial investment
If the business fails the personal assets of the
directors are also protected
Preference guarantees a dividend irrespective of
financial results, often fixed in advance
Ordinary most common type, allow holders to
attend and vote at AGM, and receive variable
Types of Shares
dividend
Deferred very rarely used, issued to founders or
employees
Private limited company
Most common form of limited company
Shares held by private individuals
Public and Private Limited
Companies
Shares not generally available to the public
Public limited company
Anybody can buy shares
Shares bought and sold through a stock exchange
Usually tend to be larger companies
Owners of the company benefit from limited liability
Regardless of the size of any losses, the
shareholders liability (or risk) is limited to the value
of their shares
Advantages of a Limited Company
The greater the number of shareholders, the more
capital is likely to be available
Setting up and running such a company can be
time consuming and expensive
Many legal constraints and procedures have to be
b d
Disadvantages of a Limited
Company
observed
Limited liability can mean that some organisations
may be reluctant to lend money
Investors are not automatically entitled to all of the
profits, which may be retained
General Structure of a Limited
Company
Shareholders
Chairperson
Chief Executive Office
(CEO)
Executive and Non-
Executive Directors
Mid-management and employees
Company
Secretary
Charities
Government organisations
Co-operatives
Other Types of Business
Organisation
Co operatives
Franchises
Not-for-profit type of organisation
Any excess money is known as a surplus, with
losses referred to as deficits
Primary objective is to provide a product or service
Charities
y j p p
to a specific target group
Certain tax benefits may apply
Make extensive use of volunteers
Often pay staff at below market rate
Consists of central departments and local
government
Funded primarily through taxation revenue
Not-for-profit type of organisation
Government Organisations
p yp g
Provide a range of services:
Public goods, needed by everybody e.g. police,
transport infrastructure
Merit goods, used by the population when needed e.g.
health service, social security, education
Democratically run business - concept is based
around shared ownership of a business
Members purchase a share that can be used to
vote, no single member is powerful
Co-operatives
Cash raised from shares is used as capital
Members can pool output
Surpluses are paid to members in the form of
dividends
The franchiser allows someone else (the
franchisee) to operate their business idea as
his/her own business
The franchisee pays money for this right, and uses
Franchises
the company name, logo and products
The franchiser imposes strict conditions
The franchisee manages the outlet and takes full
financial risk
Works well in the area of retailing
The franchiser:
Gets financial returns for little drain on resource
Does not take any risk
BUT loses direct control over the business
Th f hi
Pros and Cons of Franchising
The franchisee:
Benefits from a ready made business
Franchiser is available to give advice and guidance
BUT initial and ongoing costs can be significant
Franchiser may insist on strict rules of conduct and
behaviour
Non-incorporated business organisations can be
sole proprietors or partnerships
Limited companies can be either public or private
Limited liability is a key factor for all organisations
to consider, since it offers protection to both
shareholders and directors
Summary
shareholders and directors
There are advantages and disadvantages for all
different types of organisation
Other types of organisations include charities,
government organisations, co-operatives and
franchises
Campbell and Craig (2005), Organisations and the
Business Environment, 2nd edition. Butterworth-
Heinemann, Chapters 3-5, pp 45-89
Mullins (2010), Management & Organisational
References
Behaviour, 9th edition, Prentice Hall, pp 77-86
Lecture 1 Different Types of Organisation
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UBO - Lecture 01 - Different Types of Organisation

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