Multi National Companies These are large business organizations.

A multinational company is a public limited company usually a large one that produces in more than one country. For instance the US based Mac Donalds has outlets in many countries the UK based Lloyds TSB Bank had branches in range of countries has branch range in of countries and the Japanese based Toyota has factories in a number of countries. There are a number of MNC. They usually operate in a more than one country. Liver Brothers and KFC are examples MNC operate in other countries to avoid barriers of trade. Transportation cost is reduced by producing in other countries but the Host countries are operated by the Host Firm of MNC. Another important reason for operating in other countries is the competition wage rates. In developing countries such wage rate is low therefore MNC operates there to reduce labour cost. Developing countries are there in production of the materials (raw). It is expensive to import raw materials to produce finished goods and to export. To avoid all such practices MNC prefer to operate in economy where raw material is produced. Sometimes MNC operate in other countries because their competitions have set up the business. MNC also operate in other countries to receive grants from the countries in which they have set up their franchises. Advantages of MNC: The MNC is advantageous because it can increase employment in the countries. They can produce new methods of output processing and efficiencies rise. They encourage competition and wider choice is available to consumers so living standard rises. They help governments raise tax revenue which is spent on welfare and bring in new technology and management ideas and help in development of infrastructure. Their importing costs fall and payment balance improves. Disadvantages of MNC: MNC exploit domestic resources which may be finished quickly. They may be prone to pollute and willing to close down plants in foreign countries. Their size and ability to shift production may mean that they can put pressure on the governments of the countries in which they have plants to give them tax concessions and not to penalize them for poor safety standards. In addition although MNC may increase employment there is a risk that they might drive domestic firms out of business. The profits they earn may be paid to shareholders in other countries rather than being invested in the host country. They form monopolies which exploit consumers. KEY POINTS; Mnc operate to Reduce labor cost

Reduce raw material cost Reduce transportation cost Reduce cost of import export and production Competitive wage rates To receive grants from other countries Paying balance improves Bring new technology Employment Help government raise tax revenue Reduce cost of import export and production to balance payments Wider choice available to consumers so living standard rises Advertisements and new efficiency methods Exploit resources and consumers Pressurize government not to penalize them for poor safety standard Tax concessions, yes? Yes. They have plants there They may put local firms out of business More profits paid to share holders rather than being invested in host country.

Retail Cooperative Societies: These are usually involved in retail trade. These are cooperatives and their objective is not primarily profit but to render services to their consumers. Everyone can become member by buying a 1 share. One member can buy a maximum of 5000 shares costing 1. In this society the managers elect a board of directors who makes policies. However managers are appointed to run the business. Such firms have higher legal entity; therefore will continue even if a member dies. Members enjoy limited liabilities. Key points Retail trade Profit secondary objective Members buy shares of 1 pound 5000 maximum shares can be bought Board of directors High legal entity Limited liabilities Public Sector Organizations They are also called state-owned enterprises. These are public sector organizations and theyre formed through Act of Parliament. PLC is formed through the companies act. The chairman and the board of managers are appointed by the government. Theyre constructed through a ministry under the supervision of the minister. There are

directors appointed too. There are no shareholders in the PSO s and they are responsible for day to day management but are accountable to the government. The government does funding from approved loans and from private sector. Public Sectors objectives: To produce such goods and services which are not available from private sector; public goods merit goods like street lights roads and parks and merit goods like education and health. To maintain employment in the economy to a certain level Nowadays satisfactory profit is also one of the objectives The corporations are funded by the government as I said earlier. . The government using tax revenue . Government issuing bonds and certificates to Private Sector . Borrowing from local and international financial institutions Cross Subsidization; i-e profit of a public corporation is used to meet the loss of another public corporation or retain back in the same corporation. As one of the objectives of modern public corporations is to make satisfactory profit, therefore the profit is used for cross subsidization or is retained back or distribute among shareholders bonders or certificates holders. KEY POINTS; State owned enterprises Formed through Act of Parliament Formed by the ministry under the supervision of Minister Formed from the Act of Parliament Chairman and board of directors elected + managers Funded by the government ---- approved loans through private sector No shareholders ------- public limited company Responsible for day to day management Accountable to government No profit objective To produce merit and public goods To maintain employment To make satisfactory profit Financed by Private sector Tax revenue Cross subsidization--- either given to losing firm or retained back or distributed amongst those who have been share and certificate holders and bonders. Financial institutions --- local and non-local

Public Limited Companies They have often plc at the end of their names. It is a joint stock and continuous existence and limited liability company. These are large in size but small in number. There are minimum of two share holders and no maximum limit. It has separate legal entity Plc invites public to buy its shares. They can be transferred without the need to consult existing shareholders. This increases the number of potential shareholders to sell their shares on the stock exchange. So this type of organization can raise a considerable amount of finance. This results in growth of firm and eventually economies of scale. The formation of plc is very complex and expensive not to mention the process of issuing shares. Many legal formalities must be fulfilled. Real owner of business may lose his control because of freedom to transfer shares. There is also the fear of take over. Shareholders may be too concerned with gaining more dividends at the expense of long term development of companies. There is no say of shareholders because management is divorced from real owners. Sometimes it incurs diseconomies of scale. Profit is distributed among share holders as dividend. KEY POINTS Large in size and small in no. Continuous existence--- limited liability--- legal entity------ joint stock Can issue shares to public Plc written down No need to ask existing shareholders Raising of finance Economies of scale Complex and costly formations Legal formalities to be fulfilled and large amount of capital is required No say of shareholders Owner can lose control of issuing of shares Diseconomies of Scale Dividend (share of profit) Private LIMITED companies No maximized limited of shareholders. These are formations of joint stock companies, business can be owned jointly. The financial capital economy is divided into shares. Information about the company has to be provided to the shareholders on an annual basis. The company has a continuous existence i.e. it carries on even if a major shareholder dies or loses shares. These companies have limited liability. They have minimum of two members. Most are relatively small firms with many of them being owned by families. This is because these companies cannot invite the

general public to buy their shares. It is necessary to get the consent of the other share holders before any shares are sold and they have to be sold To known individuals. This restriction on the shares keeps control of the firm in few hands with those owning the shares usually managing the business. It does however limit the amount of finance that can be raised. They cannot operate at the stock exchange either. For this reason some private limited companies convert to public limited companies Board of directors is selected from AGM (Annual general meeting). This meeting is called every year to make decisions for the forth coming year and to elect board of directors. KEY POINTS Joint stock_ owned jointly Limited liability No maximized amount of members Owned by minimum two numbers Financial capital Economy divided into shares Information to be provided to shareholder on annual basis Continuous existence Restriction on public buying shares---they have to consult existing sharers Control Only known individual can buy shares Limited Finance Conversion Partnerships Partnerships have unlimited liability and are self employed. The partners are the owners of the business. There have to be at least two partners and the maximum number is limited to twenty, although in some cases > 20 members are permissible. Again as with sole traders partnerships can employ any number of workers. Partnerships are relatively easy to set up. Having more than one owner means that partnerships are likely to be able to raise more finance and have more experience at hand in running the business. In fact some of the partners may even possess specialist skills. Even if one partner is on leave (say due to illness) the whole partnership is dissolved and it will hamper the functioning of the firm as significantly as the case of sole proprietor. This is why they lack continuity because a new partnership would have to be set up by remaining owners. A partnership has greater access to finance than sole proprietor but it is still limited. Partnerships are particularly common in professional services such as accountancy architects dentists and solicitors. An

agreement is drawn up between partners which states terms and conditions such as how to contribute capital how to share responsibility how to hire and fire, and how to share profit Otherwise follow the deed of partnership act 1890 Limited Partners are allowed limited liability No legal entity No say in running of business Disagreement can finish partnership. All partners are liable for decision taken by even one partner. Retaining borrowing from bank is main source of finance. Profit is distributed among partners according to the agreement. KEY POINTS Unlimited liability Self employed 2 partners minimum 2 x 10 maximum Easy to set up Employment unlimited Raise more finance Specialist skills of partners Lack of continuity Partner one leaves and entire balance of firm is disturbed Common in professional services Accountancy Architects Doctors Solicitors Agreement of deed of partnership 1890 Sole Tradership It is a one person business. It carries out both the functions of the entrepreneur bearing certain risks and factors and organizing the factors of production. She or he is said to be self employed. A sole trader can employ any number of staff. In practice, sole proprietors tend to be relatively small. This is because one person is unlikely to be able to control a very large firm. Also the amount of finance is limited to the amount one person is prepared to put into business. A sole trader has unlimited liability. If the business fails the owner can lose not only the money he or she has put into it but some or even all of her personal assets depending on the size of the business debts. If on the other hand the business is a success the trader will receive all the profits. Although they are small they are most common business organization in most countries. It is flexible and quick to respond to changes in demand since one person makes every decision.

Incentive to be efficient as owner will get all the profit Personal Contact with customers can promote sales Personal contact with employees motivates them Low start up costs Unlimited Liability Business unable to grow to a very large extent Qualified trader Dependency Lack of continuity KEY POINTS Self employed Unlimited employment Limited finance--- varies uniformly with investment Unlimited Liability--- personal assets at stake Trader can receive all profits Quick and flexible Motivation to customers and employees Low start up costs Qualification Temporary Dependent Small How do small firms survive?