BUSINESS AND

MANAGEMENT
MODULE 1
Unit 1.1

INTRODUCTION TO
ORGANISATIONS

Economic Sectors and legal structure
1) Private Sector Organizations
Sole Trader/Proprietors
Partnerships
Companies/Corporations ( Public limited and Private Limited company
Cooperatives and enterprise
Franchises
Joint Venture
2) Public Sector Organizations
Public Corporations
Statutory boards
3) Not for Profit Organizations
Charities
Non- governmental organizations

4 Privatization and Nationalization

Learning Outcome
Analyse local organisations of different types and identify
their main features.

Explain the advantages and disadvantages of each type of
organisation identified.

Relate each type of ownership to the degree of control.

Distinguish between organisations in the Private and Public
Sectors.

Evaluation of each type of business in terms of :
their characteristics
advantages and disadvantages
ability to raise finance
appropriateness of legal structure
problems from changing from one
legal structure to another
READING FOCUS







Hall, Jones, Raffo, Business Studies 3
rd
Edition, Units 6 & 7.
Stimpson, AS and A Level Business Studies, Chapter 1.
Jewell, An Integrated Approach to Business Studies 4
th

Edition, Chapter 1.
Barratt and Mottershead, AS and A Level Business Studies,
Unit 3.
Context
If you go anywere in Jamaica , you will notice that many of
the shops display their names for all to see. It may be Mr
Joes can shop, Tastee, Redstrip or FIX It computer as well
as known chain stores such Mega Mart plc . All are
businesses, but each with a different status in terms of how
is operated, who the owner is and how any profit is shared.
The Private and Public Sectors of the Economy
The Private Sector comprises businesses owned and controlled by
individuals or groups of individuals. In every country, most
business activity is in the private sector.

The Public Sector comprises Organisations accountable to and
controlled by central or local government. These usually include:
Health and education services
Defense
Law and order
Some strategic industries.



THE ECONOMY
Private Sector Public Sector
The Private Sector Legal Structure
Private Sector
Businesses
Sole
Trader
Partnership
Limited
Companies
Cooperatives
Private
LTD
Public
LTD
The Sole Trader/Proprietor
This is the most common form of business organisation. One person
provides the finances and in return, has full control of the
business and is able to keep all the profits.

Characteristics
It is a one man business
It is easy to form
Sole trader is fully responsible
for all debt and obligations
relating to the business

Responsibilities of the sole
trader
Securing all capital for the
business
Assuming all risk
Paying all bills and taxes


The Sole Trader/Proprietor
Advantages

Easy to set up-no legal formalities.

Owner has complete control not
answerable to anybody else.
Owner keeps all profits.

Able to choose times and patterns of
working.

Able to establish close personal
relationships with staff (if any are
employed) and customers.

The business can be based on the
interest and skills of the owner
rather than working as an employee
for a larger business.

Disadvantages

Unlimited liability all of the owners a
assets are potentially at risk.

Often faces intense competition from
bigger firms, for example, food
retailing.

Owner is unable to specialise in areas
of the business that are most
interesting it is responsible for all
aspects of management.

Difficult to raise additional capital.

Long hours often necessary to make
business pay.

Lack of continuity- as the business
does not have separate legal status,
when the owner dies, the business
ends too.


Partnership







Partnerships are agreements between two or more people carry on a
business together, usually with a view of making a profit.

The Deed Of partnership establishes the rights and privileges of the
partners. This document includes issues such as voting rights,
distribution of profits, The management role of each partner and
who has the authority to sign contracts.

Limited Vs Unlimited Partner
Sometimes a partnership has limited
status or limited liability which
means that a person is only liable for
the amount of capital invested in the
business. An unlimited liability status
of a partner means that such partner
is responsible for debt incurred by
the business.
Partnership
Advantages

Partners may specialise in
different areas of business
management.

Shared decision making.

Additional capital injected by each
partner.

Business losses shared between
the partners.

Greater privacy and fewer legal
formalities that corporate
Organisations (companies)


Disadvantages

Unlimited Liability for all partners.
Profits are shared.

There is, as with sole traders,
no continuity and the
partnership will have to be
reformed in the event of the
death of one partner.

Al partners are bound by the
decision of any one of them.

Not possible to raise capital from
selling shares.

A sole trader, taking on partners
will loose independence of
decision making.


Limited Companies
Characteristics of Limited Companies

Limited Liability
Legal personality
Continuity
Capital is divided into shares
Companies are run by directors

Question: Discuss the characteristics of a limited company and how
these differ from the Sole Trader and Partnership forms of
businesses.

Distinguish between the ownership and control of a Limited
Company.


Companies
A Corporation is also known as a limited
company, is a legal entity that is separate and
distinct from its members(shareholders)
Features
When a company is incorporated, it acquires all of the
powers of an individual , an independent existence.
Separate and distinct from its shareholders and an
unlimited life expectancy.

The act of incorporation
Incorporation gives life to a legal entity known as a
corporation.
Ownership interests in a corporation are usually
easily changed
Companies Vs Partnership or Sole proprietorship
Limited liability normally no members can be
held personally liable for debts, obligations or
act of the corporation beyond the amount of
share capital the member has subscribed.
A creditor with a claim against the assets of the
company would normally have no right against its
shareholder maybe held liable.
Perpetual Succession- Because the corporation
is a separate legal entity, its existence does not
depend on continued membership of any of its
members.
Advantages of incorporation
Limited liability, possible tax advantages,
specialized management, ownership is
transferable, continuous existence, easier to raise
capital

Disadvantages
Closely regulated (file annual reports)
The company is required to maintain certain
corporate records
Most expensive form of business to organize(
higher start- up cost for legal and accounting services)
How Limited Companies are Formed
Memorandum of Association + Article of Association
Registrar of Companies
Certificate of Incorporation
Trading Begins
The Memorandum of Association


Name of the company
Name and address of the companys registered office
The objectives of the company and scope of its activities
The liability of members
The amount of capital to be raised and the number of shares to be
issued

Note: A limited company must have a minimum of two members.


Article of Association


The rights of shareholders
The procedure for appointing directors and scope of their powers
The length of time directors should serve before reelection
The timing and frequency of company meetings
The arrangement for auditing company accounts



The Private Limited Companies
Characteristics

Tend to be relatively small companies.
Their business name ends in Limited or Ltd.
Shares can only be transferred privately and all shareholders must
agree to the transfer.
Private Limited Companies are often family businesses owned by
members of the family or close friends.
The directors of these companies tend to be shareholders and are
involved in the running of the business.
Many manufacturing firms are Private Limited Companies rather
than Sole Traders or Partnerships

List the names of five (5) Private Limited Companies in your
community?



Private Limited Companies
Advantages

Shareholders have limited liability.

More capital can be raised as there
are no limits on the number of
shareholders.

Control of companies cannot be lost
to outsiders.

The business will continue even if
one of the owners dies.


Disadvantages

Profits have to be shared out
amongst a much larger number of
members.

There is a legal procedure to set up
the business. This takes time and
costs money.

Firms are not allowed to sell shares
to the public This restricts the
amount of capital that can be raised.

Financial information filed with the
Registrar can be inspected by any
member of the public. Competitors
could use this to their advantage.


Formation of Public Limited Companies

Memorandum of Association + Article of Association + Statutory Declaration
Registrar of Companies
Certificate of Incorporation
Publish of Prospectus
Public Limited Companies
A public limited company is also an example of a joint stock
company and is distinguished from a private company in
that the shares of a public limited company are openly sold
on the stock exchange while a private company share is
not.
All PLC must have the letters PLC written after the
companys name where as a private limited company has
co.ltd printed after the companys name.
Public Limited Companies


A plc cannot begin trading until it has completed these tasks and
has received at least 25% payment for the value of shares.

It will then receive a Trading Certificate and can begin operating.

The shares will be quoted on the Stock Exchange or the
Alternative Investment Market (AIM).

The Stock Exchange is a market where second hand shares
are bought and sold. A full Stock Exchange listing means
that the company must comply with the rules and
regulations laid down by the Stock Exchange.

The Alternative Investment Market (AIM) is designed for
companies which want to avoid some of the high costs of a
full listing.

Going Public is Expensive
The company needs lawyers to ensure that the prospectus is
legally correct.

A large number of publications have to be made available.

The company must use financial institutions to process share
application.

The share has to be underwritten. A fee is paid to an
underwriter who must buy any unsold shares.

The company will have advertising and administrative expenses.

The company must have a minimum of $50,000 share capital.



Exiting the Stock Market
Sometimes a business operating as a Public Limited Company
is taken back into private ownership. Why does this
happen?

Exiting the Stock Market

Sometimes the business lose favour with the stock market.


The business may be bought outright by a private individual.


The people running the business might no longer be willing to
tolerate interference from the external shareholders.

Question: Suggest why Richard Branson decided he
wanted to buy back all the shares of his company after
going public.
Public Limited Companies
Advantages

Huge amounts of money can be
raised from the sale of shares to
the public.

Production costs may be lower as
firms gain economies scale.

Because of their size, plc can
often dominate the market.

It becomes easier to raise finance
as financial institutions are more
willing l to lend to plcs.



Disadvantages

Setting up costs can be very
expensive.

Since anyone can buy shares, its
possible for an outside interest to take
control of the company.

All company accounts can be inspected
by member of the public.

Because of their size they cannot deal
with customers at a personal level.

The way they operate is controlled by
various company acts which aims to
protect shareholders.

There is divorce of ownership and
control which might lead to the
interest of owners being ignored to
some extent.

Plcs inflexible due to their size.

Questions: What are the
limitations of being a
limited company in a highly
competitive market?
Cooperatives
Cooperatives are business formed by groups with similar objectives
and interest. The groups maybe producers or users of products
and services. Cooperatives were first established by people in
Agriculture.This is a common form of business organization in
some countries, especially in agriculture and retailing.

Principles of Cooperatives

Open membership

Democratic control
Limited interest on capital

Patronage refund
Continuous education
Cooperation among cooperatives

NB. Make notes on each principles

Feature
All members can contribute to the running of the business,
sharing the work load, responsibilities and decision making.

All members have one vote at important meetings.

Profits are shared equally among members.
Members get dividends based on the number of shares they
hold
Shares are NOT traded on the stock market but can be
redeemed at the co operative
Controlled by elected committee, all of whom are members
All members have one vote at important meetings.

Cooperatives
Advantages

Buying in bulk.

Working together to solve
problems and make decisions.

Good motivation of all
members to work hard as
they will benefit from shared
profits.



Disadvantages

Poor management skills unless
professionals are employed.

Capital shortages because no sale
of shares to the non-member
general public is allowed.

Slow decision making if all
members are to be consulted
Types of Cooperatives in Jamaica
Coffee and
Cocoa growers
Sugar workers
Credit unions
Levels of
cooperative
Society
Primary
Secondary eg.
Credit union
Tertiary eg.
National union of
cooperatives
Research and writing in your book
Task
1. What are charities?. How are they
different from Cooperatives in
relation to the following:
Characteristics
Role in community development.
Advantages and Disadvantages






YOUR READING TASK
For each of the following forms of
business identify their:
Definition
Characteristics
How they are organised
Advantages and disadvantages

1. Workers Cooperatives
2. Consumer Cooperatives
3. Building and Friendly Societies
4. Charities

Franchises
This is a contract between two firms. The contract allows one of
them, the franchisee, to use the name, logo and marketing
methods of the other, the franchiser.
The franchisee can separately, then decide which form of legal
structure to adopt.

Characteristics of Franchise
The characteristics of a franchise are dedicated by the nature of the
business, and the general operational guidelines set out by the parent
entity.
The franchise:
Bears the name of the parent entity and enjoys its goodwill
Is licensed by the parent entity
Pays a fee to the parent entity
Receives assistance from the parent entity in terms of professional
advice

How are franchises identified?
By its logo
By layout of buildings

NB. Please read and make notes on the benefits to franchise and
the franchisor, advantages and disadvantages
Factors Affecting the choice of Organisations
Age: Many businesses change their legal status as they become
older.

The Need for finance: A change in legal status may be forced on
the business.
Size: The size of a business operation is likely to affect its legal
status.

Limited Liability: Owners can protect their own personal
financial position if the business is a Limited Liability company.

Degree of control: Owners may consider retaining control of the
business as important.

The Nature of the Business: The type of business activity may
influence the choice of legal status.



Joint ventures
A joint venture is an organization established by
two or more entities that combine their skills and
assets in order to work closely on a particular
project.
Categories
Joint venture with a local and a foreign firm
Including local government

NB. Make notes on examples of each categories,
characteristics, advantages, disadvantages and
management
Public Sector Organisations


The Public Sector is made up or organisations which are owned and
controlled by central or local government or public corporations.
They are funded by government and in some cases from their own
trading surplus or profit.

Public Sector businesses still have important roles to play in certain
areas of business activity.
Which Goods and Services Does the Public Sector
Provide?
Public Goods
Non- Rivalry
Non- Excludable
Consumption of the good/Service
by one individual does not reduce the
Amount available for others
It is impossible to exclude others
From benefiting from their use
Merit Goods

These are services which people thing should be provided in greater
quantities

Examples of merit goods are:
Education, Health Services, Public Libraries

If the individual is left to decide whether or not to pay for these
goods, some may choose not to, or may not be able to.

Research and Writing Task
1. Identify five businesses within the Public Sector of your
country and discuss the their nature in terms of the
following:

Features
Role in the community
Their Inter-relationship

2. Assess the reasons for Privatisation of some Public Sector
entities.

3. What are the main arguments for and against privatisation
of such entities.

Liability of Public Sectors
The owners are liable or responsible for the debts of a company
company and no more
Unlimited liability means the owner will have to sell some or all of
his personal possessions to help pay of company debts
Limited liability means the owner loses only the money he has put
into the company

Types of public sector Firms
1) Nationalized industries or public corporations
2) Firms own by the government aim to operate in the interest of the
public
3) State corporations operated with their own board of directors
appointed by the government

Public Corporations/Statutory Boards
Make notes on the advantages and
disadvantages

Prepare arguments for and against
privatization and nationalization
Maxi Case Studies
Case: James Hull Associates
Source: Jones, Hall, Raffo, Business Studies 3
rd
Edition, Unit
6, page 51.

Case: Network Rail
Source: Jones, Hall, Raffo, Business Studies 3
rd
Edition, Unit
6, page 60.

Bibliography
Dave Hall, Rob Jones, Carlos Raffo, Business Studies, 3
rd

Edition, Causeway Press Ltd, 2005.


Stimpson Peter, AS and A Level Business Studies,
Cambridge University Press, 2000.



Barratt Michael, Mottershead Michael, AS and A Level
Business Studies, Pearson Education Ltd, 2000.

www.bized.ac.uk