TYPES OF BUSINESS

ORGANISATION
 CHAPTER TOPICS
1. WHAT ARE THE DIFFERENT TYPES OF BUSINESS
ORGANISATIONS?
2. WHAT ARE SOLE TRADERS?
3. WHAT ARE PARTNERSHIPS?
4. WHAT IS A LIMITED COMPANY?
5. WHAT IS A CO-OPERATIVE?
6. WHAT ARE STATE OWNED ENTERPRISES?
7. WHAT ARE THE CHANGING TRENDS IN BUSINESS
OWNERSHIP AND STRUCTURE?
8. WHY HAVE AGRICULTURAL CO-OPS TURNED INTO
PLC’S?
9. WHY DO BUSINESSES CHANGE THEIR LEGAL
STRUCTURE OVER TIME?
1. WHAT ARE THE DIFFERENT TYPES
OF BUSINESS ORGANISATIONS?
 SOLE TRADER
 PARTNERSHIP
 PRIVATE LIMITED COMPANY/ LIMITED COMPANY
 CO-OPERATIVE
 STATE OWNED ENTERPRISES

These business structures are going to be compared under the

following headings:
1. Formation
2. Dissolution
3. Ownership
4. Management & finance
5. Profits & risk
2. What are Sole Traders?
This is a one person business run by
the owner with his/her own money.
Advantages
1. Formation & Very easy to form/dissolve.
Dissolution
It can be easily changed into
partnership, ltd company
etc.
2. Management Sole traders have full
& finance
control of how business is
run. Decision making is quick.
Financial records do not
have to be revealed to the
public.
3. Profit & risk Keeps all profit.
Takes all the risk.
Disadvantages
If he/she dies then so does the
business
Long working hours are common and
holidays are difficult to arrange due
to the commitment needed to be a
successful sole trader.
Can be difficult to raise all start up
finance and as a result loans are
required. They can be expensive on the
business start ups
Takes all risk. They have unlimited
liability. They may lose assets in the
event of a debt needing to be paid.
3. What are partnerships?
Is an agreement between 2 or more people to go
into business with a view to making a profit? There
can be no less than 2 members and no more than 20.

Advantages
1.Formation Easy to form. You can start
& immediately, however if
Dissolution business name is different to
that of partners you must
register the company name.
Disadvantages
If a partner leaves or a partnership
ends a new partnership must be
agreed.

2. Decision making is shared. Disagreements can easily occur.

Management Responsibility is shared. If someone dies the business is
& finance discontinued.
Financial details not open to
be viewed by public
3. Profit & Extra capital available to Unlimited liability, each partner is
risk finance the responsible for the debts of the
business business
Profits must be shared between
partners
4. What is a limited company?
Ltd companies are regarded as separate legal
entities from the people who own and run them.
The owners are called shareholders and only
gain/lose on the amount they put into the business .

There are two main types of company:

 Private limited company (Ltd) – STEEL WOOL
Industries PVT LTD
 Public limited companies (PLC’s) – RELIANCE
INDUSTRIES

The main difference is that shares of PUBLIC LIMITED

COMPANY’s can be freely bought and sold on the stock
exchange
The management structure of companies

Shareholders

Board of
directors

Managers

Marketing Financial Personnel Production

Dept Dept Dept Dept
 How is a private limited company formed
To form a private limited company you must
1. Have at least two shareholders and one director.
2 Prepare a Memorandum of Association. This is a document
for public use. It details name of company, company
objective, the number of shares of each shareholder. This
document is kept in the Companies Office.
3. Prepare an Articles of Association. This is a document for
shareholders. It details the internal rules of the company,
types of shares issued, how meetings are run, the procedure
for electing/replacing directors.
4. Register with REGISTRAR of COMPANIES in the COMPANIES
OFFICE
5. The companies office issues a “birth certificate” called a
CERTIFICATE of INCORPORATION
6. If you register as a public limited company you must obtain
a TRADING CERTIFICATE
7. TRADING CAN NOW COMMENCE
 How companies are run?
AGM- a meeting held once a year involving directors,
shareholders of a firm discussing events of the previous
12 months & future plans

Board of Directors BOD – this board is responsible for

overseeing the running of a company. These directors
are the most senior managers of a limited company.
Directors can be removed by a majority voting system.

The company chairperson – is a director and is elected by

the board to chair AGM’s & EGM’s. They speak on behalf of
the BOD.

The Managing Director MD/Chief Executive Officer CEO

Is in charge of overseeing all aspects of company activities.
The CEO is answerable to the BOD
Limited Company Features
Dissolution
Advantages Disadvantages

1. Formation Companies can continue The legal formalities of

& to exist even if a forming a company are more
Dissolution shareholder or director complex, time consuming &
dies expensive than forming
other business structures
2. Ownership Owned by its
shareholders
3. Management Can raise finance for A lot of paperwork including
& finance business start ups or financial audits, reports etc
expansion through
selling of shares.
4. Profit & risk Shareholders have Profits must be shared
limited liability. If
company has a lot of
shareholders risk is
minimal
5. What is a co-operative?
A co operative is business owned and run by a group of people,
AND each has a financial interest in its success.
They also have a say on how it is managed
Co-ops mainly exist in the agricultural industry .

Advantages
1.Formation Must have a minimum of 7
members. They register with
the REGISTRAR OF FRIENDLY
SOCIETIES.
Disadvantages
Can be quite difficult to form,
time consuming and expensive.

2. Co-ops mainly exist in the Conflict may exist between

Ownership agricultural industry. Equal members in the need for
voting system exists regardless business expansion.
of the shares held.
They file an annual financial
return (report)
What is a co-operative?
3. Management of co-ops are
Management inspired by a spirit of
& finance democracy and mutual co-
operation.
4. Profit & Members have limited liability.
risk Large membership of co-ops
make sure that there is high
demand for goods
In some situations finance can
be difficult to raise. This can
hinder growth.
Profits must be shared amongst
members.
There may be reluctance to
share profits with new members.
Risk is quite minimal.
6. What are state owned enterprises?
.These are enterprises that are set up,
financed and controlled by the government.

Advantages Disadvantages
1. Formation The government provides Lack of funding which in turn
the share capital and leads to borrowing more
subsidies. These from government, this is
companies usually have a especially true if the
good understanding with business is not making a
financial institutions, profit (i.e Garden Reach Ship
(banks) builders,GKW,SAIL,HMT)
 What are state owned
enterprises?
Management They provide employment The directors of some firms
and finance They promote industrial lack appropriate knowledge in
development, (e.g) CENTRAL the companies particular area
AND STATE PSU’S and (i.e agriculture), this is
STATE CORPORATIONS because they are appointed
They provide services of through political contacts
necessity . The lack of profit making,
sometimes leads to lack of
motivation in workplace

Ownership State owned

Examples RINL, ONGC,GAIL,
UPCL,UJVN ETC
Forms of Ownership – A summary
Sole Trader Partnership Limited Co-op
Company
Formation Easy Easy Paperwork Paperwork
No paperwork No paperwork Registration fee Registration fee

Ownership Owned by sole Owned by partners Owned by Owned by members

trader shareholders

Management Speedy decision Shared decision Managed by BOD Managed by Board

& making making elected by members.
finance Accounts are Disagreements BOD elected by One member, one
private possible shareholders vote rule.
Can be difficult to Accounts are private Accounts submitted
raise finance Raise finance through to Register of
Accounts submitted to Friendly Societies
new partners Companies Office
Raise finance through
Raise finance through grants, loans &
grants, loans & issuing issuing of shares
of shares

Profits & risk Keeps all the profit Profit shared Profits shared among Profits shares
Unlimited liability Unlimited liability shareholders Members have
Limited liability limited liability

EXAMPLES SHOPKEEPERS SOLICITORS, Manchester United Castlebar Credit

TRADESPEOPLE DOCTORS, Liverpool FC Union
like carpenters, DENTISTS. AIB NCF- Connaught Gold
plumbers
7. WHAT ARE THE CHANGING TRENDS IN
BUSINESS OWNERSHIP AND STRUCTURE?

a) Rise in the number of firms entering into alliances

b) Emergence of Indian MNC’s
c) Rise in the number of SME’s
d) Privatisation of state owned companies
e) Agricultural co-ops turning into PLC’s

a) Rise in the number of firms

entering into alliances
Many Indian firms are now entering into alliances
such as joint ventures. This helps them against
larger international firms. They can also share
skills, pool resources to further their growth.
b) Emergence of Indian MNC’s
The growth of free trade areas and India’s
strong pool of workforce led to potential
large Indian firms becoming MNC’s. They
now have access to a larger market size in
which to develop their companies.

Examples: TCS, Infosys, HCL etc

These companies are now set up in different
global locations such as UK, mainland
Europe, USA etc.
c) Rise in the number of SME’s
The number of SME’s operating in India
is massively growing year after year.
The feature of an SME
Reasons for the growth of SME’s:
 They receive state support in terms of
advice, guidance. The govt encourage
SME’s S as this will reduce unemployment,
increase competition etc.
 The SME’s are developing in an
enterprise culture here in India
 Subcontracting (contracting out) –
Businesses are now spending more
time contracting out jobs such as
cleaning, security, maintenance
etc.
 Franchising – The renting of a
successful business formula is a
common route to becoming a
LARGER company. Examples
include Mcdonalds, Café Coffee Day
SHOP
d) Privatisation of state owned
companies
This means the selling of some or all of the shares in state –
owned company to private investors.

Examples: NALCO, BALCO, HZL.

e) Agricultural co-ops turning into

PLC’s
PLC’S are companies that only sell shares on the stock
exchange. This makes it easier to raise much needed
finance for future business developments. In recent years
agricultural co-ops have become PLC’s

Example: KERRY GROUP- IRELAND

8. WHY HAVE AGRICULTURAL CO-OP’S
TURNED INTO PLC’s ?
With the international food industry getting very
competitive Irish agricultural co-ops have
become increasingly competitive.
To be able to spend large sums of money on R & D
has enabled these co-ops to increase their
economies of scale.

Existing Problems:
 The limit to equity/investors: agricultural co-ops
are owned by farmers. Under the laws governing
co-ops there is a limit on the amount of shares
each individual shareholder can have. As only
farmers can hold shares it makes it difficult to
raise finance.
 Limit to borrowings: borrowing large sums of
money would be high risk.
Solutions to the problems:
1. set up a PLC company on the stock market
2. Transfer ownership of some of the co-ops business
assets to the PLC.
3. The farmers own the co-op and the co-op has shares
on the stock market
4. When they need finance the sell shares on the stock
market. They always retain a 51% share to keep the
majority of the company.

Examples:
Kerry group, Golden Vale , Avonmore co-ops

NB: building societies are now following the trend of

these co-ops in raising finance on the stock market
 9. WHY DO BUSINESSES CHANGE THEIR LEGAL
STRUCTURE OVER TIME?

Unlimited Unlimited Limited liability Limited liability

liability liability
Private Ltd
Sole Partnership Comp / Co-op
trader
Private Ltd PLC Comp.
Comp / Co-op

State owned Private Ltd

Comp. Comp / Co-op

State owned PLC Comp.

Comp.
Businesses change their Business
Structure from Sole Trader to
Partnership to Private Limited
Company to a PLC because:

1. It helps them bring in new skills,

experience, resources
2. It reduces risk as the sole trader or the
partners can now enjoy limited
liability
3. Helps to raise finance through
investors, stock exchange etc. for future
expansion
4. Helps to market the company. Being a
limited company enhances the image of
the business. This adds to the reputation of
the company as advertising and
promotions will be more convincing to the
intended customers.
5. Business profit prestige- changing a co-op
owned company to a PLC offers the
management and employees a stronger
allegiance to making profit rather than
operating for the goodwill of the local
area farmers etc.
 EXAM QUESTION
15 marks
Distinguish between a Sole Trader and a
Partnership as a form of Business organisation.
Use an example in each of your answers.

10 marks
Explain the concept Limited Liability
EXAM QUESTION
20 MARKS
Explain why you would recommend a private
limited company Ltd as a type of business
organisation for a new business venture.

20 MARKS
Contrast a Private Limited Company LTD with a
Public Limited Company PLC as a form of
Business Organisation.
EXAM QUESTION
25 MARKS
Contrast the contents and functions of the articles
of association and memorandum of association
of a limited company.