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BUSINESS ORGANISATIONSUnit 6 – Domestic Environment
Class Exercise• Describe the different types of business organisations that
exist.• What are the advantages and disadvantages that exist for
each type of organisation?
Objectives of this topic• To have an understanding of the following
• Sole trader• Partnership• Company • Business Alliance• Franchising• Transnational or multinational company• The state of business• Indigenous firms
Types of Business Organisations
Irish Economy
Private Sector
Sole Traders Companies
Private Limited
Company
Public Limited
Company
Partnership CooperativeOthers
eg Franchise
Public Sector
Public Corporations
Local Authorities
State Services
Sole Trader
Advantages
• Owner keeps all profit• Owner makes all decisions• Independence – freedom and
flexibility• Confidentiality of accounts• Personal service to
customers• Easy to set up
Disadvantages
• Unlimited liability – can lose all assets
• Lack of capital for expansion• Lack of continuity of
existence• Difficulty of raising finance• One person responsible for
all tasks.• A lot of pressure and work
for one person.
• A business owned and controlled by one person
Partnership• A partnership is an agreement between two or more
people to conduct business with a view to making a profit.• Membership of a partnership is between 2 and 20 people.• Partnerships are common among doctors, solicitors,
accountants etc.• Partners draw up a Deed of Partnership: a legal
agreement setting out the rights, responsibilities and duties of each partner.
• A business must register its name with the CRO
Partnership
Advantages
• Extra capital is available• Shared decision-making• Risk and responsibility is
shared• Different skills and
expertise of partners• Confidentiality of accounts• Easy to form
Disadvantages
• Partners have unlimited liability
• Disagreement among partners
• Profit shared among partners
• Decision-making is slow
Private Limited Company• This is a business owned generally by between 1 and 99
shareholders• Shareholders contribute capital to the company.• Shareholders appoint a board of directors to run the
company.• Shareholders have limited liability.• The company has the work ‘Limited’ after its name.• Companies are regulated by the Companies Act.• Profits are distributed to shareholders in the form of
dividends.
Steps in the formation of a PLC
To form a private limited company, the following steps must be taken:
1. Prepare the following documentsa) Memorandum of Association
b) Articles of Association
c) Form A1
2. Send the documents plus the appropriate fee to the Companies Registration Office (CRO).
3. The CRO checks the documentation. If everything is in order they issue a Certificate of Incorporation. This is the birth cert of the company. Trading may begin.
4. The company must hold its first meeting.
Private Limited Company
Advantages
• Limited Liability• Separate legal entity• Access to capital• Continuity• Top management• Low tax rates• Structured
Disadvantages
• Legal formalities• Costs• Regulations • Publish accounts• Shared views• Shared profits
People involved in companies• Shareholders:
• They are individuals or institutions who invest money in a company in return for shares
• Board of Directors:• A board of directors is elected by the shareholders at the company
AGM to run the business.
• Managing Director:• Elected by the board of directors to run the company.
• Auditors:• These are third-party accountants who are appointed to check the
accuracy of the company accounts.
• Secretary:• The company secretary is responsible for administration in the
company.
Co-Operatives• Co-ops are organisations formed by people with a
common interest to establish an enterprise, with the aim of helping each other.
Co-Operative• Co-ops can be formed by seven or more members.• Each member has one vote, irrespective of the number of
shares held.• There is a maximum number of shares that an individual
can hold.• There is no authorised capital. New shares can be issued.• All profits are divided among the members in proportion to
their shareholding.
Types of Co-operative• Producer Co-op
• These co-ops are owned by producers of goods. • The most common type in Ireland are those owned by farmers. E.g.
Dairy co-op.
• Worker Co-op• This is a small local business that is owned by workers. The workers
make all the decisions on how to run the business, they also work in the firm.
• Community Co-op• These are usually set up to provide an important local service for
people in the area. E.g. community water scheme.
• Credit Unions• This is a non-profit making co-op where a group of people save
regularly and lend to each other at a very reasonable rate of interest.
Public Limited Company• A public limited company is a business owned by at least
7 shareholders with no maximum requirement.• Shares are quoted on the stock exchange so they can be
bought and sold by the public.• Shareholders have limited liability.• Every public limited company must have plc after its
name.
Formation and Operation• Company set-up:
• A plc is set up in the same way as a private company – by lodging documentation with the CRO.
• Permission:• The company must get permission from the stock exchange in order to get a
public listing.
• Prospectus:• The company will issue a prospectus as an information guide to prospective
investors.
• Set Selling Price:• The company must decide how much capital it wants to raise and will then set a
selling price for the shares.
• Advertisements:• The shares will be offered for sale through advertisements.
• Stock exchange:• Once the available shares have been sold, trading on the stock exchange
begins.
Public Limited Companies
Advantages
• Shareholders have limited liability
• Access to large amounts of capital.
• Higher credit rating with financial institutions.
• Continuity of existence.• Top-quality management
can be recruited.
Disadvantages
• High formation expenses.• Accounts must be audited
and published.• Many legal requirements
to be followed.• Owners may have little
say in the running of the company.
Formation of a Limited Company
Business Alliance• This is an agreement formed between two or more
businesses to work together in particular commercial matters while at the same time remaining separate entities.
• The alliance involves sharing expertise, skills, costs and risk.• E.g. oneworld alliance of airlines.
Franchise• This is the granting of a licence by the franchisor to the
franchisee, allowing the right to use the franchisor’s trade name, logo and business system, and to sell their product or service.
• The licence is expensive and a percentage of sales/royalties must be paid annually.• E.g. McDonalds, Supermacs, Pizza Hut, Subway
Forms of Business Ownership Exercise
State-Owned Companies• State enterprises are set up, owned, financed and
controlled by the government.• Capital to finance the enterprise is provided by the
government.• Commercial state enterprises produce goods and services
that are sold to the public.
Indigenous Firms• These are firms that are set up in Ireland and owned and
managed by Irish people.• They produce goods and/or provide services in Ireland.
Their principle place of business is Ireland.• Enterprise Ireland is the state agency responsible for the
development of such firms in Ireland.
Transnational Companies• A company with its headquarters in one country and
branches in a number of different countries.• The head office controls the business, while the branches
carry out different jobs.
Transnational Companies
Advantages
• They provide huge employment.
• They provide revenue to the government in the form of corporation tax.
• Export led leads to favourable balance of payments.
• They buy raw materials from Irish businesses.
Disadvantages
• Lack of loyalty.• They provide intense
competition for local firms.• Most of the profits are
repatriated to their head office.• Larger transnationals exert
massive pressure on governments for their own objectives.
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