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Topic 3 - Types of Business
Organisations
N5 Business Management
1
Learning Intentions / Success Criteria
Learning
Intentions
Types of
business
organisations
Success Criteria
By end of this topic you will be able to explain their differing
aims, objectives, sources of finance, industrial and economic
sectors they operate in:
• sole trader
• partnerships
• private limited company
• social enterprises
• charities
• public organisations
and
• how enterprising skills and qualities help business
development.
2
Types of Organisations
• Private
- Sole traders
- Partnerships
- Private Limited Companies
• Public
- National government
- Local government
organisations
• Third
- Non-profit making
organisations
- Social enterprises
3
Private Sector
4
Unlimited Liability
• Both sole traders and
partnerships have
unlimited liability.
• This means that if the
business fails then the
owners must pay all the
debts and liabilities –
even to the point that their
personal possessions
(such as houses and cars)
can be sold off.
5
Limited Liability
• This means that if the
business fails then the
shareholders can only
lose the value of their
investment in the
company.
• Warburtons, IKEA and
New Look are examples
of well-known private
limited companies.
6
Sole Traders
• Sole traders are businesses that are owned and
controlled by one individual.
• The sole trader:
- provide the finance and run the business on a
daily basis
- may employ other people, but basically the
business belongs to them
- makes all of their own decisions
- keeps all the profit from the business
- decides when to work
- doesn’t have to answer to anyone.
• Examples of sole traders include corner shops,
hairdressers and painters.
Disadvantages
The sole trader:
• find it harder to raise
finance
• don’t earn any money
if they go on holiday
or are sick
• can get stressed with
no one to help
• have unlimited
liability.
7
Partnerships
• A partnership is a business that is owned by between two
and twenty partners.
• A partnership:
- provide the finance and run the business on a daily basis
- shares responsibilities and workload
- contains the different knowledge and experience from
each of the partners
- has cover when one of them is off on holiday or ill
- has more than one person putting money into the business
- finds it easier and cheaper to borrow money from the
bank than a sole trader.
• Examples of partnerships include accountants, lawyers,
doctors etc.
Disadvantages
A partnership:
• has to share
the profits
• can fall out
ending the
partnership
• has unlimited
liability.
8
Private Limited Companies (Ltd)
• A private limited company is owned by
shareholders.
• The company name is usually followed by
Ltd.
• The share ownership of the company is by
invitation only and the shares are not sold on
the stock exchange.
• Typically, private limited companies are
owned by families and friends and they are
run by a board of directors and managers.
• All the finance for the business come from
the shareholders but shareholders all have
limited liability.
Disadvantages
• The profits have to be
split amongst the
shareholders
• It can be difficult for a
shareholder to sell their
shares if they want to
• The business has to
submit final accounts to
a register
• There are legal
formalities in setting up
the business.
9
Public Sector
10
National Government
• Public sector organisations are owned by the government on behalf of
the taxpayer and aim to provide a service to the general public.
• They are funded by taxes that individuals and businesses have to pay.
• Different types of taxes exist including income tax, road tax and
council tax.
• The UK parliament has overall responsibility for what happens in the
UK.
• It is made up of Members of Parliament (MPs), who are elected by the
public.
• The Scottish Government has delegated responsibility for issues such
as education, health and transport.
• It is run by Members of the Scottish Parliament (MSPs), who are also
elected by the public.
11
Local Government Organisations
• Local government organisations (or local authorities)
get funding from the Scottish government to deliver
specific services in a specific area of Scotland.
• These include running schools, providing leisure
facilities and emptying our bins!
• There are 32 local authorities in Scotland and each
has to report to the Scottish government.
• Each local authority has a council that is made up of
local councillors who have been voted in by people
living in the local area.
12
Third Sector
13
Non-profit Making Organisations
• Non-profit making organisations such as charities and
voluntary organisations are set up to support specific
causes.
• Charities are regulated by the government and the income
they make is put towards a specific cause.
• For example, The RSPCA uses the income they make to
prevent animal cruelty and to promote animal welfare.
• Voluntary organisations such as community football clubs
or youth clubs aim to provide a service to people, but
without a profit-making motive.
14
Social Enterprises
• Social enterprises have a main social or environmental aim rather
than to make profit for owners or shareholders but they are run in a
business-like way.
• People know what social enterprises try to do and who they are
trying to help.
• At least half of the profit that social enterprises make, through
selling goods and services, must be invested into meeting the stated
aim of the social enterprise.
• Unlike some charities, they don’t rely on grants and donations but
some social enterprises do become charities.
• The main difference between a social enterprise and a charity is its
legal structure and the fact that social enterprises are less regulated
by the government.
15
Summary
Type Ownership Control Finance
Sole Traders One owner Owner makes all the
decisions
• Invest own money
• Bank loan
• Borrow money from
family or friends
Partnerships 2 – 20 owners Partners make agreed
decisions
• Invest own money
• Bank loan
Private Limited
Company – Ltd
Shareholders Board of directors • Selling shares
• Bank loan
• Government grant
Non-profit Making
Organisations
Members or founders Appointed members • Membership fees
• Donations
• Bank loan
• Government grant
Social Enterprises Shareholders Managing Director • Selling shares
• Bank loan
• Government grant
Local Government Council Councillors/Appointed
Managers
• Council Tax
• National Government
funding
• Charges 16