Chapter 4 - Types of business organisations

Partnerships

Business owned and operated by a group or association consisting of at least two people

Advantages

More capital

Responsibilities are shared

owners will be motivated to work hard because the losses are shared

Disadavantages

Partners did not have limited liability

Business does not have a separate legal identity

Partners may disagree of business decisions

If one partner is contributing less or dishonest, it can effect the other partners

Most countries limit the amount of partners to 20

Private limited company

They are incorporated businesses - Company exists separately from the owners

Advantages

Shares can be sold to a large number of people

All shareholders have limited liability

People who started the company can keep control of the company as long as they don't sell too many shares to too many people

Disadvantages

There are significant legal matters

Accounts must be available for the public to see

The company cannot offer its shares to the general public

The shares in a private limited company cannot be sold or transferred without the agreement of all the shareholders

Sole trader

Business owned and operated by one person

Advantages

Owner in complete control

No sharing profits

Owner has freedom to choose holidays, work hours, whom to employ, etc.

few legal regulations

incentive to work hard

Does not need to give business information to anyone else ( Except tax office)

Close contact with customers

DIsadvantages

No one to discuss business matters with

Unlimited liability

No other owners to help pay for expenses

Likely to remain small

If owner is ill, there will be no one that will be able to take care of the business for him

Public limited company

This form of business is most suitable for very large businesses

Advantages

Limited liability to the shareholders

It is an Incorporated business

Opportunity to raise very large sums of capital

No restriction o selling, transferring or buying shares

Easier to attract suppliers

DIsadvantages

Legal formalities

More regulations

Difficult to control and manage

Selling shares to public is expensive

Owner of the business may lose control

Co-operatives

Joint ventures

When two or more businesses agree to start a new project together

Advantages

Costs are shares

Risks are shared

Local knowledge

Disadvantages

Profits are shared

Disagreements on important decisions may occur

May have different ways of running a business

Public corporations

Wholly owned by the state or the government

Advantages

Some industries are considered so important that government ownership is thought to be essential

Government can save the business

Natural monopolies are owned by the government

Disadvantages

No private shareholders

Government subsidies can leas to inefficiency

No close competitors

Governments may use these businesses for political reasons