Business Chapter 4

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Chapter 4 - Types of business organisations

The Public sector

Public corporations

Wholly owned by the state or the government

Governments may use these businesses for political reasons

No close competitors

Government subsidies can leas to inefficiency

No private shareholders

Natural monopolies are owned by the government

Government can save the business

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

Other private sector business organisations

Joint ventures

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

May have different ways of running a business

Disagreements on important decisions may occur

Profits are shared

Local knowledge

Risks are shared

Costs are shares

The private sector

Co-operatives

Public limited company

This form of business is most suitable for very large businesses

Owner of the business may lose control

Selling shares to public is expensive

Difficult to control and manage

More regulations

Legal formalities

Easier to attract suppliers

No restriction o selling, transferring or buying shares

Opportunity to raise very large sums of capital

It is an Incorporated business

Limited liability to the shareholders

Sole trader

Business owned and operated by one person

DIsadvantages

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

Likely to remain small

No other owners to help pay for expenses

Unlimited liability

No one to discuss business matters with

Close contact with customers

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

incentive to work hard

few legal regulations

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

No sharing profits

Owner in complete control

Private limited company

They are incorporated businesses - Company exists separately from the owners

Disadvantages

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

The company cannot offer its shares to the general public

Accounts must be available for the public to see

There are significant legal matters

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

All shareholders have limited liability

Shares can be sold to a large number of people

Partnerships

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

Disadavantages

Most countries limit the amount of partners to 20

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

Partners may disagree of business decisions

Business does not have a separate legal identity

Partners did not have limited liability

Advantages

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

Responsibilities are shared

More capital