HBM Unit 1 - Types of Organisation

Private Sector Organisations

Within the private sector, there are organisations such as:

• Sole Traders and Partnerships - N5
• Private Limited Companies (Ltd)
• Public Limited Companies (Plc)
• Franchises
• Multinational Companies (MNC's)

Private Limited Companies (Ltd)

A private limited company is a company whose shares are owned privately. These shares are not available to the public on the Stock Market. The company is owned by shareholders who are people that have invested in the business and are paid a a dividend (a share of the companies profit each year). A private limited company can have a minimum of one shareholder and shareholders have limited liability.

Advantages of an Ltd:

• The control of the company is not lost to outsiders; only those who are invited can become shareholders.
• More finance can be raised than sole traders from shareholders and lenders because the business is more established as a limited company.
• The Board of Directors brings significant experience to aid decision making.
• The limited liabilty of a Ltd means shareholders only lose what they have invested in the business and not their personal belongings, if the business fails.

Disadvantages of an Ltd:

• Profits are shared amongst more people than sole trader organisations.
• Shares can't be sold to the general public restricting amount of finance that can be raised from selling shares.
• An Ltd must abide by the Companies Act

Public Limited Companies (Plc)

A public limited company is a company whose shares are available for purchase by the public on the Stock Market. The company is run or controlled by a Board of Directors which are they directors are who run the business each day. A plc must have a minimum of two shareholders. A plc must also produce a Memorandum and Articles of Association. These are 2 documents which are prepared and sent to Companies House.

Advantages of an Plc:

• Huge amounts of finance can be raised by selling shares publicly (usually by millions).
• Plcs can get cheaper raw materials from suppliers making cost of production cheaper - known as Ecomonies of Scale.
• Easy to borrow money due to their large size. Banks will often lend to Plcs as they are established in business and are likely to be able to pay back.
• Plcs also have limitied liability which means shareholders only lose what they have invested in the business and not their personal belongings, if the business fails.

Disadvantages of a Plc:

• Set up costs may be high
• No control over who buys shares
• Must publish annual accounts
• Must abide by the Companies Act

Franchises

A franchise is a business agreement that allows the use of an established business (brand) name and to sell their products or services.

An example of a franchiser is McDonalds and the franchisees are those who own the different McDonalds.

Advantages for the Franchisers:

• Fast method of expanding without heavy investment by the company
• Provides a steady cash flow from royal payments (monthly fee and percentage of revenue (sales))
• Shared risk between Franchiser and Franchisee

Disadvantages for the Franchisers:

• Only receives…