There are several types of business organizations including sole traders, partnerships, franchises, private limited companies, public limited companies, joint ventures, and multinationals. Each type has advantages and disadvantages in terms of legal structure, ownership, financing, control, and liability. For example, sole traders have complete control but unlimited liability, while partnerships allow for more capital but profits must be shared. Public limited companies can raise large amounts of capital through stock but control may be lost to outsiders.
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Types of Business Organizations - Edexcel IGCSE Busines Studies
There are several types of business organizations including sole traders, partnerships, franchises, private limited companies, public limited companies, joint ventures, and multinationals. Each type has advantages and disadvantages in terms of legal structure, ownership, financing, control, and liability. For example, sole traders have complete control but unlimited liability, while partnerships allow for more capital but profits must be shared. Public limited companies can raise large amounts of capital through stock but control may be lost to outsiders.
There are several types of business organizations including sole traders, partnerships, franchises, private limited companies, public limited companies, joint ventures, and multinationals. Each type has advantages and disadvantages in terms of legal structure, ownership, financing, control, and liability. For example, sole traders have complete control but unlimited liability, while partnerships allow for more capital but profits must be shared. Public limited companies can raise large amounts of capital through stock but control may be lost to outsiders.
SOLE TRADER A business owned by a single person Unincorporated Owner enjoys all profits Independent owner has complete control Simple to set up no legal requirements Flexibility eg: can adapt to change quickly Can offer a personal service because they are small May qualify for government help Unlimited liability May struggle to raise finance less sources + too risky for lenders Independence may be a burden work pressure Long hours and very hard work Usually too small to exploit economies of scale No continuity if owner dies, business dies too PARTNERSHIP A business owned by between 2 and 20 people Unincorporated Easy to set up and run no legal formalities Partners can specialize in their area of expertise Burden of running a business is shared less stress More capital can be raised Financial information isnt published Partners have unlimited liability Money invested is limited to how much 2-20 people can fund Profits are shared Partners may disagree on things Any partners decision is legally binding on all Partnerships still tend to be small FRANCHISES Where a business (the franchisor) allows another operator (the franchisee) to trade under their name Unincorporated FOR FRANCHISEE Less risk a tries and rested idea is used Back-up support given Set-up costs are predictable National marketing may be organized ------------------------------------------------- FOR FRANCHISOR Fast method of growth Cheaper method of growth Franchisees take some of the risk Franchisees more motivated than employees FOR FRANCHISEE Profit is shared with the franchisor Strict constraints have to be signed Lack of independence strict operating rules apply Can be an expensive way to start a business --------------------------------------------------- FOR FRANCHISOR Potential profit is shared with franchisee Poor franchisees may damage brands reputation Franchisees may get merchandise from elsewhere Cost of support for franchisees may be high PRIVATE LIMITED COMPANIES Incorporated Shareholders have limited liability More capital can be raised Control cannot be lost to outsiders Continuity business continues if a shareholder dies Has more status (eg: than a sole trader) Financial information has to be made public Costs money and takes time to set up Profits are shared between more members Takes time to transfer shares to new owner Cannot raise huge amounts of money like public limited companies (plcs)
Legal Form Advantages Disadvantages PUBLIC LIMITED COMPANY (plc) Incorporated Large amounts of capital can be raised Shareholders have limited liability Plcs can exploit economies of scale May be able to dominate the market Shares can be bought and sold very easily May have a very high profile in the media Setting up costs can be very expensive Outsiders can take control by buying shares More financial information has to be made public May be more remote from customers More regulatory control due to Company Acts Managers may take control rather than owners JOINT VENTURE When two or more companies share the cost, responsibility and profits from a business venture Incorporated Allow companies to enjoy some of the advantages of mergers (like higher turnover, without having to lose their identity) Each business can specialize in aspects of the venture to suit its expertise Takeovers are expensive and incur heavy legal/administrative costs Mergers are takeovers are often unfriendly; most joint ventures are friendly Competition may be eliminated if companies co-operate in a joint venture they are less likes to compete against each other Some do not work out there could be control struggles. Eg: who should have the final say in a 50:50 joint venture Disagreements may occur about the management of the venture could be different views on which direction to take Profit from the venture is split between investors profit potential reduced MULTINATIONALS A large business with markets and production facilities in several different countries Increase in income and employment Increase in tax revenue Increase in exports Transfer of technology Improvement in the quality of human capital Enterprise development Can exploit economies of scale Environmental damage Exploitation of less developed countries Repatriation of profits (where a multinational returns the profits from an overseas venture to the country where it is based) Lack of accountability