Forms of Business Organisation 2

7/27/2019 Forms of Business Organisation 2

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Forms of Business organisation(2/3)

Lesson Outcomes: To be able to identify and recall the key

features of the following types of

companies: Private Limited Company (Ltd) Public Limited Company (Plc)


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There are five main types of ownership: Sole trader

Partnership

Public Corporations Private limited company (Ltd)

Public limited company (Plc)

In the last lesson we looked at

In this lesson we are looking at

Types of Business Ownership


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Incorporated

Private Limited

Company (Ltd)

Public LimitedCompany (plc)


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Incorporated business features

Limited liability The liability of the owners of the business (the

shareholders) to pay off its debts is limited to the

amount of money which they invested Tax on Profits

Corporation tax is paid on the profits which thebusiness may make

Finance Finance can be raised though the sale and issue of

shares


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Incorporated business features

Financial Information Financial information is available to share

holders and the public

Insolvency This situation occurs when the business is

unable to pay its debts

Separate legal entity The business is a separate legal entity fromits owners


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ElansLtd

Separate legal entity case study

A group of people

Own a company

Elans Ltdmakes toys


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A child has an accident caused by afaulty scooter made by Elans Ltd

The childs parents decide to sue ElansLtd 200,000


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Elans Ltd

The companyfrom the profit

it has made


Who should pay the 200,000?

or

The owners outof their own

pockets


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The company pays the money

Because the company is a separate legalentity, the 200,000 comes out of theprofit which the company has made

The owners donot

have to pay out of theirown pockets


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http://www.youtube.com/watch?v=jHnQmnLvfLI

Private and Public Limited

companies
http://www.youtube.com/watch?v=jHnQmnLvfLIhttp://www.youtube.com/watch?v=jHnQmnLvfLIhttp://www.youtube.com/watch?v=jHnQmnLvfLIhttp://www.youtube.com/watch?v=jHnQmnLvfLI


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Public Limited Companies

(PLCs)


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Public Limited Companies (PLCs)

Owned byshareholders

Anyone can buysharesof PLCs

Shares listed on thestock-market
http://news.bbc.co.uk/1/hi/business/default.stm


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Examples of PLCs
http://uk.rd.yahoo.com/comp_pro/*http:/www.imperial-tobacco.comhttp://www.diageo.com/http://www.bp.com/home.do?categoryId=1&contentId=2006973http://images.google.co.uk/imgres?imgurl=http://www.tadesign.co.uk/images/mands_logo.gif&imgrefurl=http://www.tadesign.co.uk/dm_ms_crm.html&h=225&w=250&sz=4&tbnid=S5ogA0hI9wIJ:&tbnh=95&tbnw=106&hl=en&start=2&prev=/images?q=marks+and+spencer+logo&svnum=10&hl=en&lr=&cr=countryUK|countryGB&safe=active


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Stock Exchange Activity

Higher or lower (company worth)

Stand up = Higher Sit down = Lower


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BP82.5bn


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Tesco32.41bn


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Advantages of PLCs

Raise large amount of capitalfromshare issue

Benefit from economies of scale, e.g.

bulk buying (we will learn more about this later inthe year)

Can produce goods at lower unit cost


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Disadvantages of PLCs

Can become too large/complex to manage Conflict of interestbetween shareholders

(owners) and the Board of Directors

(management) Possibility of takeoverbecause shares can

be bought by anyone


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Who owns a PLC?

Shareholders


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Who controls a PLC?

The directors and managers


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Sometimes this is called thedivorcebetween ownership

and control


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Private Limited Companies

(Ltd)


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Private Limited Companies (Ltd)

Owned privately often owned byfriends or family

Shares cannot be traded publicly

So, Manchester United WAS a Public

Limited Company (Plc), but then becamea Private Limited Company (Ltd) whenMalcolm Glazer bought it
http://images.google.co.uk/imgres?imgurl=http://i.bnet.com/blogs/manchester_united_logo-jpg.jpeg&imgrefurl=http://industry.bnet.com/advertising/10002365/manchester-united-to-swap-aig-for-sahara-group-as-shirt-sponsors/&usg=__7vm7nytI2SJubUK-BHDpxtpNFYQ=&h=359&w=355&sz=30&hl=en&start=4&tbnid=xwbnEhX9k_mnEM:&tbnh=121&tbnw=120&prev=/images?q=manchester+united+logo&gbv=2&hl=en&safe=active


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Advantages of Ltds

Easy and inexpensive to set up Ownership and control are closely

connected, e.g. Board of Directors are

usually the main shareholders Small and less bureaucraticthan PLCs,

e.g. decisions can be taken more quickly


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Disadvantages of Ltds

Lack of capitaldue to no share issue A lot of legal matters before the

company is formed

The Articles of Association- contains therules under which the company will bemanaged

The Memorandum of Association- containsvery important information about thecompany and its directors

Cannot benefit from economies of scale,e. . bulk bu in


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Lets comparethe features ofincorporatedbusinesses with those

of unincorporatedbusinesses


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ComparisonUnincorporated

businesses

Incorporated

businessesTypes ofownership

Liability

Tax on profits

Continuity

Financialinformation

When business

cant pay debts

Comparison


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ComparisonUnincorporated

businesses

Incorporated

businessesType of businessownership

Sole proprietor

Partnership

Ltd

Plc

Liability Unlimited Limited

Tax on profits Income tax Corporation tax

Continuity Ceases when owner dies Separate legal entity,therefore does notcease on death of

ownerFinancialinformation

Remains private Available to the public

When business

cant pay debts

Bankruptcy Insolvency


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Written exercise

What sort of a company is Hatmatic Ltd? (1 mark)

Rhyss is a plumber who works on his own. What is he?(1 mark)

Who can buy shares in a Public Limited Company (Plc)?(1 mark)

Explain why deeds of partnership exist (2 marks) What does unlimited liability mean? (2 marks) Do PLCs and Ltds have unlimited liability or limited

liability? (1 mark)

Extension questions What are the main advantages of PLCs? (3 marks) What are the main advantages of partnerships? (3

marks)


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Activity 2

Your friend currently works as a sole traderhairdresser. They are consideringincorporating their company and becoming aPrivate Limited Company (Ltd). [10]

1. Explain the benefits of being a Ltd companyrather than a sole trader

2. Explain the drawbacks of being a Ltdcompany rather than a sole trader

3. Recommend to your friend whether theyshould incorporate their company.

Use your notes

to help you

Ans in th hi h l l sti ns


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Answering the higher level questionsIntroduction Explain the situation

________________________________________________________________________________________________________________

__________________________________________________

Explain two advantages of being a LTDrather than sole trader

___________________________

__________________________________________________________________________________________________________________________________________________________________

___________________

Explain two disadvantages of being aLTD rather than a sole trader

___________________________

__________________________________________________________________________________________________________________________________________________________________

___________________Recommendation to your friend

________________________________________________________________________________________________________________________________________________________________________

Documents

Forms of Business Organisation 2