BUSINESS AND MANAGEMENT

MODULE 1
Unit 1.2

INTRODUCTION TO ORGANISATIONS
 Content
Types of Organisations
• Profit non-profit and non-governmental
• Sole Trader/Proprietors
• Partnerships
• Companies/Corporations
• Charities
• Cooperatives
• Franchises

Private Sector and Public Sector

 Learning Outcome
• Analyse local organisations of different types and identify their main
features.

• Explain the advantages and disadvantages of each type of

organisation identified.

• Relate each type of ownership to the degree of control.

• Distinguish between organisations in the Private and Public Sectors.

 READING FOCUS

• Hall, Jones, Raffo, Business Studies 3rd Edition, Units 6 & 7.

• Stimpson, AS and A Level Business Studies, Chapter 1.
• Jewell, An Integrated Approach to Business Studies 4th Edition,
Chapter 1.
• Barratt and Mottershead, AS and A Level Business Studies, Unit 3.
 Context
If you walk down any high street, you will notice that many of the shops
display their names for all to see. It may be Robinson the butcher,
Brown, Macy and Brown solicitors, as well as known chain stores
such as Marks and Spencer plc or Hodson's Limited. All are
businesses, but each with a different status in terms of how is
operated, who the owner is and how any profit is shared.
 The Private and Public Sectors of the Economy

• The Private Sector comprises businesses owned and controlled by

individuals or groups of individuals. In every country, most business activity
is in the private sector.

• The Public Sector comprises Organisations accountable to and controlled

by central or local government. These usually include:
• Health and education services
• Defense
• Law and order THE ECONOMY
• Some strategic industries.

Private Sector Public Sector

TASK
From you assigned readings, identify the features
of the Private and Public Sectors of the
Philippine Economy.
The Private Sector Legal Structure

Private Sector
Businesses

Sole Limited Cooperatives

Trader Partnership Companies

Private Public
LTD LTD
 The Sole Trader/Proprietor

This is the most common form of business organisation. One person provides
the finances and in return, has full control of the business and is able to
keep all the profits.
 The Sole Trader/Proprietor
Advantages Disadvantages

• Easy to set up-no legal formalities. • Unlimited liability – all of the owner’s a
assets are potentially at risk.
• Owner has complete control –not
answerable to anybody else. • Often faces intense competition from bigger
• Owner keeps all profits. firms, for example, food retailing.

• Able to choose times and patterns of • Owner is unable to specialise in areas of

working. the business that are most interesting – it is
responsible for all aspects of management.
• Able to establish close personal
relationships with staff (if any are employed) • Difficult to raise additional capital.
and customers.
• Long hours often necessary to make
• The business can be based on the interest business pay.
and skills of the owner – rather than working
as an employee for a larger business. • Lack of continuity- as the business does not
have separate legal status, when the owner
dies, the business ends too.
 MINI CASE STUDY

Case: The Story of George Saunders

Question 1

Taken from Jones, Hall and Raffo (2003), Business

Studies, unit 5, page
38

With your partners discuss the case of John Saunders.

Share your response with the class
Time allotted: 15 minutes
 Partnership

Partnerships are agreements between two or more people carry on a business

together, usually with a view of making a profit.

The Deed Of partnership establishes the rights and privileges of the partners.
This document includes issues such as voting rights, distribution of profits,
The management role of each partner and who has the authority to sign
contracts.
 Partnership

Advantages Disadvantages

• Partners may specialise in different • Unlimited Liability for all partners.

areas of business management. • Profits are shared.

• Shared decision making. • There is, as with sole traders, no

continuity and the partnership will have
• Additional capital injected by each to be reformed in the event of the
partner. death of one partner.

• Business losses shared between the • Al partners are bound by the decision
partners. of any one of them.

• Greater privacy and fewer legal • Not possible to raise capital from
formalities that corporate selling shares.
Organisations (companies)
• A sole trader, taking on partners will
loose independence of decision
making.
 MINI CASE STUDY

Application of Knowledge

Case: Adcock, Ball and Parkinson

Source: Jones, Hall and Raffo (2003),
Business Studies, Unit 5, page 39
 Limited Companies

Characteristics of Limited Companies

• Limited Liability
• Legal personality
• Continuity
• Capital is divided into shares
• Companies are run by directors

Question: Discuss the characteristics of a limited company and how

these differ from the Sole Trader and Partnership forms of
businesses.

Distinguish between the ownership and control of a Limited Company.

How Limited Companies are Formed

Memorandum of Association + Article of Association

Registrar of Companies

Certificate of Incorporation

Trading Begins
 The Memorandum of Association

• Name of the company

• Name and address of the company’s registered office
• The objectives of the company and scope of its activities
• The liability of members
• The amount of capital to be raised and the number of shares to be
issued

Note: A limited company must have a minimum of two members.

 Article of Association

• The rights of shareholders

• The procedure for appointing directors and scope of their powers
• The length of time directors should serve before reelection
• The timing and frequency of company meetings
• The arrangement for auditing company accounts
 The Private Limited Companies
Characteristics

• Tend to be relatively small companies.

• Their business name ends in Limited or Ltd.
• Shares can only be transferred privately and all shareholders must agree to
the transfer.
• Private Limited Companies are often family businesses owned by members
of the family or close friends.
• The directors of these companies tend to be shareholders and are involved
in the running of the business.
• Many manufacturing firms are Private Limited Companies rather than Sole
Traders or Partnerships

List the names of five (5) Private Limited Companies in your

community?
 Private Limited Companies

Advantages Disadvantages

• Shareholders have limited liability. • Profits have to be shared out amongst a

much larger number of members.

• More capital can be raised as there are • There is a legal procedure to set up the
no limits on the number of shareholders. business. This takes time and costs
money.
• Control of companies cannot be lost to
outsiders. • Firms are not allowed to sell shares to the
public This restricts the amount of capital
that can be raised.
• The business will continue even if one of

the owners dies . • Financial information filed with the

Registrar can be inspected by any
member of the public. Competitors could
use this to their advantage.
 Case Study

APPLYING YOU KNOWLEDGE

CASE: Falcon Marketing Ltd

Source: Jones, Hall and Raffo (2003),

Business Studies, Unit 5, page 41
Formation of Public Limited Companies

Memorandum of Association + Article of Association + Statutory Declaration

Registrar of Companies

Certificate of Incorporation

Publish of Prospectus

FLOTATION
 Public Limited Companies

• A plc cannot begin trading until it has completed these tasks and has
received at least 25% payment for the value of shares.

• It will then receive a Trading Certificate and can begin operating.

• The shares will be quoted on the Stock Exchange or the Alternative

Investment Market (AIM).

The Stock Exchange is a market where second hand shares are bought
and sold. A full Stock Exchange listing means that the company must
comply with the rules and regulations laid down by the Stock
Exchange.

The Alternative Investment Market (AIM) is designed for companies which

want to avoid some of the high costs of a full listing.
 Going Public is Expensive

• The company needs lawyers to ensure that the prospectus is ‘legally’

correct.

• A large number of publications have to be made available.

• The company must use financial institutions to process share application.

• The share has to be underwritten. A fee is paid to an underwriter who must

buy any unsold shares.

• The company will have advertising and administrative expenses.

• The company must have a minimum of $50,000 share capital.

 Exiting the Stock Market

Sometimes a business operating as a Public Limited Company is taken

back into private ownership. Why does this happen?
 Exiting the Stock Market

• Sometimes the business lose favour with the stock market.

• The business may be bought outright by a private individual.

• The people running the business might no longer be willing to tolerate

interference from the external shareholders.

Question: Suggest why Richard Branson decided he

wanted to buy back all the shares of his company after
going public.
 Public Limited Companies

Disadvantages
Advantages
• Setting up costs can be very expensive.
• Huge amounts of money can be
raised from the sale of shares to • Since anyone can buy shares, its possible
the public. for an outside interest to take control of the
company.

• Production costs may be lower as • All company accounts can be inspected by

firms gain economies scale. member of the public.

• Because of their size they cannot deal with

• Because of their size, plc can customers at a personal level.
often dominate the market.
• The way they operate is controlled by
various company acts which aims to protect
• It becomes easier to raise finance shareholders.
as financial institutions are more
willing l to lend to plcs. • There is divorce of ownership and control
which might lead to the interest of owners
being ignored to some extent.
Questions: What are the
limitations of being a • Plcs inflexible due to their size.
limited company in a highly
competitive market?
 Cooperatives

This is a common form of business organisation in some countries, especially

in agriculture and retailing.

Features

• All members can contribute to the running of the business, sharing the work
load, responsibilities and decision making.

• All members have one vote at important meetings.

• Profits are shared equally among members.

 Cooperatives

Advantages Disadvantages

• Buying in bulk. • Poor management skills unless

professionals are employed.
• Working together to solve
problems and make decisions. • Capital shortages because no sale of
shares to the non-member general
public is allowed.
• Good motivation of all members to
work hard as they will benefit from • Slow decision making if all members
shared profits. are to be consulted
 Research and Presentation Task
1. What are charities?. How are they different from Cooperatives in
relation to the following:
• Characteristics
• Role in community development.
• Advantages and Disadvantages (Group 1)

2. Analyse the reason for the failure of the cooperative movement in

Cebu. (Group 2)

3. Identify two Non-Governmental organisations which are currently

working within your community and assess the impact of their
contributions to the development of your community. (Group 3).
 Franchises

This is a contract between two firms. The contract allows one of them, the
franchisee, to use the name, logo and marketing methods of the other,
the franchiser.
The franchisee can separately, then decide which form of legal structure to
adopt.
 MINI CASE STUDY

Cases: Harry Goes it Alone; Ford Teams Up With Chinese Auto Maker; Boots
and Granda in Beauty Venture.

Source: Peter Stimpson (2002) Business Studies, unit 1,pages 14 and 15

Seat Work

With your partners discuss the case then respond to the

questions.
Write your response in your note books
 YOUR READING TASK

For each of the following forms of

business identify their:
• Definition
• Characteristics
• How they are organised
• Advantages and disadvantages

1. Workers Cooperatives
2. Consumer Cooperatives
3. Building and Friendly Societies
4. Charities
 Factors Affecting the choice of Organisations

• Age: Many businesses change their legal status as they become older.

• The Need for finance: A change in legal status may be forced on the
business.
• Size: The size of a business operation is likely to affect its legal status.

• Limited Liability: Owners can protect their own personal financial position
if the business is a Limited Liability company.

• Degree of control: Owners may consider retaining control of the business

as important.

• The Nature of the Business: The type of business activity may influence
the choice of legal status.
 Public Sector Organisations

The Public Sector is made up or organisations which are owned and controlled
by central or local government or public corporations. They are funded by
government and in some cases from their own trading ‘surplus’ or profit.

Public Sector businesses still have important roles to play in certain areas of
business activity.
Which Goods and Services Does the Public Sector
Provide?

Public Goods

Non- Rivalry Non- Excludable

Consumption of the good/Service

It is impossible to exclude others
by one individual does not reduce the
From benefiting from their use
Amount available for others
 Merit Goods

These are services which people thing should be provided in greater quantities

Examples of merit goods are:

• Education, Health Services, Public Libraries

If the individual is left to decide whether or not to pay for these goods, some
may choose not to, or may not be able to.
 Research and Writing Task
1. Identify five businesses within the Public Sector of your country
and discuss the their nature in terms of the following:

• Features
• Role in the community
• Their Inter-relationship

2. Assess the reasons for Privatisation of some Public Sector entities.

3. What are the main arguments for and against privatisation of such
entities.

4. Should the government of the Philippines privatise the Central Bank?

Give reasons for your answer.
 Maxi Case Studies
Case: James Hull Associates
Source: Jones, Hall, Raffo, Business Studies 3rd Edition, Unit 6, page
51.

Case: Network Rail

Source: Jones, Hall, Raffo, Business Studies 3rd Edition, Unit 6, page
60.
 Bibliography
• Dave Hall, Rob Jones, Carlos Raffo, Business Studies, 3rd Edition,
Causeway Press Ltd, 2005.

• Stimpson Peter, AS and A Level Business Studies, Cambridge

University Press, 2000.

• Barratt Michael, Mottershead Michael, AS and A Level Business

Studies, Pearson Education Ltd, 2000.

• www.bized.ac.uk
END OF UNIT