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This chapter discusses the different types of business organizations, including sole traders, partnerships, limited companies, co-operatives, and state-owned enterprises. It also explores the changing trends in business ownership and structure, such as the rise of alliances, the emergence of Irish TNCs, and the growth of SMEs.
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CHAP 19…. TYPES OF BUSINESS ORGANISATION BY P. MURALIDHAR
CHAPTER TOPICS • WHAT ARE THE DIFFERENT TYPES OF BUSINESS ORGANISATIONS? • WHAT ARE SOLE TRADERS? • WHAT ARE PARTNERSHIPS? • WHAT IS A LIMITED COMPANY? • WHAT IS A CO-OPERATIVE? • WHAT ARE STATE OWNED ENTERPRISES? • WHAT ARE THE CHANGING TRENDS IN BUSINESS OWNERSHIP AND STRUCTURE? • WHY HAVE AGRICULTURAL CO-OPS TURNED INTO PLC’S? • WHY DO BUSINESSES CHANGE THEIR LEGAL STRUCTURE OVER TIME?
1. WHAT ARE THE DIFFERENT TYPES OF BUSINESS ORGANISATIONS? • SOLE TRADER • PARTNERSHIP • PRIVATE LIMITED COMPANY • CO-OPERATIVE • STATE OWNED ENTERPRISES These business structures are going to be compared under the following headings: • Formation • Dissolution • Ownership • Management & finance • Profits & risk
2. What are Sole Traders? This is a one person business run by the owner with his/her own money.
3. What are partnerships? • Is an agreement between 2 or more people to go • into business with a view to making a profit? There • can be no less than 2 members and no more than 20.
4. What is a limited company? There are two main types of company: • Private limited company (Ltd) – HEITON BUCKLEY • Public limited companies (PLC’s) – LIVERPOOL FC The main difference is that shares of PLC’s can be freely bought and sold on the stock exchange Ltd companies are regarded as separate legal entities from the people who own and run them. The owners are called shareholders and only gain/lose on the amount they put into the business.
How is a private limited company formed To form a private limited company you must • Have at least two shareholders and one director. • Prepare a Memorandum of Association. This is a document for public use. It details name of company, company objective, the number of shares of each shareholder. This document is kept in the Companies Office. • Prepare an Articles of Association. This is a document for shareholders. It details the internal rules of the company, types of shares issued, how meetings are run, the procedure for electing/replacing directors. • Register with REGISTRAR of COMPANIES in the COMPANIES OFFICE • The companies office issues a “birth certificate” called a CERTIFICATE of INCORPORATION • If you register as a public limited company you must obtain aTRADING CERTIFICATE 7. TRADING CAN NOW COMMENCE
How companies are run? AGM- a meeting held once a year involving directors, shareholders of a firm discussing events of the previous 12 months & future plans Board of Directors BOD – this board is responsible for overseeing the running of a company. These directors are the most senior managers of a limited company. Directors can be removed by a majority voting system. The company chairperson – is a director and is elected by the board to chair AGM’s & EGM’s. They speak on behalf of the BOD. The Managing Director MD/Chief Executive Officer CEO Is in charge of overseeing all aspects of company activities. The CEO is answerable to the BOD
5. What is a co-operative? A co operative is business owned and run by a group of people, AND each has a financial interest in its success. They also have a say on how it is managed Co-ops mainly exist in the agricultural industry.
6. What are state owned enterprises? .These are enterprises that are set up, financed and controlled by the government.
7. WHAT ARE THE CHANGING TRENDS IN BUSINESS OWNERSHIP AND STRUCTURE? • Rise in the number of firms entering into alliances • Emergence of Irish TNC’s • Rise in the number of SME’s • Privatisation of state owned companies • Agricultural co-ops turning into PLC’s a) Rise in the number of firms entering into alliances Many Irish firms are now entering into alliances such as joint ventures. This helps them against larger international firms. They can also share skills, pool resources to further their growth.
b) Emergence of Irish TNC’s The growth of free trade areas and Irelands membership of the EU has led to potential large Irish firms becoming TNC’s. They now have access to a larger market size in which to develop their companies. Examples: Kerry Group AIB FYFFES These companies are now set up in different global locations such as UK, mainland Europe, USA etc.
c) Rise in the number of SME’s The number of SME’s operating in Ireland is massively growing year after year. The feature of an SME is that has sales of €250,000 or less, it also has employees of 50 or less. Reasons for the growth of SME’s: • They receive state support in terms of advice, guidance. The govt encourage SME’s S as this will reduce unemployment, increase competition etc.
The SME’s are developing in an enterprise culture here in Ireland • Subcontracting (contracting out) – Businesses are now spending more time contracting out jobs such as cleaning, security, maintenance etc. • Franchising – The renting of a successful business formula is a common route to becoming a LARGER company. Examples include SUPERMACS, THE BODY SHOP
d) Privatisation of state owned companies This means the selling of some or all of the shares in state –owned company to private investors. Examples: GREENCORE, IRISH LIFE e) Agricultural co-ops turning into PLC’s PLC’S are companies that only sell shares on the stock exchange. This makes it easier to raise much needed finance for future business developments. In recent years agricultural co-ops have become PLC’s Example: KERRY GROUP
8. WHY HAVE AGRICULTURAL CO-OP’S TURNED INTO PLC’s ? With the international food industry getting very competitive Irish agricultural co-ops have become increasingly competitive. To be able to spend large sums of money on R & D has enabled these co-ops to increase their economies of scale. Existing Problems: • The limit to equity/investors: agricultural co-ops are owned by farmers. Under the laws governing co-ops there is a limit on the amount of shares each individual shareholder can have. As only farmers can hold shares it makes it difficult to raise finance. • Limit to borrowings: borrowing large sums of money would be high risk.
Solutions to the problems: • set up a PLC company on the stock market • Transfer ownership of some of the co-ops business assets to the PLC. • The farmers own the co-op and the co-op has shares on the stock market • When they need finance the sell shares on the stock market. They always retain a 51% share to keep the majority of the company. Examples: Kerry group, Golden Vale , Avonmore co-ops NB:building societies are now following the trend of these co-ops in raising finance on the stock market
9. WHY DO BUSINESSES CHANGE THEIR LEGAL STRUCTURE OVER TIME?
Businesses change their Business Structure from Sole Trader to Partnership to Private Limited Company to a PLC because: • It helps them bring in new skills, experience, resources • It reduces risk as the sole trader or the partners can now enjoy limited liability • Helps to raise finance through investors, stock exchange etc. for future expansion
Helps to market the company. Being a limited company enhances the image of the business. This adds to the reputation of the company as advertising and promotions will be more convincing to the intended customers. • Business profit prestige- changing a co-op owned company to a PLC offers the management and employees a stronger allegiance to making profit rather than operating for the goodwill of the local area farmers etc.
