Examples

Organisation - Partnerships
Author: Jim Riley Last updated: Sunday 23 September, 2012
A partnership is a business where there are two or more owners of the enterprise. Most partnerships are between two and twenty members though there are examples like John Lewis and some of the major world accountancy firms where there are hundreds of partners. A partner is normally set up using a Deed of Partnership. This contains:

Amount of capital each partner should provide (i.e. starting cash). How profits or losses should be divided. How many votes each partner has (usually based on proportion of capital provided). Rules on how to take on new partners. How the partnership is brought to an end, or how a partner leaves.

The advantages of a sole trader becoming a partnership are:

Spreads the risk across more people, so if the business gets into difficulty then there are more people to share the burden of debt Partner may bring money and resources to the business (e.g. better premises to work from) Partner may bring other skills and ideas to the business, complementing the work already done by the original partner Increased credibility with potential customers and suppliers who may see dealing with the business as less risky than trading with just a sole trader

For example, a builder, working originally as a sole trader, may team up with an architect or carpenter to form a partnership. Either would bring added expertise, but also might bring added capital and/or contacts. Of course the builder could team up with another builder as well sharing the risk, and potentially the workload. The main disadvantages of becoming a partnership are:

Have to share the profits.

Less control of the business for the individual. Disputes over workload. Problems if partners disagree over of direction of business.

The next step for a partnership is to move towards becoming a private limited company. However some partnerships do not want to move to this stage. The advantages of remaining a partnership rather than becoming a private limited company are:

Costs money to set up limited company (may need to employ a solicitor to set up the paper work). Company accounts are filed so the public can view them (and competitors). May need to spend money on an auditor to check the accounts before they are filed.

When a partnership finishes then, depending on how the Deed of Partnership is set up, each partner has an agreed slice of the business. A limited company is a business that is owned by its shareholders, run by directors and most importantlywhose liability is limited. Limited liability meansthat the investors can only lose the money they have invested and no more. This encourages people to finance the company, and/or set up such a business, knowing that they can only lose what they put in, if the company fails. For people or businesses who have a claim against the company, limited liability means that they can only recover money from the existing assets of the business. They cannot claim the personal assets of the shareholders to recover amounts owed by the company. To set up as a limited company, a company has to register with Companies House and is issued with aCertificate of Incorporation. It also needs to have a Memorandum of Association which sets out what the company has been formed to do, and Articles of Association which are internal rules over including what the directors can do and voting rights of the shareholders. Limited companies can either be private limited companies or public limited companies.

The difference between the two are: Shares in a public limited company (plc) can be traded on the Stock Exchange and can be bought by members of the general public. Shares in a private limited company are not available to the general public; and The issued share capital of a plc (the initial value of the shares put on sale) must be greater than 50,000 in a plc. A private limited company may have a smaller share capital A private limited company might want to become a plc because: Shares in a private limited company cannot be offered for sale to the general public, so restricting availability of finance, especially if the business wants to expand. Therefore, it is attractive to change status It is also easier to raise money through other sources of finance e.g. from banks [Note: becoming a plc does not necessarily mean that the company is quoted on the Stock Exchange. To do that, the company must do a flotation (see below)] The disadvantages of a being a public limited company (plc) are:

Costly and complicated to set up as a plc need to employee specialist bankers and lawyers to help organise the converting to the plc. Certain financial information must be made available for everyone, competitors and customers included (would you want them to know how much profit you are making?)

Shareholders in public companies expect a steady stream of income from dividends, which might mean that the business has to concentrate on short term objectives of creating a profit, whereas it might be better to work on longer term objectives, such as growth and investment.

Threat of takeover, because another company can buy up a large number of shares because they are traded publicly (can be sold to anyone). If they buy enough, they can then persuade other shareholders to join with them to vote in a new management team.

Shareholders own the company. They buy shares because:

Shares normally pay dividends, which is a share of the profits at the end of the year. Companies on the Stock Exchange usually pay dividends twice each year. Over time the value of the share may increase and so can be sold for a profit this is known as a capital gain. Of course, the price of shares can go down as well as up, so investing in shares can be very risky. If they have enough shares they can influence the management of the company. A good example is a venture capitalist that will often buy up to 80% of the shares of a company and insist on choosing some of the directors. Flotation A company may float on the stock market. This means selling all or part of the business to outside investors. This generates additional funds for the business and can be a major form of fund raising. When shares in a plc are first offered for sale to the general public as the company is given a listing on the Stock Exchange. Divorce of ownership and control As a business becomes larger, the ownership and control of the business may become separated. This is because the shareholders may have the money, but not the time or the management skills to run the company. Therefore, the dayto-day running of the business is entrusted to the directors, who are employed for their skills, by the shareholders. The shareholders are therefore divorced from the running the busin ess for 364 days of the year. They will have their say at the Annual General Meeting (AGM) of the company, where the directors present the accounts and results. Very recently a couple of businesses have had very strong shareholder unrest leading the company to tone down a number of their decisions. In practice directors tend to have at least a modest shareholding in the company. This provides the director with an incentive to achieve good dividends and capital growth for the share (an increase in the share price). A franchise is where a business sells a sole proprietor the right to set up a business using their name. Examples of major franchises are:

McDonalds Clarks Shoes Pizza Hut Holiday Inn

The franchisor is the business whose sells the right to another business to operate a franchise they may run a number of their own businesses, but also may want to let others run the business in other parts of the country. A franchise is bought by the franchisee once they have purchased the franchise they have to pay a proportion of their profits to the franchiser on a regular basis. Depending on the business involved, the franchiser may provide training, management expertise and national marketing campaigns. They may also supply the raw materials and equipment. The advantages of being a franchisor:

Large companies see it as a means of rapid expansion with the franchisee providing most of the finance. If the franchise model works, then there are large profits to made from - selling franchises - royalty payments - selling raw materials and equipment.

The advantages of setting up as a franchisee are:

The franchisee is given support by the franchiser. This includes marketing and staff training. So starting a business in this way requires less expertise and is less lonely!

The franchisee may benefit from national advertising and being part of a well-known organisation with an established name, format and product Less investment is required at the start-up stage since the franchise business idea has already been developed A franchise allows people to start and run their own business with less risk. The chance of failure among new franchises is lower as their product is a proven success and has a secure place in the market

The disadvantages of setting up as a franchisee are:

Cost to buy franchise can be very expensive (hundreds of thousands of pounds).

Have to pay a percentage of your revenue to the business you have bought the franchiser from. Have to follow the franchise model, so less flexible. You would probably be told what prices to set, what advertising to use and what type of staff to employ.

In conclusion, a buying a franchise a good way of an individual setting up a business because: They do not have to establish themselves in the same as a sole trader might have to. They will have the support of a tried and tested business model, often with a national marketing campaign behind them.

Organisation - Co-operatives
Author: Jim Riley Last updated: Sunday 23 September, 2012
A co-operative is where a number of individuals or businesses work together to achieve a common purpose. They are normally formed so individuals and small businesses can benefit from being part of a larger group, meaning they have more power to buy or bargain. There are three main types of co-operatives:

Retail co-operatives Marketing or trader co-operatives Worker co-operatives

A retail co-operative is probably the most familiar co-op. The Co-Op shops and Leo Hypermarkets are a regular sight in the high street. The objectives of a co-op tend to set them apart from other businesses. The objectives are normally more focused on the members of the co-operative, the local community and the world community. Though profits are required to enable them to reinvest in their business, they will not be a primary objective.

Though co-operatives exist to overcome some of the trading difficulties faced by small businesses, they can still face of number of problems in their operation:

The system of one member one vote in some societies means a long, drawn out decision-making process Co-operatives may find it difficult to raise finance since banks are not so willing to lend them money because their main aim is not to make a profit Idealistic and ethical aims may not be agreeable with all members, so creating unrest and disharmony The aims held by many co-operatives may not lead to profits in the long run (though many co-op shops will continue to exist at a loss because the owners feel they are providing an important service to the community.)

Organisation - Co-operatives
Author: Jim Riley Last updated: Sunday 23 September, 2012
A co-operative is where a number of individuals or businesses work together to achieve a common purpose. They are normally formed so individuals and small businesses can benefit from being part of a larger group, meaning they have more power to buy or bargain. There are three main types of co-operatives:

Retail co-operatives Marketing or trader co-operatives Worker co-operatives

A retail co-operative is probably the most familiar co-op. The Co-Op shops and Leo Hypermarkets are a regular sight in the high street. The objectives of a co-op tend to set them apart from other businesses. The objectives are normally more focused on the members of the co-operative, the local community and the world community. Though profits are required to enable them to reinvest in their business, they will not be a primary objective. Though co-operatives exist to overcome some of the trading difficulties faced by small businesses, they can still face of number of problems in their operation:

The system of one member one vote in some societies means a long, drawn out decision-making process Co-operatives may find it difficult to raise finance since banks are not so willing to lend them money because their main aim is not to make a profit Idealistic and ethical aims may not be agreeable with all members, so creating unrest and disharmony The aims held by many co-operatives may not lead to profits in the long run (though many co-op shops will continue to exist at a loss because the owners feel they are providing an important service to the community.)

Organisation - Stakeholders & Ethics

Author: Jim Riley Last updated: Sunday 23 September, 2012
A stakeholder is any individual or organisation that is affected by the activities of a business. They may have a direct or indirect interest in the business, and may be in contact with the business on a daily basis, or may just occasionally. The main stakeholders are: Shareholders (not for a sole trader or partnership though) they will be interested in their dividends and capital growth of their shares. Management and employees they may also be shareholders they will be interested in their job security, prospects and pay. Customers and suppliers. Banks and other financial organisations lending money to the business. Government especially the Inland Revenue and the Customs and Excise who will be collecting tax from them. Trade Unions who will represent the interests of the workers. Pressure Groups who are interested in whether the business is acting appropriately towards their area of interest. Stakeholders versus Shareholders

It is important to distinguish between a STAKEHOLDER and a SHAREHOLDER. They sound the same but the difference is crucial! Shareholders hold shares in the company that is they own part of it. Stakeholders have an interest in the company but do not own it (unless they are shareholders). Often the aims and objectives of the stakeholders are not the same as shareholders and they come into conflict. The conflict often arises because while shareholders want short-term profits, the other stakeholders desires tend to cost money and reduce profits. The owners often have to balance their own wishes against those of the other stakeholders or risk losing their ability to generate future profits (e.g. the workers may go on strike or the customers refuse to buy the companys products). Social Responsibility Social responsibility is the duty and obligation of a business to other stakeholders.

Stakeholder Shareholder Employee Supplier Customer Local community Government Environment

Example of responsibility to that stakeholder Good return on investment Fair pay and working conditions Regular business and prompt payment Fair price and safe product Jobs and minimum disruption Employment for local community Less pollution

Social responsibility for one group can conflict with other groups, especially between shareholders and stakeholders. Ethics Ethics refers to the moral rights and wrongs of any decision a business makes. It is a value judgement that may differ in importance and meaning between different individuals. Businesses may adopt ethical policies because they believe in them or they believe that by showing they are ethical, they improve their sales. Two good examples of businesses that have strong ethical policies are The Body Shop and Co-Op. Some examples of ethical policies are:

Reduce pollution by using non-fossil fuels. Disposal of waste safely and in an environmentally friendly manner. Sponsoring local charity events. Trading fairly with developing countries

Examples