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2 Private Ownership



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  • 1. Types of business organisation
    • Organisations fall into 3 different categories:
    • Private
    • Voluntary
    • State
  • 2. Private Sector
    • Private sector plays an important role
    • creates goods and services
    • employs millions of people
    • varies in size from Shell and ICI to corner shops
    • driving force for change and improvement
  • 3. Sole Trader
    • Most common form of business ownership:
    • no complicated legal requirements
    • decisions can be made quickly
    • close contact with customers and employees
    • all profits retained/high satisfaction
  • 4. Sole Trader
    • Some disadvantages:
    • all decisions are made by owner
    • long hours
    • unlimited liability
    • sourcing finance
  • 5. Partnership
    • 2-20 people in a partnership
    • partners can share skills/knowledge
    • organisation could provide 24/7 service
    • easier to raise finance
  • 6. Partnership
    • Some disadvantages
    • disputes
    • unlimited liability (except sleeping partner)
    • difficult to raise large amount of capital
    • decision making process is slower
  • 7. Partnership Deed
    • Legally binding agreement
    • covers
    • share of profits, salary, drawings, duties and responsibilities, cessation of partnership, death of partner.
  • 8. Ownership – Question……
    • Explain the advantages and disadvantages of being a sole trader. (6)
    • Distinguish between operating as a sole trader and a partnership. (4)
  • 9. Solution – Distinguish between operating as a sole trader and a partnership.
    • A sole trader is run by one person whereas a partnership is run by 2 – 20.
    • A sole trader is able to make quick decisions whereas in a partnership decision making is slower as all partners are consulted.
    • A partnership can raise more capital than a sole trader as all the partners introduce capital.
    • A sole trader may work longer hours whereas in a partnership the workload is shared. It may be possible to trade 24/7 whereas this would be impossible in a sole trader.
  • 10. The Company
    • owned by shareholders - shareholders unlikely to run the company
    • a separate legal body
    • shareholders have limited liability
    • company has to be registered with Companies House
    • Articles of Association and Memorandum of Association must be provided
  • 11. The capital of a company
    • authorised share capital - £200,000
    • issued share capital - £80,000
    • paid-up share capital -£40,000
  • 12. Private company (Ltd)
    • Usually small
    • shareholders 2+
    • shares not traded on Stock Exchange
    • Shareholders are “invited” - may be family or friends
    • may find it easier to raise finance that unlimited liability organisations
  • 13. Public company (plc)
    • shares bought and sold in stock exchange
    • large amounts of capital can be raised quickly
    • costly to have shares quoted on SE
    • may not raise all capital required if SE has a bad day
    • original shareholders can lose control
  • 14. Private Sector Questions
    • Read pages 37 – 42 then complete the following questions in your jotter:
    • Question 1 (page 38)
    • Question 2 (page 39)
    • Summary questions (page 45)
    • “Orange” case study (page 46)
  • 15. Franchises
    • Growth area - increasingly popular form of ownership
    • Hiring out of a good idea
    • A franchise grants permission to sell a product and trade under a certain name within a defined area
  • 16. FRANCHISE a business arrangement where one firm pays for the right to trade under the name of another FRANCHISER - the business which sells the right to trade using its name to others, eg, McDonald’s, Hertz FRANCHISEE - the person who buys the right to trade using the name of the mother company
  • 17. franchise
    • Franchiser sells the idea
    • Franchisee pays for the franchise
    • Capital has to be found by franchisee
    • Materials/supplies must be bought from franchiser
    • Percentage of profit/turnover returned to franchiser
    • Franchisee has a local monopoly and is trading under a well-known name
  • 18. Why buy a franchise?
    • existing, established product therefore more chance of success
    • cheaper market research and promotional costs
    • may receive help and training from franchiser
    • lower start up costs
  • 19. Why sell a franchise?
    • quicker growth - can cover wider geographical area more quickly without having to buy premises or pay staff
    • provides funds - franchisee must buy franchise and pay part of its profits to franchisor
    • reputation of the company/brand depends upon how good the franchisees are
    • franchisees are bound by contract which restricts what they do
    • part of profits/turnover must be paid to franchiser
  • 21. Why so popular?
    • 96% of franchises are still in profit after 5 years.(Only 66% of small firms survive the first 3 years)
    • There are some 718 business format franchises in the UK comprising over 35,000 franchisees ­ all with a variety of former careers.
    • Average investment of £42,700
    • We all know that McDonalds and Thornton's Confectionary are franchised, but there are many others.
  • 22. Franchising - Question
    • Explain the costs and benefits of franchising for:
    • the franchisor
    • The franchisee (8)
    • To answer you must ID the cost or benefit then explain why it is a cost or a benefit.
  • 23. Franchising - Question
    • Explain the costs and benefits of franchising for:
    • the franchisor
    • The franchisee (8)
    • To answer you must ID the cost or benefit then explain why it is a cost or a cost or benefit.
    • Answer:
    • A benefit of franchising for the franchiser is the potential to expand quickly . They can expand quickly because the franchiser can sell licences over a wide geographical area without having to manage the individual branches. (1 mark)
    • A cost to the franchiser is the reputation of the company is outwith their control . This is because the success of the business is dependent on the skills and expertise of individual franchisees (1 marks)