2 Private Ownership


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2 Private Ownership

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