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1.2.1 Profit-Based Organizations
Transcript of 1.2.1 Profit-Based Organizations
Examples include self-employed painters and decorators, plumbers, mechanics, restaurateurs and freelance photographers.
One important legal point about ST is that the business is unincorporated, i.e. the owner is legally the same as the business. Partnerships A partnership is a profit-seeking business that is owned by two or more persons.
For most ordinary partnerships, the maximum number of partners allowed by law is twenty.
They are financed mainly from the personal funds of each partner.
At least one partner must have unlimited liability. They are essentially businesses that are owned by their shareholders.
Shareholders are individuals or other businesses that have invested their money to provide capital for a company.
A board of directors is elected by shareholders to run the company on their behalf.
In North America the more common term for ‘company’ is corporation.
They are incorporated businesses, there is a legal difference between the owners and the business itself: they benefit from having limited liability.
Advantages Disadvantages Few legal formalities exist.
Receive all of the profits.
Flexibility in working practices.
Can provide personalized service.
Limited sources of finance.
Workload and stress.
Lack of continuity.
Higher costs of production.
Advantages Disadvantages Financial strength, there are more people who can invest in the business.
They can benefit from division of labor and specialization.
Privacy Unlimited liability, except for limited partners.
Longer decision-making process.
Lack of continuity.
There must be a huge amount of mutual trust.
May still face difficulties in raising capital. Private Limited Company Public Limited Company Flotation It's a company that cannot raise share capital from the general public Shares are sold to private family members and friends. Ex.: Chanel (France), IKEA (Sweden), Lego (Denmark), Rolex (Switzerland).
It is able to advertise and sell its shares to the general public via the stock exchange. One disadvantage is dilution of control. They are exposed to takeover bids.
Ex.: Coca-Cola Company (USA), Michelin (France), Porsche (Germany).
Flotation occurs when a business first sells all or part of its business to external investors (shareholders). Helps generate additional sources of finance from its IPO.
Advantages Disadvantages Can raise large amounts of capital: shares.
Payment of dividends instead of interests.
Limited liability attracts both private and commercial investors.
Benefit from continuity.
Can benefit from economies of scale.
Can hire specialist directors and management team. Financial information must be provided to all shareholders.There is far more bureaucracy
For shareholders, dividends are only paid out if the business makes a profit.
Communication problems. PROFIT-BASED ORGANIZATIONS SOLE TRADERS / SOLE PROPRIETORSHIP PARTNERSHIPS COMPANIES / CORPORATIONS PRIVATE LIMITED COMPANY PUBLIC LIMITED