Transcript Business Structure

CH. 2
BUSINESS STRUCTURE
E Q : W h a t a re t h e
di f fe re nt t y pe s o f
bus i n ess
s t ruc t ure s a n d
th e di f fe re n t
way s o f
c l a ssifyin g
bus i n ess a c t i v it y.
CLASSIFICATIONS OF BUSINESS ACTIVIT Y
Primary sector
business activity
• Extract natural recourse to be used
and processed by other firms
• EX: Farms, oil drilling, fishing…
Secondary sector
business activity
• Manufacture and process products
from natural resources
• EX: Computers, baking, clothing…
Tertiary sector
business activity
• Provide services to consumers &
other businesses
• EX: Retail, transportation, banking…
CLASSIFICATIONS OF BUSINESS ACTIVIT Y
Balance of the dif ferent sectors depends on a country’s level of
industrialization.
Employment data 2008
as % of total employment
Country
Primary
Secondary
Tertiary
United Kingdom
2
20
78
China
44
24
32
Ghana
54
20
26
How would you explain the high level of Primary sector business activity in Ghana?
CHANGES IN BUSINESS ACTIVIT Y
In DEVELOPING countries….
(Africa & Asia)
Benefits of Industrialization
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Increases national output (GDP)
Increases standard of living
Increases exports
Lowers imports
Increases jobs
More taxes generated for government
Increased production adds value to
exports
Problems of Industrialization
• Mass movement of pop. to towns
(Housing & Social problems)
• Imports of raw material needed for
production (increases import costs)
• Growth of multinational companies
CHANGES IN BUSINESS ACTIVIT Y
In DEVELOPED countries….
(USA & UK)
Benefits of Deindustrialization
Problems of Deindustrialization
• Rising incomes mean people spend
more on services rather than goods
• Spending on physical goods rises
slowly
• Growth in tourism, hotels, and
restaurant services, financial services
• Manufacturing businesses in
developed countries face more
competition from developing countries
• Rising imports of goods is taking away
from the domestic secondary-sector
firms
PUBLIC AND PRIVATE SECTORS
Public Sector
 Government owns the
business
 Important services
(education, police,
public transportation)
 “Public Goods”
 Street lights
Private Sector
 Individuals own the
business
 Types & sizes vary
greatly
T YPES OF ECONOMIES
Mixed
Economy
•Economic resources are owned and
controlled by both private and public
sectors
Free- market
Economy
•Economic resources owned largely by
the private sector with very little state
intervention
Command
economy
•Economic resources owned, planned
and controlled by the state
LOCAL, NATIONAL, INTERNATIONAL
BUSINESSES
Local businesses
• Operate in a small & well-defined part of the country
• No attempt to expand to across the whole country
• Small construction businesses, Hair Salons, Family Businesses
National Businesses
• Branches & operations across the country
• No attempt to expand to other countries
• Large car dealerships, Retail shops, National banking firms
International businesses
• Operate in more than one country
• Multinational businesses
LEGAL STRUCTURE OF BUSINESS
(PRIVATE SECTOR)
Private-sector
businesses
Sole trader
Partnerships
Cooperatives
Private
Limited
Companies
Public
SOLE TRADER
(ONE OWNER)
 Most common form
 Likely very small
 Unlimited liability
 People can sue the owner for business & personal assets
 Hard to raise money & additional capital
Advantages
Disadvantages
Easy to set up – no legal
Owner has complete control
Owner keeps all profits
Choose working conditions
Establish close relationships with staff
& customers
• Based on interests and skills of the
owner
• Unlimited liability
• Competition from bigger businesses
• Owner responsible for all aspects of
management
• Difficult to raise capital
• Long hours
• No continuity – owner dies, business
dies
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PARTNERSHIP
(MORE THAN ONE OWNER)
 Not a separate legal unit like a corporation
 Group of individuals
 Unlimited liability
 People can sue each partner for business & personal assets
 Partnership agreements – management roles, splitting $$$...
Advantages
Disadvantages
• Partners work in diff. areas of
management
• Shared decision making
• Additional capital from partners
• Business losses shared btw partners
• Greater privacy
• Fewer legal formalities than
corporations
• Unlimited liability for all partners
• Profits are shared
• No continuity – a partner dies,
business needs to be reorganized
• Bound by partner decisions
• Can’t sell shares to raise capital
• A sole trader, taking on partners, will
lose independence of decision making
LIMITED COMPANIES
(INCORPORATED/CORPORATIONS)
 Limited liability
 If business fails, the shareholders personal assets are protected
 Legal personality
 Has a legal identity separate from owners
 Continuity
 The death of an owner or director does not impact the business
Limited
Companies
Private
Limited
Company
Public
Limited
Company
PRIVATE LIMITED COMPANY (LTD)
(SHARES SOLD PRIVATELY)
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An incorporated privately owned business
Small businesses
Shares usually sold to family, friends, and employees
A corporation not listed on the stock exchange
Advantages
Disadvantages
Shareholders have limited liability
Separate legal personality
Continuity – Business lives forever
Original owner may retain control
Raises capital by selling shares to
family, friends, & employees
• Greater status than an unincorporated
business
• A lot of legal work in forming the
corporation
• Can’t raise capital by selling shares to
the general public
• Difficult for shareholders to sell shares
• Less secrecy over financial affairs than
sole trader or partnership
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PUBLIC LIMITED COMPANY (PLC)
(SHARES SOLD ON STOCK EXCHANGE)
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Sale shares (ownership pieces) on stock exchange
Most common form for large businesses
Can raise VERY LARGE amounts of capital ($$$) for expansion
Separation between ownership & control
 Large amounts of shareholders, Who runs the company?
 Shareholders appoint a board of directors to run the business
 Many Public Limited Companies convert back to Private status to
keep control in the hands of the original owner.
 Plc., Inc.
EXAMPLES OF PUBLIC LIMITED COMPANY
PUBLIC LIMITED COMPANY (PLC)
(SHARES SOLD ON STOCK EXCHANGE)
Advantages
Disadvantages
Limited liability
Separate legal identity
Continuity
Ease of buying and selling of shares
for shareholders – encourages
investment
• Large capital sources from publically
selling shares
• Legal formalities in formation
• Cost of business consultants and
financial advisers when creating the
company
• Share prices subject to change –
sometimes for reasons beyond the
company’s control
• Legal requirements to share financial
info with shareholders & public
• Risk of takeover due to the availability
of the shares on the stock exchange
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LEGAL FORMALITIES IN SETTING UP A
COMPANY
All governments require legal steps to starting a company.
In the UK…
1. Memorandum of Association
a.
b.
c.
d.
Name of Company
Address of head office
Maximum share capital
Aims of business
2. Articles of Association
a.
b.
Explains internal workings (business procedures)
Control of the business (names of directors)
OTHER FORMS OF BUSINESS
ORGANIZATION
 Cooperative
 All members contribute to the running of the business
 All members have one vote
 Profits shared equally among member
 Franchises
 Allows an owner to use the logo, marketing, product, & style of the
parent company (McDonalds, Subway, Monkey Joe’s)
 Joint ventures
 Two or more businesses agree to work closely together on a
particular project and create a separate business division to do so
 Holding companies
 A business that owns and controls a number of separate businesses,
but DOES NOT unite them into on unified company
EXAMPLE OF A COOPERATIVE
Today, 54 grower-members make up the
Cooperative. Since its inception, each
member, no matter how large or small
his farm, is treated equally with each
member having one vote. Equal voice in
Cooperative business has helped to
sustain progress and keep alive the
pioneering spirit that originally brought
the Cooperative into being. The Board of
Directors is responsible for determining
policy and providing direction for the
management team. Day -to-day business
operations are handled by the
professionals that make up the
Cooperative staf f.
PUBLIC-SECTOR ENTERPRISES
PUBLIC CORPORATIONS
We us “Public” in two ways!
Public corporations ≠ Public limited companies
Public corporations are owned by government
Public corporations are in the Public Sector
Profit is not a major objective
Check Pros & Cons on p. 28
EXAMPLE OF PUBLIC CORPORATION
Citizens is a not-for-profit, taxexempt government corporation
whose public purpose is to
provide insurance protection to
Florida property owners
throughout the state. The
corporation insures hundreds of
thousands of homes, businesses
and condominiums whose
owners otherwise might not be
able to find coverage.