2 Ownership by rnrj9uO



Business Management
Types of business organisation
Organisations fall into 3 different

Private Sector

Public Sector

      Private Sector
• Private sector plays an important role

• creates goods and services

• employs millions of people

• varies in size from Shell and Vodafone to
  corner shops

• driving force for change and improvement
        Sole Trader
Most common form of business

• no complicated legal requirements

• decisions can be made quickly

• close contact with customers and

• all profits retained/high satisfaction
        Sole Trader
Some disadvantages:

• all decisions are made by owner

• long hours

• unlimited liability

• sourcing finance
• 2-20 people in a partnership

• partners can share skills/knowledge

• organisation could provide 24/7 service

• easier to raise finance
Some disadvantages

• disputes

• unlimited liability (except sleeping partner)

• difficult to raise large amount of capital

• decision making process is slower
         Partnership Deed
Legally binding agreement


 share of profits, salary, drawings,
 duties and responsibilities, cessation of
 partnership, death of partner.
Ownership – Question……
• Explain the advantages and
  disadvantages of being a sole

• Distinguish between operating as a
  sole trader and a partnership.
                     Solution –
Distinguish between operating as a sole trader and a

•   A sole trader is run by one person whereas a partnership
    is run by 2 – 20.                               2 marks

•   A sole trader is able to make quick decisions whereas in a
    partnership decision making is slower as all partners are
    consulted.                                        2 marks

•   A partnership can raise more capital than a sole trader as
    all the partners introduce capital.
                                                    2 marks

•   A sole trader may work longer hours whereas in a
    partnership the workload is shared. (2 marks)
•   It may be possible to trade 24/7 whereas this would be
    impossible in a sole trader.     (2 marks)
         A Limited Company

• owned by shareholders - shareholders unlikely to
  run the company

• Profits shared in the form of dividends

• shareholders have limited liability

• company has to be registered with Companies House

• Articles of Association and Memorandum of
  Association must be provided
Private Limited 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

• limited liability organisations
Public Limited company (plc)
• shares bought and sold in stock exchange

• large amounts of capital can be raised

• costly to have shares quoted on SE

• may not raise all capital required if SE has
  a bad day

• original shareholders can lose control
• Compare the private limited company
  with a public limited company.
                                 4 marks

• Describe two benefits and two
  disadvantages of being a shareholder in
  a limited company.             4 marks
• A MNC is a business which owns or
  controls production or service facilities
  outside the country in which it is based.

•   This means that they do not just
    export their products, but make
    them abroad.

•   Usually have interests in at least
    4 countries, but most operate in
    more than this
                 Some MNCs
•   Ford               The biggest:

•   British American   • Exxon (Esso)
                       • General Motors
•   Volkswagen
                       • Royal Dutch Shell
•   Matsui
                       These companies have a
•   Unilever           turnover in excess of the
                       GNPs of most countries.
  Some facts about MNCs

o Multinational companies have branches
  ‘subsidiaries’ in more than one country;

o Many have sales ‘outlets’ in various

o A MNC must have production facilities in
  more than one country.
         MNCs in Scotland
• Electronics industry – in central belt of
  Scotland eg Hewlett Packard, Polaroid;

• Oil Industry – in the northeast,
  multinationals like Shell and BP Amoco
        Reasons for Establishing
•   To increase market share;
•   To secure cheaper premises and labour;
•   Employment and Health & Satfey Legislation in other
    countries may be more relaxed
•   To avoid or minimise the amount of tax to be paid;
•   To take advantage of government grants available;
•   To save on costs of transporting goods to the
    market place;
•   To avoid trade barriers like the EU Common
    External Tariff;
•   To develop an international brand
                            The Globalisation of
To avoid protectionist      markets
                              Many people believe that
  By producing within a     national boundaries are no
country, a company can      longer important for firms
avoid tariffs and import
controls.                     Communication and travel
  Japanese car              are increasingly faster and
                            make the world seem
companies who produce       smaller.
in the UK can export to
other EU countries            MNCs who are global in
without having additional   outlook can take advantage
charges or limits placed    of this so-called ‘global
upon them.                  village’
    Advantages of MNCs to the
          Host Country
•   They bring new jobs to an area;
•   Often at the forefront of new technology and can
    bring this to another country;
•   Often more efficient than local companies;
•   They can lead to the introduction of new
    management techniques;
•   Often export their output therefore help the
    Balance of Payments;
•   They can lead to new businesses being set up locally
    once people have learned new skills.
      Disadvantages of MNCs
•   They are very powerful and can influence the
    government of a country;
•   Local employment can be dependent on one large
•   They may use up natural resources which may not
    be renewable;
•   They can force local firms out of business;
•   The profit they make goes back to the ‘home’
•   They can be ‘footloose’ and may move to another
    country if better incentives offered.
MNCs and Social responsibility

•   Often criticised for their marketing techniques, eg
    Nestle and baby milk; Marlboro targeting children
•   Safety issues, eg factories in a host country have
    lower standards than allowed in base country eg India
•   Impact on the environment, eg rainforests being
•   However they may offer higher wages than local
    organisations and they have the power, money and
    knowledge to help preserve the environment if they
        Government control
• Some people feel that MNCs have too much
  influence over governments.

• In some countries MNCs avoid paying tax.

• Some MNCs exert power on
  politicians and decisions and
  policies may be shaped to
  suit them.
• Outline reasons for establishing MNCs.    (4)

• Identify the features of a multi-national company? (2)

• Explain the possible advantages and disadvantages to
  the host country of a MNC operating there? (6)

• Outline how Aberdeen has benefited from North Sea
  Oil. (3)

• Explain the disadvantages to Aberdeen of MNCs
  operating there? (3)

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