Understanding different business forms
Learning Objectives:
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Guidance:
Different forms of business include:
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different_business_forms_powerpoint.pptx | |
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profit_starter.pptx | |
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different business forms and reasons for changing business form
Question: What is the difference between a public sector organisation and a private sector organisation?
Which 2 types of businesses on the diagram are incorporated? What does incorporated mean?
What is the benefit of being incorporated?
Which 2 types of businesses on the diagram are incorporated? What does incorporated mean?
What is the benefit of being incorporated?
Key term: UNINCORPORATED BUSINESS - There is no distinction in law between the individual owner and the business itself. The identity of the business and the owner is the same. These tend to be sole traders and partnerships.
Key term: INCORPORATED BUSINESS - This has a legal identity that is separate from the individual owners. As a result, these organisations can own assets, owe money and enter into contracts in their own right. These tend to be PLCs and LTDs.
Key term: INCORPORATED BUSINESS - This has a legal identity that is separate from the individual owners. As a result, these organisations can own assets, owe money and enter into contracts in their own right. These tend to be PLCs and LTDs.
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Public sector organisations (state-owned/government organisations) are owned and operated by the government at a national, regional or local level. They mainly provide essential services, including education, health care, police, refuse collection and street lighting. They are generally provided free at the point of delivery and are funded by taxation. They provide services that would be difficult for individuals to provide for themselves, or that are deemed essential for all, but might be unaffordable to purchase from private sector organisations, e.g. healthcare.
Private sector organisations are owned, financed and run by private individuals. These could be the smallest sole trader up to multinational businesses. They generally aim to make a profit, but a lot of private sector organisations are not-for-profit, including charities and mutual societies.
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Key term: Mutual society - An organisation owned by its members. Profits are usually reinvested to help improve the service, rather than paid out to external shareholders as they would be in a public limited company (PLC).
Key term: UNLIMITED LIABILITY - A situation in which the owners of a business are liable for all the debts that the business may incur.
Key term: LIMITED LIABILITY - A situation in which the liability of the owners of a business is limited to the fully paid-up value of the share capital. Essentially they are only liable for the money they have put into the business.
Key term: LIMITED LIABILITY - A situation in which the liability of the owners of a business is limited to the fully paid-up value of the share capital. Essentially they are only liable for the money they have put into the business.
types_of_ownership.pptx | |
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the role of shareholders
plc_-_stock_exchange_game.docx | |
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plc_-_stock_exchange_game_record_sheet.doc | |
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role_of_shareholders_powerpoint.pptx | |
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Starter: Watch the video on how stock markets work. Match the following stock indices to the correct country:
Nikkei 225 Dax FTSE 100 MICEX IBEX 35 Dow Jones CAC 40 SSE Composite Index |
China
Japan France Germany USA UK Spain Russia |
Key Term: ORDINARY SHARE CAPITAL - Money given to a company by shareholders in return for a share certificate that gives them part ownership of the company; ordinary share capital is permanent, so a business will never be required to repay the value of these shares to their owners.
Question:
If a company has issued 100,000 shares at £2 each, what is its ordinary share capital?
If a company has ordinary share capital of £450,000 and it has issued 20,000 shares, what price were they offered at?
If a company has issued 100,000 shares at £2 each, what is its ordinary share capital?
If a company has ordinary share capital of £450,000 and it has issued 20,000 shares, what price were they offered at?
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Key term: DIVIDEND - A payment made by a company to its shareholders out of profits earned. They are allocated as fixed amounts per share, with shareholders receiving a dividend in proportion to their shareholding.
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Key term: MARKET CAPITALISATION (MARKET CAP) - The value of outstanding shares in a public limited company. Outstanding shares are the total of all ordinary shares issued and fully paid up. It is calculated by multiplying the total outstanding shares by the current market price of an individual share.
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Question:
If the market value of a share is £4.80 and the company has issued 250,000 shares, what is the market cap?
If the market cap of a company is £3.8m, and the share price is 25p, how many shares has the company issued?
If a company has issued 50,000 shares and the market cap is £900,000, what is the current share price?
If the market value of a share is £4.80 and the company has issued 250,000 shares, what is the market cap?
If the market cap of a company is £3.8m, and the share price is 25p, how many shares has the company issued?
If a company has issued 50,000 shares and the market cap is £900,000, what is the current share price?
Why do you think market cap is so important? Who do you think is interested in it?
role of shareholders and why they invest
Key term: SHAREHOLDER - The owner of a limited company; any person, company or other institution that owns at least one share in that company
Shareholders are the owners of companies. There me just one shareholder (potentially in an LTD) or there may be thousands (PLC). People invest in shares for a variety of reasons:
- To provide financial support for a business and be involved with running the business. This is usually in an LTD
- To gain control of a business; buying 51% of shares will allow you to do this. This may happen with a PLC as their shares are traded on the Stock Exchange
- To receive dividends (provided the company pays them
- To make a capital gain (sell at a higher price than they bought for)
rights and functions of shareholders
- Shareholders provide finance for a business in return for part-ownership
- The majority shareholder (owning at least 51% of the shares) can influence the decisions taken by the organisation's management
- Shareholders have the right to vote on particular issues at the company's AGM (annual general meeting) like who sits on the board of directors, whether the company should merge and the amount of bonuses directors receive
- Shareholders have the right to inspect the company's books and records
- Shareholders have the right to receive a portion of the dividends if the company pays them. If the company liquidates, they have a right to the proceeds, but only after creditors and bondholders have been paid
influences on and significance of share price changes
Key term: SHARE PRICE - The price of a single share in a company; share prices are usually determined by the supply and demand for shares.
- State of the economy - investors are more confident if economic conditions are good, which means demand for shares rises and share prices go up. The opposite happens in poor economic conditions
- Company performance - if a company reports good profits, investors' confidence in that business rises are demand for shares and share prices tend to go up. The opposite happens with low profits
- Competition in the market - How well a business responds to increased competition is likely to influence its profits and therefore investor confidence
- Proposed takeovers - The prospect of a takeover can influence the share price and will reflect whether investors think the takeover bid is likely to succeed
- Investors' expectations and their response to rumours - Investors may sell if they hear about other investors doing so; this will cause the share price to fall. The opposite can happen when their are positive rumours; if there are high demand for limited shares, prices will go up
share_price_worksheet.jpg | |
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Changing business form, Non-profit organisations and the effect of ownership on mission objectives, decisions and performance
non_profit_organisations_and_mission_powerpoint.pptx | |
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Starter: For what different reasons will a business want to change its form? (ownership structure)
- the need for finance in order to expand
- the size of the business and the level and type of investment required
- the need for limited liability
- the degree of control desired by the original owners
- the nature of the business and its objectives
- the level of risk involved
non-profit organisations
These do not have a defined structure and can take many different forms. They are also known as the third sector (because they are not in the for-profit or public sectors). This type of business can include:
- voluntary and community organisations
- charities
- social enterprises
- pressure groups
- trade unions
- cooperatives
- mutual societies
- trusts
Key term: COOPERATIVE - an autonomous association of people who voluntarily cooperate for their mutual social, economic, and cultural benefit.
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Non-profit organisations share the following characteristics:
- are non-governmental organisations
- have a governing body
- value driven and have social, environmental, community welfare or cultural aims and objectives
- established for a purpose rather than financial gain
- any profit is reinvested into the business
- many use volunteer staff in addition to paid employees
- objective is not to maximise profit
non_profit_organisations.docx | |
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Non-profit organisations can have some similarities with profit making organisations. Any sufficiently large non-profit organisation is likely to require full-time paid staff, including highly skilled managers and directors. Many non-profit organisations are likely to run the businesses with similar tactics as those used in the for-profit sector.
effects of ownership on mission objectives, decisions and performance
The mission and objectives of public sector organisations are generally focussed on meeting social needs and providing essential services. Decision making in public sector organisations will reflect a focus on meeting social needs and providing essential services. As a result, sometimes activities that are not profitable to provide are still funded as local authorities have judged that their benefits outweigh the costs of providing them.
Question: Why might a local authority health centre run free weight loss classes or 'give up smoking' classes even though they cost money to run?
The mission and objectives of non-profit organisations, although not focussed on maximising profits for their owners or members, will be focussed on generating sufficient profit or surpluses to reinvest in their particular field of interest. Non-profit organisations need strong leadership and well-trained staff to ensure their operations are efficient as possible.
Question: Why might a non-profit organisation run its businesses in a similar way to a private sector business?
Most private sector organisations aim to make maximum profit for their owners. They might however, pursue other objectives such as promoting long-term growth or developing a reputation for environmental and ethical standards.
Question: To what extent is profit needed before a private sector business can pursue other objectives:
The mission and objectives of a private sector businesses may change considerably depending on its ownership type. A sole trader becoming a partnership may be taking on more expertise and finance, but the new owners may have differing ideas as to how to take the business forward.The same may happen of an LTD when it takes on more shareholders. Within a PLC, shareholders are not usually involved with the running of a business, which can lead to tension when they communicate with the managers or other shareholders of a business.
objectives_and_ownership.pptx | |
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