Large Business Ownership Unit 1 Investigating Business Icons

Large Business Ownership Unit 1: Investigating Business Icons key: For more detailed instructions, see the Getting Started presentation Flash activity. These activities are not editable. Extension activities 1 of 27 Teacher’s notes included in the Notes Page Sound Web addresses © Boardworks Ltd 2007

Learning objectives What are limited companies? What decisions and responsibilities are involved in their ownership? How do some types of large business ownership compare to others? What are franchises and co-operatives? What is involved for the people who own and work in them? What is the difference between large business ownership in the public and private sector? 2 of 42 27 2 of 27 © Boardworks Ltd 2007 2006

Large business types Along a typical high street there will be many different types of large businesses and organizations, including franchises, limited companies, co-operatives and businesses in the public sector. Each of these large business types involve different responsibilities and involvement for the owners. 3 of 27 © Boardworks Ltd 2007

Limited companies are very different from partnerships and sole proprietorships. In these latter business types, the owners are the business. In contrast, limited companies are: owned by shareholders – people who invest money in shares of the company; run by directors – people appointed by shareholders to control and make the strategic decisions for that company. A limited company is therefore set up as a separate body from its owners. 4 of 27 © Boardworks Ltd 2007

Limited liability Owners and shareholders in a limited company are protected by limited liability. This means that they have limited responsibility for the business debts. They cannot lose any more money than they have invested in the company, and cannot have their personal assets claimed in order to pay back debts that are owed. For this reason, setting up a limited company is relatively low risk. How is this different from the responsibilities in sole proprietorships and partnerships? 5 of 27 © Boardworks Ltd 2007

Setting up a limited company Unlike sole proprietorships and partnerships, which are simple to set up, limited companies must produce paperwork and follow certain procedures when setting up. All limited companies in the UK have to register with the Registrar of Companies at Companies House. In return, they are issued with a Certificate of Incorporation. This is an official document which shows that the company has come into existence. In addition, a limited company must produce: a Memorandum of Association, which states who they are, where they are based and what they do. an Articles of Association – an internal ‘rulebook’, which sets out how the business will be run. 6 of 27 © Boardworks Ltd 2007

Documentation 7 of 27 © Boardworks Ltd 2007

Types of limited companies Have you ever seen the letters ‘Ltd’ or ‘PLC’ after a company’s name? Do you know what they stand for? There are two types of limited company: ‘Ltd’ or ‘Limited’ after a company’s name tells you it is a private limited business. ‘PLC’ after a company’s name tells you it is public limited. But what is the difference between them? 8 of 27 © Boardworks Ltd 2007

Types of limited companies The difference between a private and public limited company lies in the ownership of their shares. In a private limited company there is restricted ownership. Shares in the company can only be sold if all the shareholders agree to it. Shares in public limited companies are sold on the London Stock Exchange and can be bought by members of the general public. A private limited company can start up with as little as £ 2 in share capital, whereas a public limited company must have at least £ 50, 000 worth of shares to begin trading. 9 of 27 © Boardworks Ltd 2007

Private limited companies tend to be smaller than public limited companies. The main shareholders in a private limited company are often also the directors of the company. Private limited companies typically include recruitment consultants, building firms, estate agents and caterers. Many private limited companies are family-run businesses. Why might people setting up a business decide to become a private limited company rather than form a partnership? 10 of 27 © Boardworks Ltd 2007

Private limited companies: pros and cons 11 of 27 © Boardworks Ltd 2007

Public limited companies The majority of large British companies, including Tesco, Boots, Marks and Spencer and Barclays are public limited companies. Private limited companies become public by floating their shares on the stock market, to be bought and sold by the public. They do this in order to raise capital for expansion. With a greater number of shareholders, public limited companies are able to grow at a faster rate than companies which remain private. However, because shares can be bought by anyone, public limited companies are vulnerable to takeovers. 12 of 27 © Boardworks Ltd 2007

Public limited companies As there are many more of them, shareholders in a public limited company tend to have less influence over the company than shareholders in a private limited company. However, all public limited companies must hold Annual General Meetings (AGMs) where shareholders are given the opportunity to put questions to the board of directors, and take votes on company decisions. Shareholders will usually be entitled to one vote per share owned. 13 of 27 © Boardworks Ltd 2007

Public limited companies: pros and cons 14 of 27 © Boardworks Ltd 2007

Anagrams 15 of 27 © Boardworks Ltd 2007

Co-operatives There are two main types of co-operative business ownership: consumer co-operatives – owned by their customers; workers’ co-operatives – owned and run by their workers. Co-operatives are businesses which have important objectives other than simply making a profit. They will usually aim to support the wider community in some way, and encourage ethical business practices. You probably recognize this sign. The Co-op Group is the biggest consumer co-operative business in the UK, comprising of shops, banks and pharmacies, as well as other services. It is owned by its members, who invest in the Group and in return receive a share of the profits and are able to have a say in how the Co-op is run. 16 of 27 © Boardworks Ltd 2007

Case study: Suma is a wholefoods company and one of the largest workers’ co-operatives in the UK. It is organized and run in line with typical co-operative principles. It has 120 employees, all of whom own the business, and manage it by democratic consensus. All Suma employees receive equal wages and share job roles. Like all co-operative businesses, Suma has very ethical business principles. The company imports fair-trade goods, and refuses to trade with countries where human rights are abused. What are two ways in which Suma is different from a limited company? 17 of 27 © Boardworks Ltd 2007

Workers’ co-operatives: pros and cons 18 of 27 © Boardworks Ltd 2007

Franchises A franchise is an arrangement in which an established business name is sold to an individual or company, who can then start trading under that name. Many fast food restaurants such as KFC and Pizza Hut operate franchises. There are two parties involved in a franchise: the franchisor: the business selling the right to trade its product or service; 19 of 27 the franchisee: the company or person buying the franchise. © Boardworks Ltd 2007

Franchise advantages and disadvantages Franchisees often pay a substantial fee to trade under a wellknown business name, and in return will receive training, advice and on-going support. However, the franchisee has limited freedom to make business decisions, and can only sell the franchisor’s products. The franchisor receives a percentage of the profits made by the franchisee, and benefits from a bigger market share without taking on extra work themselves. However, a badly-run franchise may damage the franchisor’s reputation. Mc. Donald’s is the world’s largest franchising company in the world. 70% of all its restaurants are run by independent entrepreneurs. 20 of 27 © Boardworks Ltd 2007

Publicly owned organizations All businesses or organizations, whether large or small, are either in the private sector or the public sector. Sole traders, partnerships, limited companies, co-operatives and franchises are in the private sector. This is because they are all owned by private individuals or companies. Most UK business are in the private sector. However, the public sector is still a very large employer. Organizations in the public sector tend to be service providers. Local sports centres, libraries, Jobcentres and state schools are all public sector organizations. 21 of 27 © Boardworks Ltd 2007

Publicly owned organizations Public sector organizations are owned and run by central government or local authorities. They have much in common with private businesses in the way that they operate on a day-to-day basis. For example, they are run by managers who make decisions on behalf of the organization. However, unlike private sector businesses, public sector organizations: do not usually operate to generate a profit are funded from taxes such as council tax, rather than from shareholders. 22 of 27 © Boardworks Ltd 2007

Public corporations The government does own and operate some profit-seeking organizations, including the BBC and the Royal Mail. These public corporations were set up to provide the public with a service. Any profit they make goes back into the organization or to the government to fund things such as schools and the NHS. Some companies such as British Telecom (BT), British Gas and British Rail were once government-owned, but over the years have been sold or privatized, i. e. moved from the public sector into the private sector. How is a change from public to private ownership likely to affect the running of an organization? 23 of 27 © Boardworks Ltd 2007

Public sector or private sector? 24 of 27 © Boardworks Ltd 2007

Question time! 1. What is the difference between a private limited company and a public limited company? 2. What does it mean to have ‘limited liability’? Which types of business ownership involve limited liability? 3. Think of one advantage and one disadvantage for a franchisee in a franchise arrangement. 4. In what ways are private sector businesses and public sector organizations similar? In what ways are they different? 25 of 27 © Boardworks Ltd 2007