Cambridge O Level

Business Studies 7115.

Syllabus for examination in 2017, 2018 and 2019.

1.4 Types of business organization

1.4.1 The main features of different forms of business organisation:

• Sole traders, partnerships, private and public limited companies,
franchises and joint ventures
• Differences between unincorporated businesses and limited
companies
• Concepts of risk, ownership and limited liability
• Recommend and justify a suitable form of business organisation
to owners/management in a given situation
• Business organisations in the public sector, e.g. public
corporations
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1.4 Types of business organisation

1.4.1 The main feature of different forms of business organisation

• Sole traders, partnership, private and public limited companies, franchise and joint
venture

Sole trader: A business that is owned and controlled by just one person who takes all of the
risks and receives all of the profits
Advantages:
- Quick and easy to set up
- Makes all the decisions
- Has complete control
- Keeps the profit
Disadvantages:
- Unlimited liability (responsible for business debts)
- May not be able to raise funds to expand the business
- Maybe have to work long hours
- Difficult to compete with larger rival firms
- May not have the business skills to run a business

Partnership: A business formed by two or more people who will usually share responsibility for
the day-to-day running of the business.
Advantages:
- Easy to set up a deed of partnership
- Partners invest in the business so greater access to funds
- Shared decision making
- Shared management and workload
Disadvantages:
- Unlimited liability
- Share the profits
- Business ceases to exist if one partner leaves
- Decisions binding on all partners
- Difficult to raise finance

Private limited companies: Often a small to medium-sized company, owned by shareholders

who have limited liability. The company cannot sell its shares to the general public
- Usually a very small number of shareholders
- Usually fairly small
- Can only be sold privately
- Often difficult to sell shares because it must be sold privately
- Only a few shareholders, ownership is not separated from control
- May be difficult to raise finance
Web address: www.facebook.com/cips92
Contact: 03426321516
Address: behind Majee hospital, Near BF Marriage lawn,unit 7, latifabad Hyderabad.
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- Profit belongs to shareholders

- Legal documents must be completed when setting up the business
- Limited liability
- Shareholders vote on major decisions taken by the company
- The business continues even if one or more shareholders die

Public limited companies: Often a large company; owned by shareholders who have limited
liability. They can sell its shares to the general public
- Usually a very large number of shareholders
- Most common form of organisation for very large companies
- Shares can be offered to the public and other organisations
- Quick and easy to sell their shares
- There are often thousands of shareholders
- Ownership and control are separated
- Each year, they have a annual general meeting to make major decisions
- Often very successful in raising capital
- Setting up is very costly
- Director's decision making is sometimes influenced by major investors who seek to satisfy
their own objectives
- The company is at risk of takeovers
- The legal requirements for the publication of information about the company is much stricter
than it is for private limited companies

Franchises: A business system where entrepreneurs buy the right to use to the name, logo and
product of an existing business
Advantages (to entrepreneurs):
- Less chance of failure
- Franchises often provides advice and training to the franchisee
- Franchisors finance the promotion of the brand through national advertising
- The franchisor would have already checked the quality of suppliers
Disadvantages:
- Initial cost of buying into a franchise can be very expensive
- The franchisor will take a percentage of the revenue or profits made by the franchisee each
year
- There are very strict controls over what the franchisee is allowed to do with the product,
pricing, store layout
- The franchisee doesn't gain any personal recognition, they only gain recognition because of
the existing brand
Joint ventures: Two or more businesses agree to work together on a project and set up a
separate business for this purpose
Advantages:
- Reduces risks for each business and cuts costs
- Each business brings different expertise to the joint venture

Web address: www.facebook.com/cips92

Contact: 03426321516
Address: behind Majee hospital, Near BF Marriage lawn,unit 7, latifabad Hyderabad.
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- Market and product knowledge can be shared

Disadvantages:
- Any mistakes made may damage the reputation of all firms in the joint venture
- The businesses ay have different business cultures or styles of leadership, making decision
making difficult

• Difference between unincorporated businesses and limited companies

An unincorporated business does not have a separate legal identity from its owners. Whereas,
an incorporated business does.

• Concepts of risk, ownership and limited liability

Unincorporated business ownership have a greater legal and financial risk than incorporated
business because
- Owners and the business have the same legal identity, e.g. if a customer is injured from the
business's products, then the owners may be sued for damages
- Owners have unlimited liability for business debts

Limited liability is when the owner is not personally responsible for the business's debts,
unlimited liability is when the owner is personally responsible for the business's debts.

• Business organisations in the public sector

Public corporations:
- Are owned and controlled by the state
- Are financed mainly through taxation
- Most of the times, their objectives are social rather than profit
- The services provided are often free or at a very low price

Web address: www.facebook.com/cips92

Contact: 03426321516
Address: behind Majee hospital, Near BF Marriage lawn,unit 7, latifabad Hyderabad.