CHAP 19.

TYPES OF

BUSINESS
ORGANISATION

CHAPTER TOPICS
1.
2.
3.
4.
5.
6.
7.
8.
9.

WHAT ARE THE DIFFERENT TYPES OF BUSINESS

ORGANISATIONS?
WHAT ARE SOLE TRADERS?
WHAT ARE PARTNERSHIPS?
WHAT IS A LIMITED COMPANY?
WHAT IS A CO-OPERATIVE?
WHAT ARE STATE OWNED ENTERPRISES?
WHAT ARE THE CHANGING TRENDS IN BUSINESS
OWNERSHIP AND STRUCTURE?
WHY HAVE AGRICULTURAL CO-OPS TURNED INTO
PLCS?
WHY DO BUSINESSES CHANGE THEIR LEGAL
STRUCTURE OVER TIME?

1. WHAT ARE THE DIFFERENT TYPES

OF BUSINESS ORGANISATIONS?

SOLE TRADER
PARTNERSHIP
PRIVATE LIMITED COMPANY
CO-OPERATIVE
STATE OWNED ENTERPRISES

These business structures are going to be compared under the

following headings:
1.
Formation
2.
Dissolution
3.
Ownership
4.
Management & finance
5.
Profits & risk

2. What are Sole Traders?

This is a one person business run by
the owner with his/her own money.

Advantages

Disadvantages

1. Formation &
Dissolution

Very easy to form/dissolve.

It can be easily changed into
partnership, ltd company
etc.

If he/she dies then so does the

business

2. Management
& finance

Sole traders have full

control of how business is
run. Decision making is quick.
Financial records do not
have to be revealed to the
public.

Long working hours are common and

holidays are difficult to arrange due to
the commitment needed to be a
successful sole trader.

Keeps all profit.

Takes all risk. They have unlimited

liability. They may lose assets in the
event of a debt needing to be paid.

3. Profit & risk

Takes all the risk.

Can be difficult to raise all start up

finance and as a result loans are
required. They can be expensive on the
business start ups

3. What are partnerships?

Is an agreement between 2 or more people to go
into business with a view to making a profit? There
can be no less than 2 members and no more than 20.

Advantages

Disadvantages

1.Formation
&
Dissolution

Easy to form. You can start

immediately, however if
business name is different to
that of partners you must
register the company name.

If a partner leaves or a partnership

ends a new partnership must be
agreed.

2.
Management
& finance

Decision making is shared.

3. Profit &
risk

Extra capital available to

finance the

Responsibility is shared.
Financial details not open to
be viewed by public

business

Disagreements can easily occur.

If someone dies the business is
discontinued.
Unlimited liability, each partner is
responsible for the debts of the
business
Profits must be shared between
partners

4. What is a limited company?

Ltd companies are regarded as separate legal
entities from the people who own and run them.
The owners are called shareholders and only
gain/lose on the amount they put into the business.

There are two main types of company:

Private limited company (Ltd) HEITON BUCKLEY
Public limited companies (PLCs) LIVERPOOL FC
The main difference is that shares of PLCs can be freely
bought and sold on the stock exchange

The management structure of companies

Shareholders
Board of
directors

Managers

Marketing
Dept

Financial
Dept

Personnel
Dept

Production
Dept

How is a private limited company formed

To form a private limited company you must
1.
Have at least two shareholders and one director.
2
Prepare a Memorandum of Association. This is a document for
public use. It details name of company, company objective, the
number of shares of each shareholder. This document is kept in the
Companies Office.
3.
Prepare an Articles of Association. This is a document for
shareholders. It details the internal rules of the company, types of
shares issued, how meetings are run, the procedure for
electing/replacing directors.
4.
Register with REGISTRAR of COMPANIES in the COMPANIES
OFFICE
5.
The companies office issues a birth certificate called a
CERTIFICATE of INCORPORATION
6.
If you register as a public limited company you must obtain a
TRADING CERTIFICATE
7.
TRADING CAN NOW COMMENCE

How companies are run?

AGM- a meeting held once a year involving directors, shareholders
of a firm discussing events of the previous 12 months & future
plans
Board of Directors BOD this board is responsible for
overseeing the running of a company. These directors are the
most senior managers of a limited company. Directors can be
removed by a majority voting system.
The company chairperson is a director and is elected by the
board to chair AGMs & EGMs. They speak on behalf of the
BOD.
The Managing Director MD/Chief Executive Officer CEO
Is in charge of overseeing all aspects of company activities. The
CEO is answerable to the BOD

Limited Company Features

Dissolution
1.

Formation
&
Dissolution

Advantages

Disadvantages

Companies can continue

to exist even if a
shareholder or director
dies

The legal formalities of

forming a company are more
complex, time consuming &
expensive than forming
other business structures

2. Ownership

Owned by its
shareholders

3. Management
& finance

Can raise finance for

business start ups or
expansion through
selling of shares.

A lot of paperwork including

financial audits, reports etc

4. Profit & risk

Shareholders have
limited liability. If
company has a lot of
shareholders risk is

Profits must be shared

5. What is a co-operative?
A co operative is business owned and run by a group of people,
AND each has a financial interest in its success.
They also have a say on how it is managed
Co-ops mainly exist in the agricultural industry.

Advantages

Disadvantages

1.Formation

Must have a minimum of 7

members. They register with
the REGISTRAR OF FRIENDLY
SOCIETIES.

Can be quite difficult to form,

time consuming and expensive.

2.
Ownership

Co-ops mainly exist in the

agricultural industry. Equal
voting system exists regardless
of the shares held.

Conflict may exist between

members in the need for
business expansion.

They file an annual financial

return (report)

What is a co-operative?
3.
Management
& finance

Management of co-ops are

inspired by a spirit of
democracy and mutual cooperation.

In some situations finance can

be difficult to raise. This can
hinder growth.

4. Profit &
risk

Members have limited liability.

Profits must be shared amongst

members.

Large membership of co-ops

make sure that there is high
demand for goods

There may be reluctance to

share profits with new members.
Risk is quite minimal.

6. What are state owned enterprises?

.These are enterprises that are set up,

financed and controlled by the government.

1. Formation

Advantages

Disadvantages

The government provides

the share capital and
subsidies. These
companies usually have a
good understanding with
financial institutions,
(banks)

Lack of funding which in turn

leads to borrowing more
from government, this is
especially true if the
business is not making a
profit (i.e IARNROD
EIREANN)

What are state owned

enterprises?
Management
and finance

Ownership
Examples

They provide employment

They promote industrial
development, (e.g) IDA,
Forbairt, Bord Trachtala,
Bord Failte
They provide services of
necessity including, ESB,
VHI, CIE, Bus Eireann,
Dublin Bus.
State owned
ESB, Coillte, An Post, Bus
Eireann
Aer Lingus

The directors of some firms

lack appropriate knowledge in
the companies particular area
(i.e agriculture), this is
because they are appointed
through political contacts
The lack of profit making,
(i.e. Iarnrod Eireann)
sometimes leads to lack of
motivation in workplace

Forms of Ownership A summary

Sole Trader
Formation

Partnership

Limited
Company

Co-op

Easy

Easy

Paperwork

Paperwork

No paperwork

No paperwork

Registration fee

Registration fee

Ownership

Owned by sole
trader

Owned by partners

Owned by
shareholders

Owned by members

Management
&
finance

Speedy decision
making

Shared decision
making

Managed by BOD

Accounts are
private

Disagreements
possible

BOD elected by
shareholders

Managed by Board
elected by members.
One member, one
vote rule.

Can be difficult to
raise finance

Accounts are private

Profits & risk

Raise finance through

new partners

Keeps all the profit

Profit shared

Unlimited liability

Unlimited liability

Accounts submitted to
Companies Office
Raise finance through
grants, loans & issuing
of shares
Profits shared among
shareholders
Limited liability

EXAMPLES

SHOPKEEPERS
TRADESPEOPLE like
carpenters,
plumbers

Accounts submitted
to Register of
Friendly Societies
Raise finance through
grants, loans &
issuing of shares
Profits shares
Members have
limited liability

SOLICITORS,
DOCTORS,

Manchester United
Liverpool FC

Castlebar Credit
Union

DENTISTS.

AIB

NCF- Connaught Gold

7. WHAT ARE THE CHANGING TRENDS IN

BUSINESS OWNERSHIP AND STRUCTURE?
a)
b)
c)
d)
e)

Rise in the number of firms entering into alliances

Emergence of Irish TNCs
Rise in the number of SMEs
Privatisation of state owned companies
Agricultural co-ops turning into PLCs

a) Rise in the number of firms

entering into alliances
Many Irish firms are now entering into alliances such as
joint ventures. This helps them against larger
international firms. They can also share skills, pool
resources to further their growth.

b) Emergence of Irish TNCs

The growth of free trade areas and Irelands
membership of the EU has led to potential large
Irish firms becoming TNCs. They now have access
to a larger market size in which to develop their
companies.
Examples: Kerry Group
AIB
FYFFES
These companies are now set up in different global
locations such as UK, mainland Europe, USA etc.

c) Rise in the number of SMEs

The number of SMEs operating in Ireland is
massively growing year after year. The
feature of an SME is that has sales of
250,000 or less, it also has employees of
50 or less.
Reasons for the growth of SMEs:

They receive state support in terms of advice,

guidance. The govt encourage SMEs S as this
will reduce unemployment, increase competition
etc.

The SMEs are developing in an

enterprise culture here in Ireland
Subcontracting (contracting out)
Businesses are now spending more time
contracting out jobs such as cleaning,
security, maintenance etc.
Franchising The renting of a
successful business formula is a
common route to becoming a LARGER
company. Examples include
SUPERMACS, THE BODY SHOP

d) Privatisation of state owned

companies
This means the selling of some or all of the shares in state owned
company to private investors.
Examples: GREENCORE, IRISH LIFE

e) Agricultural co-ops turning into

PLCs
PLCS are companies that only sell shares on the stock exchange.
This makes it easier to raise much needed finance for future
business developments. In recent years agricultural co-ops have
become PLCs
Example: KERRY GROUP

8. WHY HAVE AGRICULTURAL CO-OPS

TURNED INTO PLCs ?
With the international food industry getting very
competitive Irish agricultural co-ops have become
increasingly competitive.
To be able to spend large sums of money on R & D has
enabled these co-ops to increase their economies of
scale.
Existing Problems:
The limit to equity/investors: agricultural co-ops
are owned by farmers. Under the laws governing coops there is a limit on the amount of shares each
individual shareholder can have. As only farmers can
hold shares it makes it difficult to raise finance.
Limit to borrowings: borrowing large sums of money
would be high risk.

Solutions to the problems:

1.
2.

3.

4.

set up a PLC company on the stock market

Transfer ownership of some of the co-ops business assets
to the PLC.
The farmers own the co-op and the co-op has shares on
the stock market
When they need finance the sell shares on the stock
market. They always retain a 51% share to keep the
majority of the company.

Examples:
Kerry group, Golden Vale , Avonmore co-ops
NB: building societies are now following the trend of these
co-ops in raising finance on the stock market

9. WHY DO BUSINESSES CHANGE THEIR LEGAL

STRUCTURE OVER TIME?
Unlimited
liability

Unlimited
liability

Limited liability

Limited liability

Private Ltd
Sole
trader

Partnership

Comp / Co-op
Private Ltd

PLC

Comp.

Comp / Co-op
State owned
Comp.
State owned
Comp.

Private Ltd
Comp / Co-op
PLC Comp.

Businesses change their Business

Structure from Sole Trader to
Partnership to Private Limited
Company to a PLC because:
1.

2.

3.

It helps them bring in new skills,

experience, resources
It reduces risk as the sole trader or the
partners can now enjoy limited liability
Helps to raise finance through investors,
stock exchange etc. for future expansion

4.

5.

Helps to market the company. Being a

limited company enhances the image of the
business. This adds to the reputation of the
company as advertising and promotions will be
more convincing to the intended customers.
Business profit prestige- changing a co-op
owned company to a PLC offers the
management and employees a stronger
allegiance to making profit rather than
operating for the goodwill of the local area
farmers etc.

KEY DEFINITIONS

LC EXAM QUESTION
2005 Q2. (a) 15 marks
Distinguish between a Sole Trader and a
Partnership as a form of Business
organisation. Use an example in each of
your answers.

2005 SQ
10 marks
Explain the concept Limited Liability

LC EXAM QUESTION
2004 - Q2 (C) 20 MARKS
Explain why you would recommend a
private limited company Ltd as a type
of business organisation for a new
business venture.
2001 Q2-(A)
20 MARKS
Contrast a Private Limited Company LTD
with a Public Limited Company PLC as a
form of Business Organisation.

LC EXAM QUESTION
MOCK QUES
25 MARKS
Contrast the contents and functions of
the articles of association and
memorandum of association of a
limited company.