Lecture 1

Types of business
organization
 Contents

I. Introduction of various business environment

II. Types of business organization
III. Legal structures of business organization
I. Introductions of various
business environments
 Types of Environment

Macro
environment

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Economic (PESTLE) Non-economic

Internal
environment
The company

External
environment

Micro environment
Competitors
(Competitive environment) Public
Customers
Marketing
Suppliers intermediaries
4
 INTERNAL
ENVIRONMENT
II. Types of organizations
 TYPES OF BUSINESS
ORGANIZATION
1. Non- profit and profit
2. Listed on the stock exchange market: public or
private (mở-đóng)
3. State-owned enterprise or public-owned enterprise
 1_ Non-profit
organization
• Non-profit organisation are legal or social entities created for the
purpose of producing goods and services whose status does not
permit them to be a source of income, profit or other financial gain for
the units that establish, control or finance them
• They may be created for charitable, philanthropic or welfare reasons
to provide goods or services to other persons in need
• Due to their unique purposes, they are frequently exempted from
various kinds of taxes
1_Non-profit organization
 1_Non Government
Organizations

According to the law, NGO is established under foreign

law, their main purposes can be development
assistance, humanitarian aid, not for profit or other
purposes in Vietnam
 1. Non-profit and for profit

For profit  a part of profit will be distributed for

members or shareholders: (dividend)

The data: dividend paid; profit paid for shareholders

1_Non-profit and for profit:
FPT EXAMPLE
 2. STATE OWNED-OR
PRIVE OWNED COMPANY

STATE OWNED occupied at least 51 % of the

shares of company

Otherwise, PRIVATE-OWNED

The data: shareholders structure

State owned or private owned
company : FPT EXAMPLE
 3. LISTED ON THE STOCK
EXCHANGE MARKET
Public company = offers shares to public (self offer or through stock
exchange market) (UK regulation)
Otherwise, PRIVATE-OWNED

Private company = offers shares to the members of the company

only (UK regulation)

The data: stocks of the company listed on the stock exchange

market.
Public or private: FPT EXAMPLE
III. Legal structure of
business organization
Legal structures

There are 3 main legal

structures in private sectors
1. The sole trader
2. Partnership
3. Limited companies
 The sole trader
• A sole trader is a business owned by one individual who is
self-employed and who may, in some cases, employ other
people on either a fulltime or a part-time basis
• For example:
 The sole trader
• One of the most popular form of business organisation
numerically
• Can be sensitive to the needs of customers – since they are
closer to the customer and react more quickly
• Can offer specialist services to customers
• Can cater for the needs of local people – a small business in
a local area can build up a following in the community due to
trust
 The sole trader
• Where the business proves a success, all profits
accrue to the owner.
• Should losses occur, these too are the responsibility
of the sole trader, who has unlimited personal
liability for the debts of the business
 The sole trader – Advantages

• Total control of business by

owner
• Cheap to set up
• Keep all profit
 The sole trader – Disadvantages

• Unlimited liability
• Difficult to raise finance
• May be difficult to specialize
or enjoy economies of scale
• Problem with continuity if
sole trader retires or dies
 Partnership
• In essence, a partnership comes into being when
two or more people establish a business which they
own, finance and run jointly for personal gain,
irrespective of the degree of formality involved in the
relationship
• A partnership can range from a husband and wife
running a local shop as joint owners to a firm of
accountants or lawyers
• While it is not necessary to have a formal written
agreement, most partnerships tend to have a Deed
 Partnership
A Deed of Partnership may contains:
• Amount of capital each partner should provide
• How profits or losses should be divided
• How many votes each partner has (usually based on
proportion of capital provided)
• Rules on how take on new partners
• How the partnership is brought to an end, or how a
partner leaves
 Partnership – Advantages
• Spreads the risk across more people.
• Partner may bring money and resources to the
business.
• Partner may bring other skills and ideas to the
business, complementing the work already done by
the original partner.
• Increased credibility with potential customers and
suppliers
 Partnership – Disadvantages
• Have to share profits
• Less control of business for individual
• Disputes over workload
• Problems if partners disagree over of direction of
business
 Limited company
• In law, a company is a corporate association having
a legal identity in its own right.
• All property and other assets owned by the company
belong to the company and not to its owners.
• By the same token, the personal assets of its
members (the shareholders) do not normally belong
to the business.
Limited company - Example
 Limited liability
Limited liability means that investors can only lose
money they have invested 🡪 Encourages people to
finance company
Those who have a claim against company:
• Limited liability means that they can only recover
money from existing assets of business
• They cannot claim personal assets of shareholders
to recover amounts owed by company
 Limited company
Controls of a company
• Separate ownership and management of a company
• Shareholders may have money but not time or
management skills to run company
• Day to day running of business is entrusted to
directors
• Have a duty to act in best interests of shareholders
• Have to account for their decisions and performance
 Public limited company
Under British law, a Public limited company must have the following
condition
• A minimum of two shareholders
• At least two directors
• Minimum (at present) of £50000 of authorized and allotted share
capital;
• The right to offer its shares (and debentures) for sale to the general
public;
• A certificate from the Registrar of Companies verifying that the share
capital requirements have been met; and
• A memorandum which states it to be a public company
 Public limited company
Benefits of being a public limited company
• Availability of finance, especially if business wants
to expand
• It is also easier to raise money through other sources
of finance e.g. from banks
• Improve prestige and reputation
• Increase market value
 Public limited company
Drawbacks of being a public limited company
• Costly and complicated to set up as a plc
• Certain financial information must be made available
for everyone, competitors and customers included
• Shareholders in public companies expect a steady
stream of income from dividends
• Losing control - Increased threat of takeover
 Public limited company
Risk of shareholders:
• Company reduces its dividend or pays no dividend
• Value of share falls below price shareholder paid
• Company fails and investor loses money invested
 Public limited company
To become a PLC, a company must do an IPO
Public limited company
 Multi-national company
Multi-national corporations: An enterprise operating in several countries but
managed from one (home) country.

Generally, any company or group that derives (nhận được, lấy được từ) a
quarter of its revenue from operations outside of its home country is
considered a multinational corporation.
 Multi-national corporations
There are four categories of multinational corporations:

⮚ A multinational, decentralized corporation with strong home country presence,

⮚ A global, centralized corporation that acquires cost advantage through

centralized production wherever cheaper resources are available,

⮚ An international company that builds on the parent corporation's technology or R&D.

⮚ A transnational enterprise that combines the previous three approaches.

 Transnational
corporations
A transnational corporation (TNC) differs from a traditional MNC in that it does not identify
itself with one national home. While traditional MNCs are national companies with foreign
subsidiaries and TNCs spread out their operations in many countries sustaining high
levels of local responsiveness.

An example of a TNC is Nestlé who employ senior executives from many countries and
try to make decisions from a global perspective rather than from one centralized
headquarters.
 Public sector business
organizations
Public sector organisations Being set up in the
interest of the community and funded wholly or partly by
the government from public funds and answerable to a
government department or the Treasury come in a
variety of forms.
 State-owned enterprise
A state-owned enterprise (SOE) can be:
Fully owned
Or partially owned by government (equitization- cổ phần hóa)

Often operate in sectors in which there is a natural

monopoly, or the government has a strategic
interest. (mail, weapons, alcoholic beverages,
healthcare...)
 The privileges of state-
owned enterprises
The privileges in:
Easy to finance a large amount of capital
Easy to approach the land for business

Because SOE do not self-compete with other economic

sectors so SOEs are less creative. And because of the
privileges, they do not accelerate the pace of
equitization (cổ phần hóa).
 Issues of SOEs
• Poor management capacity
• Lack of supervision
• Lack of transparency
• High level of corruption
• Ineffective investment
Khoản lỗ của một số DNNN trong
năm 2016.
Khoản lỗ của một số DNNN trong
năm 2016.
 Examples
The Case of PVN
 Public sector business
organizations
These include:
• Central government departments (e.g. Department of
Trade and Industry)
• Local authorities
• Regional bodies
• Non-departmental public bodies or quangos
• Central government trading organisations
• Public corporations and nationalized industries (e.g.
the BBC).
 Legal structure of business
There are 3 developments of which have a legal aspect:
• Joint ventures
• Franchising
• Licensing
 Joint venture
• Joint venture describe a jointly owned and
independently incorporated business venture
involving more than one organisation
• Can take a variety of legal forms and almost every
conceivable type of partnership. For example:
between 2 companies, a public and a private
companies, a public and a private sector
• Very popular with international companies within the
last 25 to 30 years
Joint venture - Examples
 Joint venture
Advantages
• Easy to set up
• Reduced/shared costs
• Access to established expertise and additional staff without huge
expense
• Additional potential tax benefits for LLC’s and LLP’s
• Access to new markets
• Ability to leverage established technologies and patents
 Joint ventures
Disadvantages
• High potential for conflicts between and within the partnering
organizations
• Clash of corporate cultures and management styles
• Increased risk, liability, and exposure for all parties
• Mismanagement of capital and resources due to lack of
understanding of each company’s role in tactical execution of the
agreement
• Unclear/non-specified objectives can lead to an uneven division
of labor, profits, and losses between partners
 Franchising
• Franchising is an arrangement where one party (the
franchiser) sells the right to another party (the
franchisee) to market its product or service.
• Best known form is the “business format franchise”
• Franchise package: brand name, associated
supplies, promotional material and other forms of
support and assistance
• Franchisee pays an initial sum or fees and its various
elements
 Franchising
Reasons why franchising has become more popular
• Large companies have seen it as a means of rapid
expansion
• Franchisee provides most of finance – reduces
investment in expansion
• Local entrepreneur with inherited or redundancy
money sees opportunity to set up business with
reduced risk
• Banks like combination of large company and small
Famous franchises
 Franchising
Advantages
• A customer base
• Easier to raise money from bank to buy a franchise
• Given right and appropriate equipment to do job well
• Normally receive training
• National advertising paid for by franchisor
• Tried and tested business model
 Franchising
Disadvantages
• Cost to buy franchise
• Have to pay a percentage of your revenue to
business you have bought franchisor
• Have to follow franchise model, so less flexible
 Licensing
• Licensing is a of non-equity agreement under which
a firm in one country (the licensor) authorizes a firm
in another country (the licensee) to use its intellectual
property (e.g. patents, copyrights, trade names,
know-how) in return for certain considerations.
• May be granted to individuals, independent
companies, subsidiaries of a multinational company
or to government agencies
• Most licensors tend to be based in the advanced
industrial economies and are frequently
Licensing - Examples
 Licensing
Advantages
• Reducing competition by sharing technology.
• Seeking overseas profits without direct foreign
investment.
• Protecting an asset from potential ‘pirates’.
• Avoiding restrictions on foreign investment or imports
imposed by other countries.
• Recouping some research and development costs.
• Gaining a share of an overseas market.
 Licensing
Disadvantages
• Losing a degree of control over the asset, including
the quality of production, and this may affect the
product’s image and sales elsewhere
• Competition - the possibility of the licensee
dominating the market after the agreement ends
THE END