Commercial Organizations

Assessment/Learning Objective
AO3 - The main features of the following types
of FOR PROFIT (commercial) organizations

●Sole Traders
●Partnerships
●Companies/Corporations
Profit Based Organizations
●Aim is to make a profit
●Long run success is linked to profitability

Classified according to the following”

●Ownership and Control.
●How they raise finance (capital).
●How profits are distributed.
Profit Based Organizations
3 Major types

● Sole Trader

● Partnerships

● Limited Liability
Sole Trader
●Individual who runs and owns a personal
business
●Responsible for success/failure
●Most common form of business ownership
Sole Trader
Legal responsibility
●NOT incorporated = full financial responsibility

●Personally responsible for

ALL debts of business
Examples
The following began life as sole traders…
Sole Trader Advantages
●Few Legal Formalities
●Profit Taking
●Being your own boss
●Personal Services
●Privacy
Sole Trader Disadvantages
●Unlimited Liability
●Limited financial resources
●High Risks
●Workload stress
●Limited Economies of scale
●Lack of continuity
 Example: Flowers By Cam
Pg 17 of Text. Read the case and write out the
Costs and Benefits of running a small flower shop:

Costs Benefits
Partnerships
●Profit seeking - business owned by 2 or
more persons.
●Ordinary Partnership -maximum number of
partners is 20 solicitors
●Financed - mainly from personal funds or
combined funds of all partners
●Silent Partners - investors that do not run the
business but have
Legally speaking?
Not legal requirement to have legal papers
written up describing the partnership.

Why would partners do this anyways?

Deed of Partnership
A contract explicitly drawn (written) up stating:
●the amount of finance (money) contributed by
each partner
●the roles, obligations and responsibilities for
each partner
●how profits and losses will be shared amongst
the partners
Deed of Partnership
●conditions for introducing
new partners.
●clauses for withdrawal of
partners.
●procedures for ending
partnerships.
What is Unlimited Liability?
Partnerships - Advantages
●Financial Strength
●Specialization and division of labour
●Financial privacy
●Cost effective
Partnerships - Disadvantages
●Unlimited Liability
●A lack of continuity
●prolonged decision making
●Lack of harmony
Example: EXP The Chinese
Experience, pg 18 Text
Read the Case and answer the 4 questions
listed:

1.Ordinary Partnership?
2.1 adv/1disadv as a partnership
3.Potential problems compared with larger
restaurants?
4.Examine benefits of EXP remaining as small
business.
Companies (Corporations)
●Businesses owned by their shareholders

●Shareholders are individuals or other

businesses that have invested money to
provide capital for a company.

●Joint Stock companies - shares (stocks) are

held by numerous companies
Companies (Corporations)
●Most complex form of ownership
●Incorporated
●Legal difference between the owners of
the company and the business itself.
●Companies actually have a legal right.

A corporation is treated like a human

being!
Companies (Corporations)
LImited Liability - Shareholders do not stand to
lose personal belongings if company goes into
debt.

MAX LOSS = MONEY INVESTED IN

COMPANY
 Board of Directors (BOD)
●Elected to run company on shareholders behalf.
●Skilled & Expertise
●BOD held responsible for success of company
The Corporation: Documentary

https://www.youtube.com/wat
ch?v=Pin8fbdGV9Y&list=PLFA50
FBC214A6CE87
Types of Companies
1.Private Limited Company

a.Cannot raise share capital (money) from the

general public.
b.Shares are sold to individual investors.
c.Shares cannot be traded without consent
from BOD.
d.“Ltd” or “Limited” are affixed to name*

●See page 19 for abbreviations for different

counties
Types of Companies
Public Limited Company
●Able to advertise and sell shares to general
public via stock exchange.
●“PLC” often attached to name.
Required Documents
1.Memorandum of Association
a.brief document
b.outlining fundamental details of the company

2.Articles of Association (Articles of

incorporation)
b.stipulates the internal regulations and
procedures of the company (rights, roles, and
power of the BOD and shareholders.
c.Administrative issues also covered.
Certificate of Incorporation
License which recognizes this business as
a“separate legal entity from its owners”

Allows the business to start trading on stock

exchanges.
Flotation
Company first sells its shares to external
investors (YOU AND ME)
●Initial Public Offering - IPO

Why IPO?

A company will receive capital it needs to

further its grown and expand its business.
Who Buys Shares and Why?
1.Institutions - Bank - Mutual funds
2.Individual investors like you and me.

Why Buy Shares?

●Long term investment - hope they are worth
more in the years to come.
●Dividends - small payments periodically to
shareholders.
●Get rich quick.
Alibaba IPO
Companies - Advantages
●Raising Finance
●Limited Liability
●Continuity
●Economics of Scale
●Productivity
●Tax Benefit
Companies - Disadvantages
●Communication problems
●Added complexities
●Compliance costs
●Disclosure of information
●Bureaucracy
●Loss of Control
CASE STUDY 1.2.4 MARS INC
pg 21
Read and answer the 2 questions regarding MARS

a.PLC?
b.Costs and benefits to the mars family of keeping
the business as a PLC rather than a Public traded
Company.
 McDonald's :

THE FOUNDER
Michael Keaton, McDONALD'S Movie – 2016

Trailer Link:
https://www.youtube.com/watch?v=7hq1r3-FJo
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