Unit-13 THE BUSINESS UNITS

UNIT-13

BUSINESS UNITS

Types of Business units

            According to the ownership, the business units are classified into three, they are

    1.  Private sector enterprises

    2.  Public sector enterprises.

    3. Joint sector enterprises

1. PRIVATE SECTOR ENTERPRISES

     Private sector enterprises are enterprises which are owned and controlled by the private individuals such as sole traders, partners, and shareholders. Their main aim is to make profit.

2. PUBLIC SECTOR ENTERPRISES

    Public sector enterprises are enterprises which are owned and controlled either by the state Government or by the central Government. It is managed by the board of directors who are appointed by the Government. The main aim of the public sector enterprises is to provide services rather than profit making.

3. JOINT SECTOR ENTERPRISES

Joint sector enterprises are enterprises owned and controlled by both Govt. and private individuals.

PRIVATE SECTOR ENTERPRISES

Types of Private Sector Enterprises.

1.  Sole trade business

2.  Partnership business

3.  Public limited companies

4.  Private limited companies

 5. Co-operative enterprises

6. Multinational Companies

7. Franchise.

1. SOLE TRADE BUSINESS.

 It is a business unit which is owned and controlled by a single owner. He invests his own capital and manages all the activities of the business and takes the entire profits as well as bears all the risks of the business.

Features of sole trade business

1. It is very easy to start business because there are few formal procedures required.

2. It is flexible so the owner makes independent decisions.

3. The owner has personal contact with employees and customers.

4. There is no sharing of the capital, profit and loss.

5. No need of more skills and efforts to run the business because of small size.

6. It ensures self-employment opportunities to the individuals.

2. PARTNERSHIP BUSINESS.

     The partnership business is defined as a voluntary association of two to twenty people to carry on business with a view to make profit. Partnership business is established with a deed of partnership, which is a legal agreement of the terms and conditions of the partnership, signed by all the partners.

Features of a partnership business.

1. There may be minimum 2 and maximum 20 partners (except in a professional partnership (solicitors, for example) where there is no upper limit)

2. All partners are entitled to be involved in the management of the business.

3. Profits and loss of the business are shared by the partners according to the ratio agreed in the partnership deed.

4. Sharing of capital and ideas among the partners.

5. Lack of perpetual succession, death, insanity or insolvency of any partner may result to the winding up of the business.

6. Unlimited liabilities of the partners.

Types of Partnership business.

a. Ordinary (General partnership)

            This is a partnership without having the feature of limited liability to the partners. They are responsible for the entire debts or liabilities of the business.

b. Limited partnership.

            This is a special type of partnership with the feature of limited liability to the one or more partners in the business. Such partners cannot take any part in the management.

Advantages of a partnership business

1. Easy to start the business with two members.

2. Sharing of capital among the partners may result better running of business.

3. Sharing of ideas and experiences among the partners ensures smooth management.

4. Division of work is possible. Each partner may concentrate on a particular activity of the business, such as sales, administration etc.

5. All the partners involve in the management.

Disadvantages of partnership business

1. Partners have the unlimited liability.

2. Sharing of profit.

3. Lack of continuity of the business if anything happened to any partners.

4. Chance of conflicts among the partners may be high in the managerial level.

Types of partner

There are three main types of partner, each of which has different rights and responsibilities.

1. General partners –They invest in the business, take part in running it and share in its profits. Each general partner is fully liable for any debts that the partnership may have.

2. Limited partners – They are not permitted to participate in the day-to-day running of the business. Their debt is limited to the amount of their initial investment.

3. Sleeping partners –They invest money in the business and share in its profits, but do not take part in day to businesses. Like general partners, they are fully liable for the partnership's debts.

LIMITED COMPANIES.

Companies are of two types, they are

Public Limited Companies.

Private Limited Companies.

3. PUBLIC LIMITED COMPANIES

    A company is considered to be Public Limited Company when it is registered under any of the companies Act and is able to issue shares to the public.

Eg:-Coca-Cola Ltd, Bank of Maldives PLC, MTCC.PLC, etc.

Features of a Public Limited Company.

1. It should be registered under the Company’s Act.

2. It can issue shares to the public for raising capital.

3. The issued capital of the company must be at least £ 50000.

4. The name of the company ends with the words of PLC or Ltd.

5. There should be minimum 2 members to start the business.

6. Shareholders are the owners of the company.

7. Minimum 2 directors are required for PLCs

4. PRIVATE LIMITED COMPANY

            A company is considered to be private limited company when it is registered under the company’s Act and is not able to issue shares to the public.

Eg:- Sonee Hardware pvt.ltd, Reefside pvt ltd, etc.

Features of a Private Limited Company

1. It should be registered under the company’s Act

2. It cannot issue shares to the public.

3. There is no limit to the issued capital

4. The name of the company must end the word of PVT.LTD.

5. There should be minimum 2 members to start the business.

6. Shareholders are the owners of the company.

7. Minimum one director is enough to run the business.

      Formation of Limited Companies

The following are the important documents required for the formation of a limited company

a. Memorandum of Association

             It is an important legal document of the company, prepared by the promoters of the company. It furnishes the objectives and other details of the company.

 It must contain the following:

1. Name of the company.
2. Registered office.
3. Objectives of company.
4. Statement of limited liability.
5. Amount of share capital.
6. Number of shares to be taken by each of the directors.

b. Articles of Association

 It is an important document which contains rules and regulations relating to the internal management of the company.

It includes the following:

1.    The rights and obligations of the directors,

2.    Procedures for calling a general meeting of the company,

3.    Procedures for electing directors,

4.    Borrowing powers of the company.

c. Statutory Declaration certificate.

It is a legal declaration made by the officially committed authority furnishing the Act and the rules there under have been complied with.

d. Certificate of incorporation

            This is the certificate issued by the Registrar of the companies giving legal approval to start the business. It ensures the company a legal status. So the private limited companies can start business with this document.

e. Certificate of trading

This is the final document required by the Public Limited Company in order to start business.

Important features of limited companies.

1. Formation

Limited companies are formed by registration with the Registrar of Companies after the submission of the required legal documents.

2. Name of the firm

The name of a private company must contain the word ‘Pvt .ltd’, the name of the public company must contain the words ‘public limited company (Plc),or Ltd

3. Capital

Capital is acquired by sale of shares. Public companies can offer shares to the general public, private companies cannot do so.

4. Ownership

Shareholders are the owners of limited companies.

5. Control

Companies are controlled and managed by directors, who are elected by the shareholders. One share one vote principle is followed there.

6. Liability for debts

Shareholders liability is strictly limited to the nominal value of the shares they have agreed to buy.

7. Continuity

A limited company is a legal ‘person’, and has a life independent of the lives of its owners.

8. Change of ownership

Shares in a public limited company are freely transferable; shares in a private limited company can be transferred by consent of the other shareholders.

9. Annual Accounts

All limited companies must publish annual accounts, and copies of these must be sent to the Registrar of Companies.

DIFFERENCES BETWEEN A SOLE TRADE BUSINESS AND A PRIVATE LIMITED COMPANY.

  

Sole proprietorship (sole trader)	Private limited company
1.  Number of members      It is formed by a single man.	1.  It requires minimum two and there is no maximum limit of its members.
2.  Legal status       A sole trading business has no legal status or existence	2.  A private limited company has legal status and it is formed according to the Companies Act requirements.
3.  Liability       In sole trading business the liability of a owner is unlimited.	3.  In a private company the liability of a     shareholder is limited.
4.  Continuity       There is often a lack of continuity in the event of the owner’s death.	4.  Due to the death of a shareholder or any shareholder leaves the business; the business may not be affected. It has the legal entity.
5.control     A sole trading business is controlled by a sole trader.	5.  The private limited company is controlled   by the promoters.
6.  Capital       As the sole trading business grows, often the owner finds shortage of capital.	6.  There is no shortage of capital because,  In a private company the capital may be contributed by many individuals

Differences between private limited company and partnership

1. Numbers of members

In order to form a partnership business it requires minimum two and maximum twenty members. Whereas, to form a private company it requires minimum two and there can be no maximum limit.

2. Formation

Formation of a partnership business is quite simple. Whereas, formation of a private company is quite complex, because more legal formalities are involved.

3. Liability

The liability of a partner is unlimited for the business debts. Whereas, in a private limited company, the liability of a shareholder is limited.

4. Capital

Partners contribute money into the business for raising capital. Whereas, in a private limited company, the shareholders or promoters contribute capital and also it is controlled by board of directors.

5. Registration

The registration of partnership business is optional. Whereas, the registration of a private limited company is compulsory.

6. Continuity

Partnership business has no legal status. Due to the death of any partner or any partner leaves the business, the business comes to an end. Whereas, the private limited company has a legal status. It is not affected de to the above mentioned reasons.

Difference between a private limited company and public limited company

A private limited company	A Public limited company
1. The name of a private company must end with the word ‘Pvt. Ltd’.	1. The name of the public limited company must end with the words ‘public limited company (Plc) or Ltd.
2.  It is not allowed to issue shares and debentures to the public for raising up of capital.	2. It is allowed to issue shares and debentures to the public for rising up capital.
3.  No transfer of shares. It is possible only with the consent of other shareholders	3. Shares of a public limited company are transferable to anyone without the consent of other shareholders.
4. There is no limit to the minimum capital to start the private limited company.	4. The issued capital of the company must be at least £50000
5.  Private company is usually small in size.	5.  Public company is usually a large firm
6. Minimum number of director is one	6. Minimum number of directors is two

5. CO-OPERATIVE ENTERPRISES

            It is an organization of persons who join together on voluntary basis for the development of societies and to satisfy their common economic interests.  The basic object of co-operatives enterprises to provide services, not profit maximization.

Features of co-operatives

a. Democratic control

Each member can vote for the managing committee, one man one vote principle is followed there.

b. Open membership

There is no limit to the members, but the share cost will be 1 pound and a member can buy shares up to 5000 pound

c. Service motive

 The basic objective of co-operative enterprises is to provide services to the societies but not profit maximization.

d. Distribution of profits

The profits of the co-operative enterprises will be distributed to the members in accordance with the share value.

Difference between Public Corporation and Co-operative enterprise.

1. Ownership.

            Public corporation is owned and controlled by the government but co-operative enterprise is owned and controlled by private individuals.

2. Capital

            Capital of the Public corporation is contributed by the government whereas the capital of the co-operative is collected from the members.

3. Formation

            Public corporation is formed by the government for undertaking certain service oriented businesses whereas co-operative is a voluntary association of people for carrying certain businesses.

 6. MULTINATIONAL COMPANIES (MNC).

             MNC is a large private sector enterprise having many branches in different companies. The head office of the MNC is known as parent company and the branches are known as subsidiary companies.

            Eg:- Ooredoo(Kuwait), Coca-cola(USA), etc.

Advantages of MNC

1. MNC creates employment opportunities to the home countries as well as host countries.

2. MNC increases export and import of resources such as raw materials, semi-finished goods, finished goods, etc.

3. MNC increases income and wealth of the countries due to increased exports.

4. MNC ensures the worldwide market for the products.

5. MNC helps to the free flow of capital and technologies.

6. MNC helps to the free movement of human resources.

Disadvantages of MNC

1. Large exploitation of resources of the host countries.

2. Increased environmental pollution.

3. Concentration of wealth in the home countries.

4. Decreases employment opportunities in the home industries.

5. Difficult to control the business due its large size.

6. Monopolistic control.

7. FRANCHISE

             Franchise is an agreement allowing one business to trade under the name and logo of another existing business. The business granting the franchise is called the franchiser and the business taking out the franchise is called the franchisee.

Eg:- McDonald, Kentuky Fried Chicken(KFC), etc. in restaurant business.

Advantages of franchise.

1. It helps to expand the business.

2. It increases the goodwill of the franchiser.

3. It decreases the risk of the franchisee such as advertisement, resources, etc.

4. Franchiser does, recruiting, training, pricing, etc for the franchisee.

Disadvantages of franchise.

1. Chance of misuse of trademark or name of the franchiser.

2. It affects the good will of the franchiser due to the poor service of the franchisee.

3. Difficult to control the business.

4. Chance of loss due to the lack of sincerity of the franchisee.

PUBLIC SECTOR ENTERPRISE

            Public sector enterprises are those enterprises which are owned and controlled either by state government or by the central government. It is managed by the board of directors who are appointed by the government. The main aim of public sector organization is to provide public service rather than making profit.

1. Government Departments

            These are important forms of public sector enterprises by which various Govt. departments under take some activities under the supervision of ministers.

 Eg- Ministry of Education, Ministry of Health, etc

2. The public corporations

These are organizations formed and controlled by the government based on an Act in the Parliament.

             Eg- British Rail, The post office, BBC, British air ways, STELCO.ltd. (State Electric Company Limited, Maldives) etc.

3. Municipal enterprise (Local government.)

            These are enterprises which carry out some activities under the control of local government. These enterprises are managed by the elected members called Councillors.

 Eg- Male’ Minicipality.