AQA A Level Business 312 Different business forms NEW SPEC.pptx

Reasons for choosing different forms of business and for changing business form
Different forms of business:
Sole traders
Private limited companies
Public limited companies
Private sector organisations
Public sector organisations
Non-profit organisations
Social Enterprises
Issues with different forms of business include:
Unlimited and limited liability
Ordinary share capital
Market capitalisation
Dividends
The role of shareholders and why they invest
Influences on share price and the significance of share price changes
The effects of ownership on mission and objectives

1. 3.1.2 Understanding different business forms

2. Retrieval quiz: questions from previous units Give a definition of Fixed Costs Name three examples of Variable Costs State the basic profit formula Why do businesses exist? Describe the relationship between mission and objective Give an example of a company with a social objective Give an example of an ethical company

3. Answers to retrieval quiz Fixed costs are those that do not vary with output Variable cost examples; raw materials, packaging, stock Basic profit formula is P= TR -TC Businesses exist because an entrepreneur wanted to take a risk in the hope of a reward Mission is a general statement of the vision of the business and the objectives are a series of smaller goals that work towards the mission The Big Issue is an example of a company with a social objective Kellogg’s is an example of an ethical company

4. You will need worksheet 3.1.2 for this topic

5. Lesson objectives NEW spec Reasons for choosing different forms of business and for changing business form Different forms of business: Sole traders Private limited companies Public limited companies Private sector organisations Public sector organisations Non-profit organisations Social Enterprises Issues with different forms of business include: Unlimited and limited liability Ordinary share capital Market capitalisation Dividends The role of shareholders and why they invest Influences on share price and the significance of share price changes The effects of ownership on mission and objectives

6. Starter – public or private sector? Teacher Nurse Environmental Health O fficer Doctor School Crossing Patrol Care workers Social workers Cleaners

7. Different forms of business

8. Definition: Business forms A business form is the legal structure (in the UK). It could be a sole trader, a partnership, a private limited company (Ltd) or a public limited company (PLC). Most (but not all) businesses in the UK are a private limited company or Ltd; this is so that shares can be sold to friends and family of the owners in order to raise money to expand AND they get the added benefit of limited liability (next slide).

9. Definition: Limited liability Limited liability means that the owner of the business has no personal liability for business debts. The owner has a separate legal identity from the business and is NOT liable for payment of the debts from their own personal funds.

10. Definition: Unlimited liability If a business gains debts, goes bust or is sued this could be a problem for the owner If there is no money in the business then the owner would need to pay using their own savings or finances, they may even have to re-mortgage their home or even sell their car to pay the debts This is unlimited liability 5 minutes 26 seconds - business different kinds of companies LTDs and PLCs

11. Sole trader Business owned by one owner, but they can take on employees or managers to run their business Also known as a sole proprietor They have full control over decision making in a business Mostly small businesses e.g. plumber Has the disadvantage of unlimited liability Video: 4 minutes 43 seconds – What is it like being a sole trader?

12. Sole trader benefits and drawbacks B enefits Easy to set up with no complicated forms Make decisions quickly Less capital needed All profits kept by the owner Can offer personal attention to customers Don’t have to make any information about the company public Drawbacks Unlimited liability, this means that if the business has financial difficulties the sole trader could lose their own assets like their savings, house or car Difficult to raise money, seen as a risk by lenders Don’t have economies of scale (buying in bulk)

13. Suggested activity - Sole trader Make a list of possible sole trader jobs and professions Share these with another pair until your class builds up a large list How many of these types of businesses would be in trouble if they remained a limited liability company? Sole trader job: Florist

14. Private limited company (Ltd) A Private Limited Company is the most popular form of business in the UK A Private Limited Company is also known as a Ltd Private limited companies can expand and grow by selling more shares, giving the business more capital Friends and family can buy shares in the business; this will make them part owners Shares cannot be bought by the public Private Limited Company owners have full control of who buys the shares

15. Suggested activity: Private Limited Companies Private limited companies tend to be trades where having limited liability is critical For example, a scaffolding company could be worried about a pole falling on the head of someone underneath and being sued. Limited liability gives the owners some protection over their personal finances Carry out some research and find 5 Ltd businesses in your local area. Use check-a-trade and yell.com

16. Private Limited Company benefits and drawbacks Benefits Limited liability Can raise extra capital by selling more shares, to friends and family, making it easier to expand Can employ managers to run the business if the owners don’t want to do it themselves The business has its own legal status – separate from the shareholders Drawbacks Accounts of the company cannot be kept private Audited each year Copy sent to Registrar of Companies Available for public to see More difficult and expensive to set up, means more administration Cannot sell shares on stock exchange, which limits the amount of capital that it can raise

17. Public limited companies (PLC) Public Limited Companies are known as PLCs If a company grows and needs further investment, which it cannot get from its current shareholders, it may consider becoming a PLC To become a PLC it will need to ‘float’ shares on the stock exchange making them available for the public to buy This is an expensive and time consuming process used by large companies such as Tesco What is the main difference between a Ltd and a PLC?

18. PLC benefits and drawbacks Benefits Limited liability shareholders are not responsible for the company’s debts Can sell shares to the public to raise capital to expand and grow the business Shares can be traded on the stock market Banks and investors more likely to lend more cash Drawbacks Going public is expensive Lawyers to draw up legal paperwork Publications Advertising and admin Company must have £50,000 in share capital

19. Public sector o rganisations All public sector organisations are owned by the UK government Taxes paid by UK citizens and businesses all go towards paying for public sector organisations According to ONS* around 5.2 million people in the UK are employed in the public sector Tick the jobs in the public sector Teacher Social worker Police Officer Armed Forces Probation Officers Prison Officers Doctors Nurses

20. Public Vs Private business forms Public Private Objectives Serve the UK public Survive, profit maximisation, growth, dividends for shareholders Role of government Full control Only interested in taxation and adhering to UK laws such as National Minimum Wage Revenue and income Forms part of the government spending budget Income from trading with customers, sales revenue Competitive nature Employee job security Use these four words to fill in the grid: weaker, stronger, higher, lower

21. Non-profit organisations This is a business which has a social objective at its heart and puts all retained profits into helping the cause, rather than distributing dividends to shareholders These are usually run by a network of volunteers, donors and the local community Non-profits are not driven by generating profit, instead, they look for income to achieve their social objective e.g. Keep Britain Tidy VIDEO

22. Social enterprises Social enterprises are businesses which trade for a social or environmental purpose There are more than 100,000 social enterprises in the UK, contributing £60 billion to the economy and employing around two million people* The objectives of a social enterprise are to benefit society or the planet in some way

23. Reasons for choosing different forms of business and for changing business form

24. Influences on business form The type of business chosen may depend on many factors including: The objectives of the business How the business is financed What products and services they are offering For example, if you want to sell second hand or vintage clothing on eBay you would not become a PLC, you would start as a sole trader

25. Reasons for choosing different forms of business An entrepreneur decides to start selling hats and sunglasses at festivals and other outdoor events They could be a sole trader which is simple to set up and they could be trading the same day Other businesses, such as a scaffolding firm, will need the protection of limited liability so will need to be at least a Ltd company to get the legal protection of limited liability Why would a scaffolding firm need to have the protection of limited liability?

26. Reasons for changing business form As a business grows and expands it will need more finance A sole trader may wish to expand and will become a Ltd company to offer shares to family and friends and to get the benefit of limited liability A Ltd company may wish to further expand and so will float on the stock market and become a PLC to attract investment from the general public

27. Growth of a business Sole trader Limited company (Ltd) Public Limited Company (PLC) Use the words investment, shareholders, growth, expansion and limited liability to explain how a business might grow

28. Issues with different forms of business

29. Unlimited and limited liability Unlimited liability Sole traders and some partnerships* Owners have full responsibility for the debts of the business If the business has debts or is sued, the owners may lose their own savings or possessions to pay the debts or fines Limited liability Ltd or PLC The shareholders’ liability for paying back debt is limited to the amount of their investment If the business accrues debt the owners will not have to sell their own possessions to pay The business is a separate legal entity from the owners

30. Ordinary share capital Ordinary shares provide investors with voting rights (one vote per share) and represent proportionate ownership of a company Ordinary stock shareholders receive fluctuating dividend payments depending on a company’s performance Ordinary stock shareholders receive their dividend payment after preferred stock shareholders Video: 1 minute 21 seconds Ordinary Shares on the Investopedia page

31. Market capitalisation Market capitalisation is the total value of the company or the total value of the shares in the company Market capitalisation is also known as market cap This is calculated by taking current share prices and multiplying them by the number of shares issued Market cap can go up or down depending on the performance of the company It is one way to measure the size of a company

32. Dividends If an investor owns shares in a business, and that business makes a profit, then they can expect to be paid a dividend This may be paid 3 times a year (every quarter) or once a year This is like a reward for continuing to invest in the business, if shares are sold they will no longer be eligible for dividends

33. The role of shareholders and why they invest

34. The role of shareholders The shareholders are the owners of the company and provide financial backing in return for potential dividends Shareholders may have to make some decisions and approve the company accounts before publication Shareholder decisions will be made at general meetings

35. Why shareholders invest Shareholders may invest in a company in the hope of a return on their capital investment, which is better than a bank savings account Shareholders can be paid dividends on their investment several times a year (if the company performs well and is profitable) The shareholder may also benefit if the value of the shares rise; this is their capital gain

36. Influences on share price and the significance of share price changes

37. Influences on share prices Share prices can go down as well as up, and may be affected by a number of factors, including: Supply and demand in the market Interest rates Political climate Management of the company Announcement of a merger Development of new products Check the London Stock exchange prices this morning (Click graphic to go to website). What are the top risers today?

38. The effects of ownership on mission and objectives

39. Mission / Objectives Sole trader To be their own boss, to have work-life balance, to make and keep the profits, for the owner to do something they love Private Limited Company (Ltd) To maximise profitability Public Limited Company ( PLC) Public Sector organisations Private sector organisations Non-profit organisations Complete the table

40. Mission / Objectives Sole trader To be their own boss, to have work-life balance, to make and keep the profits, for the owner to do something they love Private Limited Company (Ltd) To maximise profitability Public Limited Company ( PLC) To provide a return on investment for the shareholders Public Sector organisations To serve the public Private sector organisations To make a profit for the owners or shareholders Non-profit organisations To help society or the planet in some way

41. 1) Does a sole trader have limited or unlimited liability? 2) What is another name for market capitalisation? 3) What is paid out to shareholders several times a year, if the business makes a profit? 4) What type of business form would a Ltd consider becoming if it wants to attract more investment to expand?

42. Unlimited Market Cap Dividends PLC

43. Case study for sample question 1

44. Sample question 1 L1 1-2 L2 3-4 L3 5

45. Answer question 1

46. Case study for sample question 2

47. Sample question 2 L1 1-2 L2 3-4 L3 5-6

48. Answer question 2

49. Sample question 3

50. Answer question 3 Answer is B

51. Case study for sample question 4

52. Sample question 4

53. Answer question 4

54. Sole trader ; A person who is the only owner of the business Ltd ; Ltd stands for private limited company PLC ; PLC stands for public limited company Non-profit ; A business which trades without the aim of making a profit , it may be for educational, religious or scientific reasons Unlimited liability ; The owner and the business are the same legal entity, meaning that if they are sued that the owner may have to sell their own possessions to pay any legal fees Market capitalisation ; The value of a business that is traded on the stock market, calculated by: the total number of shares x current share price Dividends ; A sum of money paid by a business to its shareholders