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Explain the main differences between the types of organization that work in the wider UK construction sector. Discuss the relative advantages and disadvantages of each type of organization in minimizing the average total cost of production.

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Zeshan Hafiz Khan

151BE Economics and Communications

Organizations in the wider construction sector

Explain the main differences between the types of organization that work in the wider UK construction sector. Discuss the relative advantages and disadvantages of each type of organization in minimizing the average total cost of production.

In the wider UK construction sector there are four different types of organizations, Sole traders, Partnerships, Limited Liability Company and limited liability partnership. All types of organizations differ in ways of their own, choosing the right type of organization type you would need to look into all sorts of factors such as what type of business you are running, how many people you employ, how big the company is etc.

Each type of organization types has its advantages and disadvantages in minimizing the average total cost of the production.

Sole trader organization:

The sole trader organization is whereby a single individual runs a business on his/her own. Sole traders can put in very vulnerable financial position, if a company is doing well all the profits do head towards one person however if a company is not doing so well all the losses would head towards that one person.

A company with a sole trader type of organization is considered to the easiest and simplest to be set up. Examples of sole traders in the construction industry can be plumber, bricklayers, plasters etc.

Sole trader organization Advantages;

- Sole trader organization are very personal, the owner will have personal contact with customers. This would allow the owner to create an impression the way he/she would like to create it; it would also allow the owner to control the finance and negotiations.

- Being a sole trader would mean the one owner will be to make all the decisions and would not need permission for anyone else.

- The owner would be able to keep 100% of the profits made, this is one of the main reasons this type of organization is so popular.

- Opening up a company with a sole trader organization is very simple and straight forward, meaning it would be the easiest option for an individual.  

Sole trader organization Disadvantages;

- Sole traders would have unlimited liability, meaning the owner will always have a risk of losing everything if the owner was not able to pay of any depth.

- Sole trader organizations mean the owner would have full responsibility; this can be very difficult for one person as decision would need to be made in all areas such as buying, selling, advertising etc. These decision can be very vital meaning the decision would need to be right, it is very difficult to find one person who is an expert in all areas.

Any bad decisions would be at the owners fault and the owner would need to take full responsibility.

Partnership organization:

A company with a partner ship organization would consist between 2 to 20 members. Before the company starts a partnership agreement need to be signed by the entire member within the organization. The partnership agreement would state how much of the profits are split, what is each persons main area, how the business is run etc.

Partnership organizations would be within common profession services such as architects, surveyors, estate agents etc.

Partnership organizations allow their to be a variety of people with a variety of skill who can have an impact in their own expertise area. Meaning that there is always more than one person in control would mean all the member of the organization would have a say and the responsibility would not fall on the one person but all the partners.

Partnership organization advantages;

- More than one person own the company would mean that there would be different kinds of people who can bring different types of skills to the company.  

- More partners would mean there would be more money available for the business to invest and expand.

- When making crucial decision within a partnership organization all the members of the agreement would be involved and have their say. More members would allow there to be different ideas and opinions. If the final decision cannot be accepted by all member it would mean their would need to be a majority vote.  

Partnership Organization disadvantages;

- As within partners of a firm their can be disagreements in decision making, the more partners you have the more likely you are to have disagreements. These disagreements can make the business suffer.

- Partnerships have unlimited liability, this is where all partners can lose everything if the company enter bankruptcy, however it can be possible to have limited partnership this is when some partners have limited liability. These partners can also be considered as sleeping partner, they still pay money into the business in return of ownership and a percentage of the profits. However these types of partners do not play a physical part within the business.

Limited liability organization

Limited liability organizations also known as limited companies are companies that sell shares to investors to raise money.

There are two types of limited companies the Private Limited Company (Ltd) and the Public Limited Company (plc).

Private Limited Company

Private limited companies are owned by the people who own the shares within the company, shares within private limited companies are not available to the general public. Private limited companies are usually small businesses.

Advantages of a Private Limited Company

- Within a private limited company the share holders have limited liability; limited liability is whereby the owner is the only one responsible for any repayment of debts.

- Shareholders would not need to worry about doing any physical action to control the business. Share holders can instead pass on their responsibilities to directors who are managing the business on their behalf.  

Disadvantages of a private limited company

- By law all companies are required (Under the companies Act of 1981) to publish detailed records of their revenues, spendings, profits so shareholders within the company cane see how well or not so well the company is doing.

- Limited companies mush have a annual general meeting of shareholders each year, so share holders can address issue which would need to be addressed.

- The companies’ profits would be taxed twice, some of the profits are paid to the government as normal tax, and the money left over would be used to pay dividends to its share holders. Once the share holders receive the money they would need to give a percentage to the government as tax.

- Private limited companies cannot sell shares on the stock exchange market.

Public limited company

Public limited companies are also owned by share holder however the shares can be bought by the general public unlike private limited company shares.

Public limited companies are usually very large companies with very high share prices.  

Advantages of public limited companies

- Shares can be sold on the stock exchange to the general public. As these shares are public far more shares can be bought and much more capital can be raised.

- Shares can be advertised in media, allowing the demand of the shares to increase and allowing the price to increase.

Disadvantages of public limited companies

- Opening a plc can be heavily expensive, many documents would need to be required and advertisement of shares would be needed.

- The original owners can lose control of the company, the owners can be voted out by other shareholders.

- As plc companies become larger it becomes much harder to control as more people would be employed meaning more people will need to be consulted. As the company gets larges decision may be slowed down and disagreement can occur.

Limited Liability Partnership

This is a normal partnership however all the partners limited liability

Advantages of limited liability partnership

Shareholders have limited liability

Shareholders have no management worries

The company has a sperate legal Identity

Disadvantages of limited liability partnership

limited companies must disclose information about themselves to the general public

original owners may lose contl

AGM meeting

Company profits are taxed twice

Private limited companies cannot sell shares on the stock market

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