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Types of business ownership, starting a business, multinationals.

Extracts from this document...

Introduction

Business Organisations * Land, labour & capital on their own do not produce G & S * Resources need to be organised & decisions need to be taken to manage & control the resources from day to day i.e. an entrepreneur is needed Entrepreneur: * The person who makes decisions, organises resources & owns the business * Choose which type of business to open * Each type allows him to organise, manage, control the business & raise money in a different way * Example: small firm controlled & financed differently than a large firm The Aims of Business Organisations: 1. Provide an efficient G or S available to everyone Public sector businesses provide G & S, eg) health & education i. Everyone ii. Best quality iii. Lowest prices or free 2. Maximise profits Increase profits, reduce expenses 3. Survive Large competition - try to keep operating to keep their profits 4. Expand & increase sales If a firm increases sales i. Growing larger ii. More profits iii. Becoming more competitive Types of Business Organisations * In a mixed economy: i. Private sector Private individuals or groups of private individuals own businesses - profit - no government intervention ii. Public sector Government owns businesses - no aim for profit - G or S essential for everyday life Business Organisations Private Sector Public Sector Sole Trader Partnerships Private Limited Companies Public Limited Companies Franchise Co-operatives Public Corporations Local Authority Enterprise Government Departments Starting a business Question 1: Will I have enough money? * Very costly * Capital: money put into the business o Capital Goods, eg) machinery & buildings o Fixed Capital - money spent on capital goods o Working Capital - money used to run the business from day to day, eg) pay wages, electricity, telephone * Some businesses need more capital than others o If the entrepreneur has enough money - sole trader o Not enough money - more than one owner - partnership o Still not enough money - thousands of owners - Private or Public Limited Company Question 2: Can I manage the business alone? ...read more.

Middle

The company has a separate legal identity Company & its owners - separate persons i.e. if the company owes money, the name of the company can be sued & not the owners; company forced to pay its debts, but not the owners Disadvantages of a Private Limited Company: 1. The printing of the annual accounts can be very expensive Writing, printing & postage of the annual accounts to all shareholders - expensive 2. Private Limited Companies must hold an AGM of shareholders each year i. AGM's are expensive to set up ii. Original owners of the company lose control 3. The original owners of the company may lose control 4. Company profits are taxed twice by the government i. Company makes profit - some given as tax ii. After-tax profits to pay dividends iii. Shareholders receive money - pay some of it as tax 5. Private Limited Companies cannot sell shares on the Stock Exchange Market Private Limited Companies sell their shares privately Sell many more shares & raise far more money on the Stock Exchange i.e. restricted to be small to medium sized companies Public Limited Companies * Largest & some of the most successful firms in Malta & in the world * Examples: HSBC plc, Middle Sea Insurance plc, Gasan & Mamo plc etc. * Minimum two shareholders * Main Advantage: offer their shares for sale on the Stock Exchange, Valletta - can be sold to any member of the general public incl. worldwide market i.e. attract money from investors all over the world Advantages of Public Limited Companies: Plc's have the advantages of Private Limited Companies, but two important additional advantages: 1. Public Limited Companies can sell shares on the Stock Exchange Able to sell its shares in the Stock Exchange i.e. raise far more finance than Private Limited Companies 2. Public Limited Companies can advertise their shares Plc's attract shareholders by placing advertisements - raise more money Disadvantages of Public Limited Companies: Plc's share some of the disadvantages of Ltd's & additional disadvantages 1. ...read more.

Conclusion

Multinationals can achieve great economies of scale Massive production lines producing millions of goods i.e. lower the average cost of producing each good below the average costs of companies making fewer goods 5. Multinationals have less chance of going bankrupt than smaller companies Produce a wide variety of goods; if demand for one product falls they have other products they can fall back on. Selling to a large number of countries reduces the risk of one country reducing its demand for the products of the company: risk-bearing economies of scale 6. Multinationals can carry out a lot of research & developments Spend large amounts of money on research & development to develop new products & be ahead of competing firms Disadvantages of being a multinational: 1. Multinationals move their factories to wherever it is profitable to produce Example: higher taxes on profit in Malta than in Korea i.e. close the Maltese factory & open in Korea i.e. workers - little control over their jobs. Govts want multinationals in their country when experiencing high unemployment - lower taxes on profits etc. - encourage multinationals to stay. Govts compete with each other - allows such companies to force competing countries to give them more favourable treatment 2. Multinationals may switch their profits between countries Transfer profits - countries with high taxes to those with low taxes Avoid paying any taxes to their host nation - happens in less developed countries - lack the ability to collect taxes - poor tax service & legal framework 3. They may force competing firms out of business Unemployment rises: size & wealth allow them to force smaller firms to go bankrupt & shut down 4. Some multinationals may exploit workers Locate in countries where labour is cheap - pay workers far less than a worker in a developed country i.e. wage costs low 5. Some multinationals may interfere in the government of the country Use subversive & illegal activities - influence the govt to promote & protect their own interests ?? ?? ?? ?? Gilbert Darmanin Business Organisations Short Notes 1 of 14 ...read more.

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