Ownership

1. Ownership Business Management Higher

2. Types of business organisation Organisations fall into 3 different categories: Private Sector Public Sector Voluntary

3. Private Sector • Private sector plays an important role • creates goods and services • employs millions of people • varies in size from Shell and Vodafone to corner shops • driving force for change and improvement

4. Sole Trader Most common form of business ownership: • no complicated legal requirements • decisions can be made quickly • close contact with customers and employees • all profits retained/high satisfaction

5. Sole Trader Some disadvantages: • all decisions are made by owner • long hours • unlimited liability • sourcing finance

6. Partnership • 2-20 people in a partnership • partners can share skills/knowledge • organisation could provide 24/7 service • easier to raise finance

7. Partnership Some disadvantages • disputes • unlimited liability (except sleeping partner) • difficult to raise large amount of capital • decision making process is slower

8. Partnership Deed Legally binding agreement covers share of profits, salary, drawings, duties and responsibilities, cessation of partnership, death of partner.

9. Ownership – Question…… • Explain the advantages and disadvantages of being a sole trader.(6) • Distinguish between operating as a sole trader and a partnership. (4)

10. Solution – Distinguish between operating as a sole trader and a partnership. • A sole trader is run by one person whereas a partnership is run by 2 – 20. 2 marks • A sole trader is able to make quick decisions whereas in a partnership decision making is slower as all partners are consulted. 2 marks • A partnership can raise more capital than a sole trader as all the partners introduce capital. 2 marks • A sole trader may work longer hours whereas in a partnership the workload is shared. (2 marks) • It may be possible to trade 24/7 whereas this would be impossible in a sole trader. (2 marks)

11. A Limited Company • owned by shareholders - shareholders unlikely to run the company • Profits shared in the form of dividends • shareholders have limited liability • company has to be registered with Companies House • Articles of Association and Memorandum of Association must be provided

12. Private Limited company (Ltd) • Usually small • shareholders 2+ • shares not traded on Stock Exchange • Shareholders are “invited” - may be family or friends • may find it easier to raise finance • limited liability organisations

13. Public Limited company (plc) • shares bought and sold in stock exchange • large amounts of capital can be raised quickly • costly to have shares quoted on SE • may not raise all capital required if SE has a bad day • original shareholders can lose control

14. Task • Compare the private limited company with a public limited company. 4 marks • Describe two benefits and two disadvantages of being a shareholder in a limited company. 4 marks

15. MULTI-NATIONALS • A MNC is a business which owns or controls production or service facilities outside the country in which it is based. • This means that they do not just export their products, but make them abroad. • Usually have interests in at least 4 countries, but most operate in more than this

16. Examples Ford British American Tobacco Volkswagen Matsui Unilever The biggest: Exxon (Esso) General Motors Royal Dutch Shell These companies have a turnover in excess of the GNPs of most countries. Some MNCs

17. Multinational companies have branches called ‘subsidiaries’ in more than one country; Many have sales ‘outlets’ in various countries; A MNC must have production facilities in more than one country. Some facts about MNCs

18. MNCs in Scotland • Electronics industry – in central belt of Scotland eg Hewlett Packard, Polaroid; • Oil Industry – in the northeast, multinationals like Shell and BP Amoco

19. Reasons for Establishing MNCs • To increase market share; • To secure cheaper premises and labour; • Employment and Health & Satfey Legislation in other countries may be more relaxed • To avoid or minimise the amount of tax to be paid; • To take advantage of government grants available; • To save on costs of transporting goods to the market place; • To avoid trade barriers like the EU Common External Tariff; • To develop an international brand

20. To avoid protectionist policies By producing within a country, a company can avoid tariffs and import controls. Japanese car companies who produce in the UK can export to other EU countries without having additional charges or limits placed upon them. The Globalisation of markets Many people believe that national boundaries are no longer important for firms Communication and travel are increasingly faster and make the world seem smaller. MNCs who are global in outlook can take advantage of this so-called ‘global village’ REASONS FOR BEING A MNC

21. Advantages of MNCs to the Host Country • They bring new jobs to an area; • Often at the forefront of new technology and can bring this to another country; • Often more efficient than local companies; • They can lead to the introduction of new management techniques; • Often export their output therefore help the Balance of Payments; • They can lead to new businesses being set up locally once people have learned new skills.

22. Disadvantages of MNCs • They are very powerful and can influence the government of a country; • Local employment can be dependent on one large employer; • They may use up natural resources which may not be renewable; • They can force local firms out of business; • The profit they make goes back to the ‘home’ country; • They can be ‘footloose’ and may move to another country if better incentives offered.

23. MNCs and Social responsibility • Often criticised for their marketing techniques, eg Nestle and baby milk; Marlboro targeting children • Safety issues, eg factories in a host country have lower standards than allowed in base country eg India • Impact on the environment, eg rainforests being destroyed • However they may offer higher wages than local organisations and they have the power, money and knowledge to help preserve the environment if they choose.

24. Government control • Some people feel that MNCs have too much influence over governments. • In some countries MNCs avoid paying tax. • Some MNCs exert power on politicians and decisions and policies may be shaped to suit them.

25. Worksheet • Outline reasons for establishing MNCs. (4) • Identify the features of a multi-national company? (2) • Explain the possible advantages and disadvantages to the host country of a MNC operating there? (6) • Outline how Aberdeen has benefited from North Sea Oil. (3) • Explain the disadvantages to Aberdeen of MNCs operating there? (3)