MERRYLAND INTERNATIONAL SCHOOL
BUSINESS STUDIES Grade 8 Notes
Chapter 4 -TYPES OF BUSINESS ORGANISATIONS
1. What is an Unincorporated Business?
Business and owners are legally the same entity.
Owners have unlimited liability — personal assets can be used to pay off debts.
Sole Traders and Partnerships are unincorporated.
Example: If a sole trader’s café goes bankrupt with $50,000 debt, the owner might have to sell personal
belongings to pay it.
2. What is a Limited Company (Incorporated Business)?
Businesses that are legally separate from their owners.
Owners are called shareholders.
Limited liability: Shareholders risk only the amount they invested.
3. Which are the types of Limited Companies?
Private Limited Company (Ltd)
Public Limited Company (PLC)
4. What are the common features of public ltd and private ltd companies?
Must complete legal documents: Both public limited companies (plc) and private limited companies (ltd)
must prepare and submit important legal documents. These documents set out the company's rules and
structure.
Shareholders invest by buying shares: In both types of companies, individuals (or other companies)
become owners by buying shares. Shareholders provide capital (money) in return for a share of ownership
in the business.
Business continues even after a shareholder’s death: If a shareholder dies or sell shares, the company
continues operating as normal. Ownership simply transfers to the new shareholders. The company's
existence is not tied to any one individual.
Profits are shared via dividends: After a company earns profits, some of those profits are shared with its
shareholders. This payout is called dividend.
Financial accounts must be published and submitted for public viewing: Both public and private
limited companies must produce financial statements (like income statements and balance sheets) and
submit them to the relevant authorities.
5. Differences between Private and Public limited companies.
Aspect Private Limited Company (Ltd) Public Limited Company (PLC)
Ownership Few shareholders (often family & Thousands of shareholders
friends)
Size Smaller businesses Very large companies
Sale of shares Sold privately, harder to sell Sold openly to the public
Control Easy to keep control (the owner can Control separated; Board of Directors manages
own 51%)
Raising Harder to raise large capital Easier to raise large amounts through public
capital sale of shares
Borrowing Hard to secure loans (few assets) Easier, better interest rates (strong reputation)
6. What are the disadvantages of Public Limited Companies?
High costs and complexity to set up: Setting up a public limited company is expensive and complicated.
There are lots of legal requirements, fees for advisors (like lawyers and accountants), and costs for things
like issuing shares to the public. It takes time and expert help to get everything right.
Decision-making can be influenced by powerful shareholders: Large shareholders (who own a lot of
shares) can have a big say in how the company is run. Sometimes, their interests might not match what’s
best for the business or shareholders with few shares.
Risk of takeovers (buying 51% of shares): Since anyone can buy shares on the stock market, if a person
or rival company buys more than 50% of the shares, they can take control of the business. This can happen
even if the existing management doesn’t want it.
Strict financial reporting rules: Public limited companies must follow very detailed and strict rules for
publishing financial information. They have to be transparent about their earnings, spending, and company
performance — which can be costly, time-consuming, and might expose sensitive business strategies to
competitors.
7. What is a franchise?
Franchise is an agreement where a business (franchisee) uses another company’s (franchisor) brand,
product, and operating system. Example: McDonald's, KFC, and Hilton Hotels use franchising
worldwide.
8. What are the benefits of a franchise business?
Lower risk of failure (well-known brand):
Opening a franchise involves using an established brand that is already recognized and trusted by
customers. This significantly increases the chances of success compared to launching a completely new
and unknown business.
Franchisor provides advice and training:
The franchisor offers expert guidance and training on various aspects such as daily operations, customer
service, and financial management. This support is especially helpful for those with limited business
experience.
National advertising handled by franchisor:
Large-scale marketing efforts, including TV commercials and social media campaigns, are typically
organized and funded by the franchisor. The franchise benefits from extensive advertising exposure
without bearing the planning or financial burden.
Trusted suppliers are pre-selected:
Reliable suppliers for products, equipment, and materials are already chosen by the franchisor. This saves
time and often results in cost savings due to bulk purchasing agreements.
9. What are the limitations of a franchise business?
High initial cost:
Purchasing a franchise often requires a substantial upfront investment. This includes a fee for the right to
use the brand name, along with expenses for equipment, initial stock, and store setup.
Franchisor takes a percentage of profits:
Even after the business becomes profitable, a portion of the revenue must be paid regularly to the
franchisor as a royalty fee. This reduces the amount of profit retained by the franchisee.
Strict control over operations (product, pricing, layout):
Franchisees are required to follow the franchisor’s rules and guidelines. Decisions regarding product
selection, pricing, and store or restaurant layout are typically made by the franchisor, limiting flexibility
and creative freedom.
10. What is Joint Venture?
Joint Venture is when two or more businesses create a new, shared business venture for a specific project.
Example: Sony Ericsson — Sony’s electronics + Ericsson’s telecom tech, Virgin Mobile & Tata Group —
entered Indian mobile market together.
11. What are the advantages of joint ventures?
Shared risks and costs: In a joint venture, two or more businesses work together, so they split the
financial costs and risks. If things go wrong, no single company takes the full loss — making it safer for
everyone involved.
Different strengths/expertise combined: Each business brings its own skills, technology, and experience
to the success of the project. By combining their strengths, they can achieve more than they could
individually.
Shared market knowledge: joint venture businesses can share valuable information about the local
market, customer needs, and business practices. This is especially useful when entering a new country or
industry.
12. What are the limitations of joint ventures?
Mistakes can damage all partners' reputations: If one partner makes a mistake — like poor customer
service, legal issues, or product failures — it can harm the reputation of all the businesses involved, even if
they weren’t directly responsible.
Possible conflicts due to different business cultures: Businesses from different backgrounds may have
different ways of working (e.g., decision-making style, communication, leadership). These differences can
lead to misunderstandings, disagreements, and conflicts, making the partnership difficult to manage.
13. What are the factors to consider while choosing the type of business organization?
Number of owners:
The number of owners involved in a business will influence the type of organization selected. For example:
Sole Proprietorship: One owner.
Partnership: Two or more owners.
Limited Company: Can have many shareholders.
A greater number of owners often leads to a more complex business structure.
Owners’ involvement:
The preferred level of owner involvement in daily operations impacts the choice of organization:
Sole Proprietorship or Partnership: Owners have more direct control and daily involvement.
Limited Company: Owner involvement may be less direct, especially when shareholders and a Board of
Directors are present.
Attitude to financial risk:
Different structures involve varying levels of financial risk:
Sole Proprietorship/Partnership: Owners have unlimited liability, risking personal assets if the business fails.
Limited Company (Ltd or Plc): Liability is limited to the amount invested, protecting personal assets from
business debts.
Speed of setup:
The ease and speed of starting the business vary by type.
Sole Proprietorship: Very quick and simple to establish.
Partnership: relatively fast but requires an agreement between partners.
Limited Company: Involves more time and administrative requirements, such as official registration.
Growth potential:
The chosen business structure affects expansion opportunities:
Sole Proprietorship: Limited growth potential due to financial and personal constraints.
Partnership: Offers more growth opportunities but still limited by partners’ resources.
Limited Company: Provides the greatest potential for growth, particularly through raising funds by issuing
shares.
14. What is a public corporation?
Public Corporation is a business entity owned and controlled by the government (public sector).
15. What are the features of a public corporation?
Funded mainly by taxes:
Public corporations are funded through government taxes, not through private investors or sales of
products/services. The government collects tax from the public and allocates it to these organizations to
provide various public services.
Aim for social objectives (not just profit):
Unlike private companies that primarily focus on making profits, public corporations have a social mission.
Their main goals are to provide public services or benefits (e.g., health, education, transportation) rather
than to maximize financial returns.
Services often free or cheap to the public:
Because public corporations are funded by taxes, their services are often either free or offered at very low
costs to the public. For example, public libraries, public healthcare, or public transport systems may be
available with little or no charge to the users.
