2003. 09. 11.

jegyzetek.hu

NYV0011F

Krlek ne felejtsd el, hogy az anyagban elfordulhatnak hibk, trgyi tvedsek. Ha ilyet talltl, krlek jelezd neknk.
J tanulst kvn a jegyzetek.hu csapata!

Types of business
There are 2 main sectors in the economy: the private and the public sector. The 4 main types of
businesses in the private sector are:

Sole traders (also called private proprietorship)

Partnership

Private limited companies (Ltd.)

Public limited companies (Plc.) or Incorporated (USA)

There are also special forms of enterprises in the private sector:

Co-operative societies

Holding companies

In the public sector there are public enterprises which are run by central or local government.
The 2 main types are:

Municipal undertakings

State undertakings

Before starting to examine the types one by one there is need to define the terms unlimited
liability and limited liability.
Unlimited liability: in case of a bankruptcy the personal possessions of the owner(s) of the firm
can be used to pay the debts owed.
Limited liability: the liability of the shareholders is limited in the amount they have invested in
the business. Their personal possessions cannot be taken to pay the debts owed.
Lets see the different types of businesses and their features!

Sole trader (private proprietorship)

The private proprietorship is owned by one person. This person provides all the capital to form
and run the business. This type is very simple and is the most common type of business.
Advantages

Only a small amount of capital needed

No sharing profits

No consulting partners before making a decision

Maximal oversight in business matters

Disadvantages

Unlimited liability

Shortages of capital (may be)

Cannot raise money from the public (difficult to borrow money)

Shortage of view-points by making decisions

When the owner is absent it is difficult to continue business

http://www.jegyzetek.hu/

2003. 09. 11.

jegyzetek.hu

NYV0011F

Krlek ne felejtsd el, hogy az anyagban elfordulhatnak hibk, trgyi tvedsek. Ha ilyet talltl, krlek jelezd neknk.
J tanulst kvn a jegyzetek.hu csapata!

Partnership
2 to 20 members can form a partnership. Basically the partnership has unlimited liability, but it
is possible to set up a limited partnership, but in this case minimum one of the partners must be
unlimited liable.
Advantages

Only small amount of capital needed

There are more people providing capital

Responsibility and liability are shared

There are more viewpoints by making decisions

Disadvantages

Unlimited liability

Membership is limited (maximal 20 people)

Possible conflicts by decision making may cause inefficient operation

Private limited company (Ltd)

2 to an unlimited number of persons can form an Ltd. It is also called a Joint Stock Company
because the capital needed to set up the company is divided into shares. Each share represents a certain
proportion of the capital. The shares cannot be traded on the SE (Stock Exchange).
Advantages

Membership is not limited, so more people can contribute the capital needed

Limited liability
Disadvantages

Shares cannot be offered for public sale

Public limited company (Plc)

2 to an unlimited number of shareholders can set up a Plc. The shares of the company represent
a certain proportion of the capital, just like by the Ltd. The shares entitle the shareholders to a
proportion of the companys profit and some other rights like which are up to the type of the share.
The owner of the share is called shareholder. The shares of a Public limited company are allowed to be
traded on the SE, and because of this they are (sometimes) subject to speculation.
Company policy is decided by the board of directors elected by the shareholders. There is also
a chairman elected who regulates board meetings.
Advantages

Limited liability

Easy to raise capital (even in large sums)

Easy to borrow money

Economies of scale
Disadvantages

Large amount of money needed for setting up the company

http://www.jegyzetek.hu/

2003. 09. 11.

jegyzetek.hu

NYV0011F

Krlek ne felejtsd el, hogy az anyagban elfordulhatnak hibk, trgyi tvedsek. Ha ilyet talltl, krlek jelezd neknk.
J tanulst kvn a jegyzetek.hu csapata!

Annual accounts are open to public inspection

Municipal undertakings
Municipal undertakings are businesses, which are run by local authorities and are financed by
local rates and charges made for the use of the service.

State undertakings
State undertakings are businesses run by the government on behalf of the public. They are all
legal entities separate from the government. Usually they provide commercial or industrial functions.
These were the types of businesses. It might be useful to think over the terms related with
company structure, company founding, changing ownership and bankruptcy. Topics concerning
special business relationships might also emerge when you are taking the exam, so lets go through
them:

Franchising
Franchising is an agreement between the franchiser and the franchisee. The franchisee pays a
sum certain in money to the franchiser. In return for the franchising fee the franchiser provides the
products or techniques (or both) needed to run the franchisees company. By paying the franchising fee
the franchisee obtains also the right to operate under the trade name of the franchiser getting so a ready
made business opportunity. The best example for franchising is McDonalds.

Holing companies
Companies can form a temporary or permanent combination in order to achieve a certain aim
(for example to bring together several separate processes into one production unit) . The members of
the holding retain their legal entity.

Co-operatives
Small units of agriculture or manufacturing combine together in order of sharing labour and
enjoying the benefits of economies of scale and buying in bulk.
And finally, here are some terms related to the founding of a company:

Memorandum of Association: It is called Certificate of Incorporation in the US. It states

the companys name, purpose, the authorized share capital, registered premises etc.

Articles of Association: It is called Bylaws in the US. It sets up the rights and duties of
directors, shareholders etc.

Premises: it is the term for the places in which the company does work (shop, office, factory
etc).

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