Business and the

Business Environment
(BBE) – Level 4
Week 1: Session 1
Explain the different types,
size and scope of
organisations.
1
 Types of
Organisations
Key Learning Objectives:

q To have a brief
idea what is a business
environment
q To be able to
identify different types of
organisations.
q To be able to
explain the goals and
objectives of different
types of organisations.
q To be able to
explain the legal features
of different types of
organisations.
2
 Assessment
Task 1
The submission is in the form of
an individual written report. The
report should provide a critical
analysis of the complexities of
different types of business
structures and the
interrelationships of the different
organisational functions.

1. An explanation of types of
organisations: purpose, size, scope
and legal status including public,
private, voluntary and legal structures
(P1)
2) An explanation and critical
analysis of how structure, size and
scope of different organisations
affect business objectives and the
products and services offered (P2&M1
3
 Introduction
What is Business
Environment?
“The combination of internal
and external factors that
influence a company's
operating situation. The
business environment can
include factors such as:
clients and suppliers; its
competition and owners;
improvements in technology;
laws and government
activities; and market, social
and economic trends”
(http://www.businessdictionary.com/definition/
business-environment.html)
“Business environment is the sum
total of all external and internal
factors that influence a business.
You should keep in mind that
external factors and internal factors
can influence each other and work
together to affect a business”
(http://study.com/academy/lesson/what-is-business-
environment-definition-factors-quiz.html)
4
A Business in its Envir
onment
ENVIRONMENTAL INFLUENCES

1. Political
2. Economical
3. Social
4. Technological
5. Ecological
6. Legal
7. Etc
Business Organisations
Out-put
Consumption
In-puts

1. Land
2. Premises
3. Materials
4. Labour
5. Technology
6. Finance
7. Managerial skills
8. Etc
5
 ORGANISATIONS
What is an organisation?
An organisation is a social unit of
people that is structured and
managed to meet a need or to
pursue collective goals.

(Business
Dictionary)
An ‘organisation’ is a group of
individuals working together to
achieve one or more objectives.

( Open University)
6
 FEATURES OF AN
ORGANISATION
The following are the common
characteristics of an
organisation:

v They are composed of

individuals and groups of
individuals
v They are oriented
towards achieving collective
goals
v They consist of
different functions
v The functions need to
be coordinated
v They exist
independently of individual
members who may come and
go.
7
 TYPES OF
ORGANISATIONS
In a very broad sense,
organisations can be classified
under four categories:

q Private sectors
organisations
q Public sectors
organisations
q Non-governmental
organisations
q Non-profit organisations
8
 TYPES OF
ORGANISATIONS
ECONOMY
Public sector
Organisations
Private sector
organisations
Non Governmental
organisations
Non profit
organisations

Government Corporations
Government Services
Sole traders
Partnerships
Private Ltd Companies
Public Ltd Companies
Co-operatives
Charities
Universities
Religious organisations
9
 PUBLIC SECTOR
ORGANISATIONS
Ø The part of national
economy providing basic goods
or services that are either not,
or cannot be, provided by the
private sector. It consists of
national and local governments,
their agencies, and their
chartered bodies.
(Business Dictionary)
Ø The primary objective
of the existence of the public
sector is the maximization of
social welfare (health, education,
security, etc)
10
 Basic Characteris
of Public Sector
organisations
1. State Ownership:
The enterprise ownership has to be
vested with the State. It could be in
the nature of Central, State or local
government ownership or any
instrumentality of the state too can
have the ownership of public
enterprise.
2. State Control:
Public Enterprise is controlled by the
Government both in its management
and functioning. The Government
has the direct responsibility to
manage the affairs of the enterprise
through various devices and
exercises control over it by means of
a number of agencies and
techniques.
3. Public Accountability:
Public Enterprises owe
accountability to people as they are
funded through public money. This
accountability is realised through
legislature and its committees,
ministers, audit institutions and other
specialised agencies.
4. Autonomy:
Public Enterprises function with
utmost autonomy under given
situations. They are free from day to
day interference in their affairs and
management.
5. Coverage:
The public enterprise traverses all
areas and activities. There is hardly
any field of activity, which is not
covered by the operations of public
enterprises.
11
 Objectives of Public
Sector
The primary objectivity of the public
sector is the maximization of social
welfare. This can only be achieve
through three fundamental principles:
Economy - represents value for
money and delivering the required
service on budget, on time and
within other resource constraints.
Efficiency - is concerned with
getting an acceptable return on the
money and resources invested in a
service.
Effectiveness - describes the
extent to which the organisation
delivers what it is intended to deliver.
12
 Examples of the public
sector organisations in
the UK
q National Health Service
(NHS)
q The Police
q The Highways Agency
q MoJ (Ministry of Justice)
q Department for Children
Schools and Families (DCSF)
q DCLG (Department of
Communities and Local
Government)
q Department for Culture,
Media and Sport (DCMS)
q DEFRA (Department for
Environment, Food and Rural
Affairs)
q DIUS (Department for
Innovation, Universities & Skills)
 q The Child Support Agency
q Civil Service Fast Stream
q CPS (Crown Prosecution
Service)
(https://www.gov.uk/government/
organisations)
(http://www.publicnet.co.uk/links/
public-sector-organisations/)
13
 Private sector
The private sector is the part of a
country’s economy that is not
controlled directly by the government;
it is a term that combines
households and businesses in the
economy into a single group.
(International Encyclopaedia of the
Social Sciences)
The part of national economy made
up of private enterprises. It includes
the personal sector (households)
and corporate sector (companies),
and is responsible for allocating
most of the resources within an
economy.
(http://www.businessdictionary.com/
definition/private-sector)
14
PRIVATE SECTORS
ORGANISATIONS
PRIVATE SECTOR
ORGANISATIONS
SOLE TRADERS
PARTNERSHIPS
COMPANIES
CO-OPERATIVES
Others
Private Ltd
companies
Public Ltd
Companies
1. Franchises
2. Joint ventures
3. Licencing
15
Objectives of private
sectors organisations
There are two over-riding
objectives of the private sector
organisations:

v Profit maximization
v Wealth maximization
16
 What is profit
maximization?
q The ability for company
to achieve a maximum profit
with low operating expenses.
(http://www.
businessdictionary.com/
definition/)

q Profit maximization is
the main aim of any business
and therefore it is also an
objective of financial
management. Profits are a must
for survival of any business.
17
 What is wealth
maximization?
Ø Wealth maximization is
the concept of increasing the
value of a business in order to
increase the wealth of the
business owner.
Ø The concept requires a
company's management team
to continually search for the
highest possible returns on
funds invested in the business,
while mitigating any associated
risk of loss.
(http://www.accountingtools.com)
18
Sole Traders
q A sole trader is a business
that is owned by one person
q It may have one or more
employees
q The most common form of
ownership in the UK
q Often succeed –why?
§ Can offer specialist services to
customers
§ Can be sensitive to the needs
of customers –since they are closer to the
customer and react more quickly
§ Can cater for the needs of local
people –a small business in a local area
can build up a following in the community
due to trust
q Key legal points
§ Keep proper business
accounts and records for the Inland
Revenue (who collect the tax on profits)
and if necessary VAT accounts
 § Comply with legal
requirements that concern protection of
the customer (e.g. Sale of Goods Act)
19
 Operating as a sole
trader
ADVANTAGES

q Total control of business by

owner
q Cheap to start up
q Keep all profit
DISADVANTAGES

q Unlimited liability
q Difficult to raise finance
q May be difficult to
specialise or enjoy economies of
scale
q Problem with continuity if
sole trader retires or dies
20
Unlimited liability
v An important concept
–it adds to the risks faced by the
sole trader
v Business owner
responsible for all debts of
business
v May have to sell own
possessions to pay creditors
21
 Partnership
q Business where there
are two or more owners of the
enterprise
q Most partnerships have
between two and twenty
members though there are
examples like the major
accountancy firms where there
are hundreds of partners.
q A partner is normally
set up using a Deed of
Partnership. This contains:
§ Amount of capital each
partner should provide
§ How profits or losses
should be divided
§ How many votes each
partner has (usually based on
proportion of capital provided)
§ Rules on how take on
new partners
§ How the partnership is
brought to an end, or how a partner
leaves
22
Types of Partnerships
There are two types of
partnerships:

q General
partnerships (Partnership
ACT 1890)
q Limited Lability
partnerships(LLPs)
23
Advantages of Partner
ship (General)
Ø Capital – Due to the nature of the
business, the partners will fund the business
with start up capital. This means that the more
partners there are, the more money they can put
into the business, which will allow better
flexibility and more potential for growth. It also
means more potential profit, which will be
equally shared between the partners.
Ø Flexibility – A partnership is
generally easier to form, manage and run. They
are less strictly regulated than companies, in
terms of the laws governing the formation and
because the partners have the only say in the
way the business is run (without interference by
shareholders) they are far more flexible in terms
of management, as long as all the partners can
agree.
Ø Shared Responsibility – Partners
can share the responsibility of the running of
the business. This will allow them to make the
most of their abilities. Rather than splitting the
management and taking an equal share of each
business task, they might well split the work
according to their skills. So if one partner is
good with figures, they might deal with the book
keeping and accounts, while the other partner
might have a flare for sales and therefore be the
main sales person for the business.
Ø Decision Making – Partners share
the decision making and can help each other
out when they need to. More partners means
more brains that can be picked for business
ideas and for the solving of problems that the
business encounters.
24
Disadvantages of Partn
ership(General)
• Disagreements – One of the
most obvious disadvantages of
partnership is the danger of
disagreements between the partners.
Obviously people are likely to have
different ideas on how the business
should be run, who should be doing
what and what the best interests of
the business are. This can lead to
disagreements and disputes which
might not only harm the business,
but also the relationship of those
involved. This is why it is always
advisable to draft a deed of
partnership during the formation
period to ensure that everyone is
aware of what procedures will be in
place in case of disagreement and
what will happen if the partnership is
dissolved.
• Agreement – Because the
partnership is jointly run, it is
necessary that all the partners agree
with things that are being done. This
means that in some circumstances
there are less freedoms with regards
to the management of the business.
Especially compared to sole traders.
However, there is still more flexibility
than with limited companies where
the directors must bow to the will of
the members (shareholders).
• Liability – Ordinary Partnerships
are subject to unlimited liability,
which means that each of the
partners shares the liability and
financial risks of the business. Which
can be off putting for some people.
This can be countered by the
formation of a limited liability
partnership, which benefits from the
advantages of limited liability granted
to limited companies, while still
taking advantage of the flexibility of
the partnership model.
25
Disadvantages of Partn
ership(General) (Conti…

Ø Taxation – One of the

major disadvantages of partnership,
taxation laws mean that partners
must pay tax in the same way as
sole traders, each submitting a Self
Assessment tax return each year.
They are also required to register as
self employed with HM Revenue &
Customs. The current laws mean
that if the partnership (and the
partners) bring in more than a
certain level, then they are subject to
greater levels of personal taxation
than they would be in a limited
company. This means that in most
cases setting up a limited company
would be more beneficial as the
taxation laws are more favourable
(see our article on the Advantages
and Disadvantages of a Limited
Company).
Ø Profit Sharing – Partners
share the profits equally. This can
lead to inconsistency where one or
more partners aren’t putting a fair
share of effort into the running or
management of the business, but
still reaping the rewards.
26
 Advantages of
Partnership (LLPs)
Liability
Protection
Each partner is personally
responsible for the dealings
of the company including
debts, liabilities and any
wrongful acts of the other
partners. The liability
protection that comes with a
LLP is a big advantage. The
individual partners are not
held personally responsible
for any company debts or
obligations. Any lawsuit or
claim against the company
cannot be held against the
partners, protecting
personal assets.
Tax Advantages
The individuals in the
partnership are liable for
filing their personal income
taxes as well as self
employment taxes for the
Internal Revenue Service.
The partnership is not held
responsible for paying these
taxes. The credits and
deductions of the company
are divided among the
partners according to the
amount of interest in the
company.
Flexibility
Partners have flexibility
within business ownership
under a limited liability
partnership. Each partner
has the decision to say how
they will contribute to the
operations of the business.
Duties are either divided
equally or based on the
experience of the individual.
Some who have contributed
financially to the company
have the right to remain a
silent partner where they
retain ownership without
having authority over
business decisions. Patners c
an decide how and where
they are investing their time
and money within the
business.
27
Disadvantages of Partn
ership(LLPs)
Ø Having to file
accounts and other
documents with Companies
House, such documents will
then become public documen
ts.
Ø Transferring an
interest in an LLP can be com
plicated
Ø You cannot convert
an LLP into a limited
company.
28
 COMPANY
q A company is an
association of persons formed
for the purpose of some
business or undertaking, which
has a legal personality separate
from that of its members.
q A company may be
formed by charter, by special
Act of Parliament or by
registration under the
Companies Acts.
q The liability of
members is usually (but not
always) limited by the charter,
Act of Parliament or
memorandum of association.
29
 Basic elements of a
company
v A name which has
been reserved by the Registrar
of Companies.
v At least one share, one
shareholder and one director
v A registered office
where the company records are
kept
v An address for service
where legal documents can be
served
v The Registrar will also
ask for an address for
communication.
30
 Types of companies
In a very broad sense,
companies can be classified as :

q Private companies
q Public companies
31
 Advantages of
conducting business
a company
q Limited liability
q Tax advantages
q Separate entity
q Funding advantages
q Professional image
q Continuity
q Transferability of
shares in case of public
companies
32
 Disadvantages of
conducting business
a company
q Greater regulation
q Cost of formation
q Mandatory accounts
keeping
q Mandatory auditing
33
 NON
GOVERNMENTAL
ORGANISATIONS(NGO
s)
v NGOs generally refers to
an organization that operates
independently from any government
– though it may receive funding from
a government but operates without
oversight or representation from that
government.
v They function
completely autonomous from the
government to perform a broad
spectrum of services and
humanitarian functions.
v They operate at a regional,
national or international level
depending on its reach and
connectivity.
v They can be incorporated as
a trust, society or a company. These
organisations raise their funds from
government, foundations,
businesses and private people.
34
 Objectives of NGOs
q In a wider sense, they
exist to provide services to the
public to up-lift the quality of
living.
“Only a life lived for others is
a life worthwhile“

- Albert
Einstein
35
 NGOs perform many
activities
q Community health
promotion and education (such as
hygiene and waste disposal).
q Managing emerging health
crises (HIV/AIDS, Hepatitis B).
q Community social problems
(juvenile crimes, run-aways, street
children, prostitution).
q Environmental (sustainable
water and energy resources).
q Economic (micro loans,
skills training, financial education
and consulting).
q Development (school and
infrastructure construction).
q Women’s issues (women’s
and children’s rights, counselling,
literacy issues).
36
 NON PROFIT
ORGANISATIONS(NPO
s)
v The Cornell University Law
School define a non-profit as: “… a
group organized for purposes
other than generating profit and in
which no part of the
organization’s income is
distributed to its members,
directors, or officers.”
v Non-Profit
Organizations(NPOs) are legal
entities formed by a group of
persons to promote cultural,
religious, professional, or social
objectives.
 v The initial funds are
raised by the members or
trustees of the NPOs. As they
are organisations for non-profit
making, they apply their surplus
funds on the promotion of the
objectives of the organization
rather than distributing it among
the members of the organisation.
37
NPOs perform many
activities
ü Religious,
ü Charitable,
ü Scientific,
ü Public safety,
ü Literary,
ü Educational,
ü Fostering national or
international amateur sporting,
ü Preventing cruelty to
children or animals
38