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IGCSE Edexcel Business Studies Notes

1) Factors such as growth, size, need for finance, and control affect the appropriateness of different forms of ownership for businesses. As businesses grow, they often change their legal status to structures like partnerships or private limited companies that allow more financing. 2) Other factors include the type of industry, plans for using profits, and influence of stakeholders. Service businesses tend to be sole proprietorships while manufacturers are often public limited companies. 3) Objectives also influence the choice, with sole proprietors seeking modest profits for lifestyle, while multinationals aim for global growth and dominance through public ownership.

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631 views11 pages

IGCSE Edexcel Business Studies Notes

1) Factors such as growth, size, need for finance, and control affect the appropriateness of different forms of ownership for businesses. As businesses grow, they often change their legal status to structures like partnerships or private limited companies that allow more financing. 2) Other factors include the type of industry, plans for using profits, and influence of stakeholders. Service businesses tend to be sole proprietorships while manufacturers are often public limited companies. 3) Objectives also influence the choice, with sole proprietors seeking modest profits for lifestyle, while multinationals aim for global growth and dominance through public ownership.

Uploaded by

Ellie Housen
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter(6)

Appropriateness of different forms of ownership


appropriateness of different forms of ownership
Factors affect other factors objectives
-growth -type of business activity - profit satisfaction
( start small but change legal status) (plumbing, oil processing ) (enough profit for comfortable life style)
-size - use of profit - afraid of losing control to outsiders
( small, larger) (prefer reinvest in plc) and growth might be limited
-the need of finance - influence of stakeholders - want to grow ( multinational )
(main reason for change legal status) ( eg, employees must discourage for plc)
-control
(complete control, key control)
Limited liab
(protect own finance)
Factors affecting the appropriateness of
different forms of ownership
• Growth
• many business start small and gradually get bigger
• Most businesses change their legal status as they grow
• Eg, sole traders often find it difficult to raise additional finance but by taking a partner or
become private limited company , they can raise more money
• Size
• Many small businesses are sole traders or partnerships
• Public limited companies are much larger
• The need of finance
• finance is the one of the main reasons why owners change the legal status of their
businesses
• More money need is to change the type of organization
Factors affecting the appropriateness of
different forms of ownership
• control
• some owners like their independence
• They like to have complete control
• This is why many owners remain as sole traders
• It is possible to key control of a limited company by holding majority of shares
• Limited liability
• owners can protect their own personal financial position if the business is a
limited company
• Sole traders and partners have unlimited liability
• Therefore, owners become limited companies to give themselves more
financial position
Other factors
• The type of business activity
• It may influence the choice of legal status
• Eg, services such as plumbing, decorating and gardening tend to be provided
by sole traders while professional service such as accountancy, legal advice
and architectural design are usually offered by partnerships
• Oil processing and chemical manufacturing requires large scale production ,
large banks and retail chains etc therefore, sole trader, partnership could not
manage effectively ,are usually public limited companies
Other factors
• The way in which a business plans to use its profits may be important

• Eg, Plcs pay dividends to their shareholders and some profits are retained for
expending business
• Therefore, the growing business that prefers to reinvest a lot of its profit may
choose to remain as a private limited company /public limited company
Other factors
• The different stakeholders might influence the choice of organization
• Eg, leading employees in a private limited company might discourage the
shareholders from going public , they may argue that the company operates
more effectively without external owners
Objectives and the type of organization
• Small (sole trader) might be happy to make a modest amount of profit
(Called profit satisfaction)
• Enough to fund a comfortable lifestyle
• Not want to responsibility with other objectives such as growth
Objectives and the type of organization
• family or other medium size private limited companies do not wish to
go public
• Because they are afraid of losing control to outsiders
• As a result, their growth might be limited
Objectives and the type of organization
• most multinationals want to grow
• Their aim is to get bigger and bigger and they can dominate global
markets

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