Business Organization

These are going to be common terms.
- Unlimited liability is a legal situation where the owners are fully responsible for all debts of the business. Because the owner and the business are legally seen as the same entity, the owner may be forced to sell their personal assets to pay back creditors if the business goes bankrupt.
- Limited liability is a legal protection for shareholders where their responsibility for business debts is restricted to the amount they invested in buying shares. If the business fails, their personal possessions are completely safe and cannot be used to pay off debts.

Different types of business organizations

Private limited companies are businesses owned by shareholders but they cannot sell shares to the public.
- Advantages:
  - Limited liability for shareholders.
  - Separate legal identity.
  - Easier to raise capital by selling private shares.
- Disadvantages:
  - Complex and expensive legal setup.
  - Cannot sell shares to the public.
  - Financial accounts are partially viewable by competitors.
Public limited companies are businesses owned by shareholders but they can sell shares to the public and their shares are tradeable on the Stock Exchange.
- Advantages:
  - Can raise massive amounts of capital quickly.
  - High public profile and status.
  - Exploits economies of scales easily.
- Disadvantages:
  - Extreme risk of takeover by outsiders buying shares.
  - Full public disclosure of accounts is required.
  - Divorce of ownership and control (shareholders vs directors).

A franchise is a business based upon the use of the brand names, promotional logos and trading methods of an existing successful business.
- The franchisee buys the licence to operate this business from the franchisor.

Advantages:

To the franchisor	To the franchisee
Franchisee buys licence from franchisor to use brand name.	Chances of business failure are much reduced because a well-known product is being sold.
Expansion of the franchised business is much faster than if the franchisor had to finance all new outlets.	Franchisor pays for advertising.
Management of outlets is the responsibility of franchisee.	All supplies obtained from a central source, the franchisor.
All products sold must be obtained from franchisor.	Fewer decisions to make than with an independent business. Prices, store layout and range of products are decided by franchisor.
	Training for staff and management is provided by franchisor.
	Banks are often willing to lend to franchisees due to low risk.

Disadvantages:

To the franchisor	To the franchisee
Poor management of one franchised outlet could lead to a bad rep. for the whole business.	Less independence than with operating a non-franchised business.
Franchisee keeps profits from outlet.	May be unable to make decisions that would suit the local area (e.g. new products that aren’t a part of the range offered by franchisor).
	Licence fee must be paid to the franchisor and possible a percentage of the annual turnover.

A joint venture is where two or more businesses start a new project together, sharing capital, risks, and profits.

Advantages	Disadvantages
Sharing of costs, important for expensive projects	If the project is successful, profits have to be shared with partner
Local knowledge when joint venture is already based in the country	Disagreements over important decisions might occur
Risks are shared	Partners might have different ways of running a business (different cultures).