Public vs Private Limited Companies: Advantages and Disadvantages
Table of Contents
- Public limited companies advantages and disadvantages
- Private limited companies characteristics
- Use of bs objectives
- People in Business
- Motivation methods
- Factors affecting span of control
- Short/wide span of control advantages and disadvantages
- Narrow/Long span of control
- Centralised organisations
- Decentralised organisations
- Role of managers
- Trade union
- Internal recruitment
- External recruitment
- Advertising a job
- Part time and full time employees
- Redundancy criteria
- Legal controls over employment issues
- Effective communication
- Marketing
- Consumer spending patterns
- Competitive markets
- Niche marketing
- Mass marketing
- Segmentation and market oriented approach
- Benefits to segmentation
- Market oriented approach
- Market research info
- Primary vs secondary research
- Need for sampling
- Marketing mix
- Role of packaging
- Extension strategies
- Place and distribution channels
- Aims of promotion
- Legal controls in marketing
- Problems of entering foreign markets
- Methods to overcome foreign market problems
- Operations Management
- Costs and economies of scale
- Break-even analysis
- Importance of quality
- Financial information and decisions
- Why a business needs finance
- Short term and long term finance
- Sources of finance
- Debt vs equity and crowdfunding
- Cash flow and working capital
- Profit and profitability
- Non-current assets and accounting
- Ratio analysis
- Accounts and external influences
- Globalisation and multinational companies
- Formulas and key terms
- Conclusion and glossary
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Public limited companies advantages and disadvantages
- able to sell shares to public so more capital can be raised
- rapid expansion possible by raising large sums of capital for expansion
- limited liability will encourage more people to invest in it
- accounts available for the public, so competitors can see
- pressure to pay large dividends to shareholders, restricts the planned expansion
- divorce between ownership and control, risk of takeover
Private limited companies characteristics
- small number of shareholders so no separation between ownership and control
- limited liability for the few shareholders
- accounts are not available to the public
- shares are sold privately, so additional capital cannot be raised
- difficult to raise finance as they are a small business
Use of bs objectives
- a clear target/aim/purpose/goal to work towards – guides the business in the right direction – avoids loss of focus
- decision-making will be focused on the objectives – meaning better decisions are taken – the business may be more efficient
- helps motivate employees – objectives will help focus the employees and management to increase efficiency – making it more likely to be achieved
People in Business
- benefits of well motivated workforce
- improved productivity
- less labour turnover (rate at which employees leave the company)
- low rate of absenteeism
- better quality of goods and services
- more competitive business
Motivation methods
- financial rewards
- hourly wage rate: business pays based on how many hours employees work, not linked to how much they produce
- salary: employees do not receive more if they work longer hours, salary not linked to employee efforts or amount produced
- piece rate: employees paid for amount produced,quality may reduce, some tasks more difficult than others
- commusion: linked to value of goods sold, lesser job security
- bonus scheme: performance related pay,linked to performance targets, employees may be demotivated
- fringe benefits : discounts on company products etc,helps in recruitment and retention of existing employees, linked to status not performance
- non- financial rewards
- job rotation
- job enlargement : greater variety of similar level tasks
- job enrichment : use their full abilities, job satisfaction, more involved
- quality circles: discussing work related problems, suggest improvements
- team working: given responsibility of whole task, more involved
- delegation : passing responsibility to perform tasks to employees lower levels
Factors affecting span of control
- difficulty of tasks: if simple, wide can be used
- experience and skills of employees : more experienced will be wider
- size of business : large business is usually more narrow
- levels of hierarchy : tall will have narrower
- management style : if managers have more control, narrow
Short/wide span of control advantages and disadvantages
- communication is more accurate as there are fewer people to be passed through,less
errors
- decision making can be quicker as there are fewer levels to discuss with
- managers may have lesser control over subordinates work, so they may mistakes
and increase managers workload
- less expensive as fewer managers are needed
Narrow/Long span of control
- have enough control on subordinates work
- may of narrow span of control so more manager positions increase promotion
- communication and decision making is more difficult
- more supervision may reduce employee motivation
Centralised organisations
- advantages
- quicker decision making
- benefits entire business
- greater use of specialist staff
- disadvantages
- slower communication
- unable to respond quickly to changes in local markets
- reduce employee motivation
Decentralised organisations
- advantages
- based on local needs
- training junior managers
- improve motivation
- disadvantages
- may not benefit entire business
- lack of skills and experience
Role of managers
- planning : where bs wants to be in future
- organising : preparing and organising resources to achieve objectives
- commanding : control and supervision of subordinates
- co-ordinating : making sure all different parts are working together
- controlling : checks if plan is working
Trade union
- negotiating with employers to improve pay and working conditions,high wage
demands increase costs
- resolves conflict
- providing legal support and advice
- providing services for members : like pension,insurance,holiday schemes etc.
- protects job security
- membership fee
- provide a single point of contact between employers and employees, simpler,efficient
- could use industrial action like strikes to force employers to meet demands, disrupts
production of company and can make employees lose wages
Internal recruitment
- filled more quickly
- know how business works
- business knows strength and weaknesses of applicants
- more motivated as chance of promotion
- better candidate may be outside of business
- conflict within workplace
- no new ideas
- another vacancy to fill, since employee leaves previous job
External recruitment
- new ideas
- wider choice of applications
- avoids conflict
- takes longer
- more expensive
- needs training
- don't know the business
Advertising a job
- specialist magazines can target potential employees interested in this industry/type of
work
- online recruitment sites which can reach large numbers of people/include detailed
information but not everyone has access to the internet
- recruitment agencies which saves administration time but recruitment agencies
charge a fee for their services
- government run job centres as no cost to the business but only reach those people
who are actively looking for a job
Part time and full time employees
- attract well qualified employees who need flexible hours
- help bs keep experienced staff
- provides greater flexibility
- allow for changes in working hours depending on demand
- more productive
- increases skills and experience of workforce
- no need to take time off
- increase in induction and training costs
- communication problems
- quality of service is rendered
Redundancy criteria
- productivity
- how often employees are late or absent
- age
Legal controls over employment issues
- contracts of employment
- unfair dismissal
- discrimination
- minimum wage
- minimum age (child labour)
- health and safety
Effective communication
- message is sent use correct medium, received by right person, receiver understands, receiver provides feedback
- needed bc : reduces risk of mistakes , enables fast decision making, quicker responses to
market changes, improves coordination, improves motivation of workforce,improves customer relationships
- problems of ineffective communication : poor sales, incorrectly done or unfinished tasks,business reputation damaged, recruitment and selection problems, employee motivation falls, risk of accidents
Marketing
- role of marketing is : identifying customer needs, satisfying customer needs , maintaining customer loyalty, building customer relationships
Consumer spending patterns
- why consumer spending patterns change
- price of product
- price of competitors products
- changes in income
- changes in population size and structure
- changes in tastes and fashion
- brand images
Competitive markets
- why some markets are more competitive
- government intervention in markets
- legal controls (do not allow individual firms to dominate the market)
- selling public sector organisations to private (privatisation)
- removal of government controls(deregulation)
- providing financial assistance to small businesses
- growth of free trade
- development of e-commerce and social media networks
How businesses respond to changing spending patterns and increased competition
- product development
- more efficient
- increased promotion
- look for new markets
Niche marketing
- benefits
- small firms can survive
- less competition
- exclusive products
- limitations
- might attract competitors due to opportunity of earning high profits
- economies of scale unlikely to be achieved
- small changes in consumer spending is significant
Mass marketing
- benefits
- large scale production, economies of scale
- high sales and profits
- changes in spending is not that significant
- limitations
- more competition
- all markets are not large enough to support mass marketing
- consumers want customized products
Benefits to segmentation
- goods and services can meet specific needs of consumers
- small firms can compete in few segments
- identifies a segment of consumers who require specialised needs that are not satisfied
- marketing strategies are targeted
- higher prices
Benefits of market oriented approach
- risk of new products failing is reduced
- products meet the needs of consumers last longer
Uses of market research info
- identify consumer needs
- discover market size
- provide info about the business’s existing products and markets
- identify the strengths and weaknesses of competitor products
- decide on price of product
- predict changes and trends in consumer tastes and fashion
Primary research
- benefits
- up to date
- specific purpose
- not available to competitors
- limitations
- costly
- time consuming
- risk of data being inaccurate
Secondary research
- benefits
- cheap
- easier and quicker
- limitations
- not up to date
- not for specific purpose
Need for sampling
- it is a part of the total market that can be used for market research
Why market research not accurate sometimes
- sample chosen may be too small
- business may have chosen wrong type of method
- consumers not answered truthfully
Marketing mix
- ch 12 : marketing mix
- role of packaging : protect , provide info, help consumers recognise the product,promote
brand image, easy to transport the product
- extension strategies : find new markets, find new uses, adapting the product or packaging to
appeal to customers, more advertising
- place : channels of distribution
- producer to consumer
- profit earned by producer
- producer controls all part of marketing mix
- quickest method of getting the product to the consumer
- producer has direct contact with consumer
- consumer cannot try the product
- delivery costs are high
- storage costs and promotional activities paid by producer
- producer to retailer to consumer
- consumer can try product
- cost of inventory and advertising is lesser
- retailers are conveniently located
- retailer takes some profit
- producer loses control
- producer pays delivery costs
- retailers sell competitors products as well
- producer to wholesaler to retailer to consumer
- buys in bulk
- wholesaler advertises and pays transport and storage costs
- helps producer sell to larger market
- takes profit
- producer loses control
- producer to agent to wholesaler to retailer
- specialist knowledge of market
- more loss of profit for producer
- aims of promotion
- attracting attention of consumers
- persuading consumers to buy
- explaining how product is better than competitors
- developing brand image
- legal controls related to marketing
- protect consumers from faulty and dangerous goods
- prevent businesses from using advertising to mislead consumers
- protect consumers from being exploited when there is lesser competition
- problems of entering foreign markets
- differences in language and culture
- economic differences (average income)
- social differences(age structure)
- differences in legal controls
- lack of market knowledge (business doesn't know, consumers don't know the bs)
- methods to overcome this
- international franchising
- licensing : a business in one country permits a firm in another to produce its branded
product under licence and they understand the local market
- joint venture
- reduces risk, brings different expertise, market and product knowledge is
shared, mistakes made will reflect both parties, different business culture
Operations Management
- fixed costs - factory rent,salary of managers
- variable costs - raw materials
- what can businesses use cost data for:
- setting prices
- break even analysis
- whether to continue or stop producing a product
- economies of scale:
- financial economies - easier to borrow money with lower interest rates
- managerial economies - specialist managers improve quality of bs decisions
- marketing economies - average costs of marketing do not rise as bs grows
- purchasing economies - discounts on bulk purchases
- technical economies - uses latest technology to produce high levels of output
- diseconomies of scale
- poor communication : managers do not communicate directly with employees
- lack of commitment : employees are demotivated, high labour turnover, poor quality
- weak coordination : control of many departments is hard, managers may be working
towards different objectives
Break even analysis
- easy to construct and interpret
- provides bs with useful info
- can show effect of a decision to change costs or revenues
- can help with other bs decisions like relocation
- assumes that all costs and revenues are represented by straight lines
- not easy to separate costs into fixed and variable
- assumes that all output is sold - does not allow for inventories and handling costs
Importance of quality
- develop a strong brand image - easier to introduce new products as customers trust
- keep customers and attract new
- reduce customer complaints and returns
- charge at premium price
- encourage wholesalers and retailers to stock
- lengthen product life cycles
Financial information and decisions
- why business needs finance:
- to set up business(start up capital)
- day to day expenses (working capital)
- purchase of non current(fixed) assets
- invest in latest technology
- finance of expansion of bs
- short term finance : day to day expenses, unexpected expenses, short term debts
- long term finance : salaries, purchase of non current assets
Internal sources of finance
- retained profits
- sale of non current (fixed) assets
- sale of unwanted non current assets
- sale and leaseback of wanted non current assets
- no direct cost, can raise large amounts of money
- future fixed costs will increase due to leasing charges
- use of working capital
- cash balances - financing capital expenditure
- reducing inventory levels
- reducing trade receivables
External sources of finance
- short term sources
- overdrafts - withdraw money greater than balance , flexible
- trade credits - lending money for cost of raw materials for a length of time
- debt factoring - debt factoring company will provide immediate cash for
customer credit (trade receivables)
- long term sources
- bank loan, leasing, hire purchase
- mortgage (specifically for purchase of land or buildings)
- debenture (bond that bs sells to raise large sums, gives collateral assets )
- share issue (selling of shares, permanent capital)
Debt financing and equity financing
- debt financing : does not change ownership, interest is charged
- equity financing : does not need to be repaid, dilutes the ownership of company
- alternative sources : microfinance(small amounts of capital loaned to entrepreneurs)
- crowdfunding
- no/low interest so does not increase cash outflows,allows for the public reaction to be
tested which could lead to more customers, no need to repay/permanent so does not
add to its liabilities/debt ,no collateral needed
- no guarantee can raise full amount,must repay everyone if cannot raise full amount
so must find another source,competitors may learn more about your business before
launch, not a stable source of finance, a lot of paperwork
Factors influencing choice of finance
- size and legal form of business : bigger companies pay lesser interest, easy to
borrow from banks and lenders. unincorporated businesses cannot raise finance by
share issue,
- amount required : if large, cannot be found in internal sources of finance, will need
debentures or share issue
- length of time - longer it is, more costly it will be to repay due to interest. long term
finance like bank loans or debentures can be used.in short term, overdraft is most
flexible
- existing borrowing : more difficult to borrow if bs already has borrowing. greater risk
Why cash is required for a business {
- pay employees wages
- pay suppliers for goods and services
- pay rent,utilities for premises
}
Financing a short term cash shortage
- ask trade receivables to pay quicker by offering discounts
- negotiate longer credit terms
- delay purchase of non current assets or find other sources of finance to purchase
How bs can improve working capital
- reduce inventory levels
- negotiate longer credit terms with suppliers
- reduce amount of time to receive payments from customer on credit terms
Gross profit
- difference between revenue earned and cost of making the products
Profit is used to
- measure success, a reward to owners for the risk
- measure performance of managers
- deciding whether to continue producing a product
- finance purchase of non current assets, expand the business etc
- attract investors who will give additional funds
Why profit is important to different stakeholders
- owners/shareholders : profit after tax belongs to them
- shareholders : higher dividend payment, value of market share rises if high profit
- employees : job security, good pay, profit sharing schemes
- lenders : how quickly bs can repay loans
- government : more tax received
- suppliers : if they will continue to purchase raw materials
- managers : measure the performance, retained profit is imp source of finance
Non-current(fixed)assets and current assets
- non-current(fixed)assets : resources that business owns and expects to use for more than
one year like buildings and machinery
- current assets : resources that will be converted to cash within a year like inventory, trade
receivables
- current liabilities : short term debts like trade payables
- non current liabilities : long term debts like bank loans mortgages and debentures
- owners equity : amount of money invested by owner
How to interpret statement of financial position
- assets the business owns
- what the business is owed
- what the business owes
- how the business finances its activities
How to improve gross profit margin
- increase revenue without similar increase in costs
- reduce costs without similar decrease in revenue
Profit margin
- improve gross profit
- reduce expenses
Return on capital employed
- how much profit is earned from what is invested in the business.
- capital employed is the amount invested in the business by the owners, or borrowing.
Current ratio and acid test
- current ratio = current assets/current liabilities
- acid test ratio (current assets - inventories)/ current liabilities
Terms to use
- evaluation question : missing out on business opportunity,cash outflows, inflows,profit
- margin, market share, disposable income (remaining income), immediate effects
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External influences on business activity
Government economic objectives
- positive balance of payments : more exports than imports
- low inflation : better standard of living, pay for luxury items
- low unemployment : contribute to total output,improve economic growth, income tax,
no need to pay unemployment benefits
- economic growth : gdp value of goods and services produced in a year
- business cycle
- growth : positive outlook for new bs, existing ones grow and make profit ,lower
unemployment, higher standards of living
- boom : highest levels, performing at their best, demand for goods and services
increase (inflation), low unemployment
- recession : decline in economic activity, more unemployment, falling demand lower
profits, less investment in new and existing businesses
- slump : low bs confidence to invest, low production of goods and services, high
unemployment,reduced demands of products,prices may fall
Tax rates
- direct taxes : income tax and corporation tax
- indirect taxes :
- value added tax : added to price of some goods
- import tariffs/customs duty : helps government control number of imports so local bs
don't lose sales
- sales tax : paid on purchase of some items
- excise duty : paid by manufacturer on production of some goods
- government borrows using treasury bills and bonds or from other countries(expensive).
Externalities
- negative externalities - social costs such as increased traffic congestion or noise levels due
to setting up a hospital
- positive externalities - social benefits such as more employment, easy access
Pressure groups
- demonstrations : protests abt a business’s actions or policy
- boycotting : refusing it purchase the business’s products
- petitioning : making a written or oral complaint
- lobbying : attempting to influence the policy making of the government
- increase awareness
Globalisation
- opportunities
- can access more markets, increase in sales
- cost of labour may be cheaper
- increased competition, so they reduce costs, encouraging sales
- threats
- local bs may suffer as foreign companies sell at cheaper price
- exchange rate fluctuations may result in lowered profit
- competition will increase
- marketing and distribution costs will increase
Tariffs and quotas
- tariffs : tax applied on value of imported and exported (for positive balance)
- quota : physical limit on quantity(for local businesses)
Multinational company
- for a business
- easier access to raw materials if they set up operations where found easily
- labour : if there is plentiful supply,it is cheap but if there is shortage, may need
to fly in specialist employees and managers which is expensive
- can benefit from economies of scale
- access to bigger markets
- lower production costs
- spreading of risk- can depend on multiple markets
- can charge at premium prices
- lack of info about local market ,strict regulations
- language barrier and cultural differences
- currency fluctuations
- local opposition, political instability
- for host country
- increases choice and quality of product and employment
- more tax and reputation, infrastructure
- new ideas and knowledge, improves balance of payments
- influence government policies
- increased competition
- environmental damage,exploitation of labour
- may send profit back to home country (repatriation of profit)
Formulas
- labour productivity = total output/number of production employees
- total costs = fixed costs + variable costs
- margin of safety = actual sales - break even output
- profit = revenue - total costs
- revenue = selling price*quantity sold
- gross profit = revenue - cost of sales
- profit = gross profit - expenses
- gross profit/revenue * 100 = gross profit margin
- profit/revenue*100 = profit margin
- return on capital employed = profit/capital employed * 100
- current ratio = current assets/current liabilities
- acid test ratio (current assets - inventories)/ current liabilities
Links to practice and terms
- evaluation question : missing out on business opportunity,cash outflows, inflows,profit
- margin, market share, disposable income (remaining income), immediate effects
Conclusion and glossary
- This document compiles extensive notes on business activity, including company structures, human resources, marketing, finance, and external influences. It covers the advantages and disadvantages of public and private limited companies, organizational structure, recruitment, motivation, market research, marketing mix, and key financial concepts such as break-even, profit margins, ratio analysis, and sources of finance. It also discusses external factors like government policy, globalisation, and multinational corporations, and provides formulas for basic financial ratios and productivity.