Business Structures, Corporate Integration, and Banking Fundamentals
Sole Proprietorships (Sole Trades)
A sole proprietorship is a business that is owned by one person.
Sole traders are often successful because they can offer better consumer services. Many consumers prefer to meet the owner face-to-face, and a sole trader has the advantage of being more involved with local people.
Partnerships
In a partnership, two or more people own and share the costs and risks of a business.
There are two types of partnerships: limited partnership and unlimited partnership.
In a limited partnership, there are one or more sleeping partners who are liable only for the money they invest in the business.
A contract called a “Deed of Partnership” is normally drawn up to protect the partners from misunderstandings.
Partnerships are common for professionals in the services industry, such as dentists, lawyers, and doctors.
Limited Liability Companies (SRL)
A Limited Liability Company (SRL) is a business formed by a minimum of two shareholders.
The company’s finances are separate from the personal finances of the shareholders, who can lose the money they have invested in the company.
The capital of a limited liability company is divided into shares. Profits are usually distributed to shareholders in the form of dividends.
UK Company Divisions
- Private Limited Companies (Ltd): They cannot offer shares to the public.
- Public Limited Companies (PLC): They must have at least two shareholders.
Cooperatives
Cooperatives are people-centered organizations that are owned, managed, and used by members.
Difficulties can arise because of the “one member, one vote” system.
The ICA (International Cooperative Alliance) is an independent non-governmental organization which represents cooperatives worldwide.
Franchises
Franchising is an agreement in which an entrepreneur or a group of partners buys a license to use an established business brand. The franchisee takes advantage of the success of an established business while the franchisor can get a fast return on investment.
Regarding the franchise agreement, there is no set way to buy a license; it can be paid as an initial fee.
Multinational Corporations
A multinational corporation has its headquarters in one country but operates with divisions in many different countries.
Multinationals are able to avoid tax and trade barriers. They can also take advantage of lower resource costs in order to lower their overall costs.
There has been much controversy over multinationals; opinion is divided as to whether they are beneficial or harmful to the host countries.
Types of Company Integration
Company integration refers to external growth for businesses seeking to increase their market share.
Common Forms of Integration
- In Italy: Merger, Takeover, and Joint Venture.
- In the UK and USA: Takeover and Joint Venture.
Definitions of Integration Forms
- A Merger: Consists of two or more companies of similar size that decide to combine and form a single entity.
- Takeover/Acquisition: Consists of one company that buys another one.
- Joint Venture: Consists of two or more companies that agree to start a new business or project together (e.g., Nike and Supreme).
Integration Classification
- Vertical Integration
- The companies involved are in the same industry, but they operate at a different stage of production.
- Horizontal Integration
- The companies deal with the same activities.
- Conglomerate Mergers
- The companies have totally different activities.
Organization Chart
Organization charts are diagrams that illustrate the structure within a company in terms of authority and responsibility.
The typical hierarchy starts with the Shareholders, who elect a Board of Directors. The Managing Director then oversees various departmental directors, including the Finance Director, HR Director, Operations Director, Marketing Director, and IT Director. Below them are the Office Staff and the Workers.
Mission Statements
A mission statement sets out the purpose of an organization and its reason for operating.
A company’s mission statement does not need to remain static. It makes good marketing sense to have a mission statement available for the media, your industry or sector, suppliers, clients, and employees to read.
Benefits of a Mission Statement
- It can improve the focus of the company and provide a sense of purpose and direction.
- It promotes a sense of identity among the employees’ beliefs and standards of behavior.
- It ensures that the interests of everyone are taken into consideration.
The Banking System
The banking system involves accepting deposits (borrowing money) and then lending this money to others to earn a profit.
Types of Banks
- Retail Banks: These deal with individual customers and concentrate on mass market products such as current and savings accounts, mortgages, loans, and credit and debit cards.
- Commercial Banks: These deal with business clients and offer currency accounts and exchange services, as well as current and deposit accounts.
- Investment Banks: These work with companies and investment markets.
- Private Banks: These manage the banking and financial needs of high net worth individuals.
- Offshore Banks: These banks are located in countries considered to have low tax rates.
- Building Societies: These are mutual financial institutions, meaning that they are owned by their members.
- Postal Savings Banks: These are operated in conjunction with the national postal system of a country.