Business Structures: Limited Companies, Franchises and MNCs

Limited Companies

Known as joint-stock corporations in the USA, these entities are owned by shareholders who benefit from limited liability. They possess a separate legal identity. When a company folds, shareholders are paid dividends.

Private Limited Company (Ltd)

• Often small businesses
• Up to 50 shareholders
• Shares not sold to the general public

Public Limited Company (Plc)

• Shares sold to the general public on the stock exchange
• Two shareholders required to start
• All shareholders must agree to sell further shares

Advantages

• Limited liability
• Easier to raise capital
• Separate legal identity
• Continuity of management
• Can operate on a large scale

Disadvantages

• Expensive and complicated
• Strict regulations
• Privacy and mutual concerns

Cooperatives

Voluntary business organisations owned, controlled, and operated by their members. Membership is open to anyone who uses the cooperative. They aim to benefit their members rather than maximize profit. They have separate legal entities, and members are not personally liable for debts.

Franchising

A business model in which individuals buy rights to sell the products or services of an established company. It is a joint venture between:

• Franchisor: Sells the right to use a business idea or brand name.
• Franchisee: Buys the right to copy a business format and pays a franchise fee and a management service fee.

Advantages

• Proven business model
• Established brand recognition
• Training and support
• Promotion and advertising assistance
• Easier to raise finance

Disadvantages

• Franchise fees are expensive
• Franchisee cannot change business model
• Franchisor retains control
• Decision-making is limited
• Potential difficulties and restrictions

Multinationals

Large companies that operate in multiple countries. They establish assembly, production, and sales facilities abroad. They often acquire smaller businesses, which become subsidiary companies.

Why Companies Become Multinationals

• Avoid trade barriers, foreign exchange fluctuations, and transport costs
• Secure cheaper resources, labour, land, and buildings
• Receive government grants or pay less tax
• Increase knowledge of foreign markets
• Increase market share

Criticism of Multinationals

Main criticisms include:

• Market dominance and anti-competitive behaviour
• Exploitation of labour
• Tax avoidance