An Insight Ot Business Studies

What is business
Business involves all the legal activities carried out to earn profit. Business management is all about
decision making that how businesses allocate their resources to maximize profits. A successful
business makes accurate and timely decision, in other words only those business can make profits
that chose best option between alternatives.
Why people start their own business
Commitment with some product or idea

To earn more revenue
To be your own boss
Sometimes unemployment and redundancies occur
Sometimes passion and hobbies can also be converted into business. (Business)
Stake holders of the business
Any party or groups who have any kind of interest in business activity and can influence the business
decision making or business decision can have impact on that group is known as stake holder.
There are two types of stake holders
1. External
2. Internal
External stake holder internal stake holder

Government Share holders/owner
Supplier Director
Consumer Manager
Community Workers/employee/staff
EXTERNAL STAKE HOLDERS
Stake holders Interest
Government Business must pay taxes

Non production of illegal and demerit goods
Employment opportunities
Suppliers Prompt payments

Regular orders
Customer High quality products

Low or affordable prices
Easy excess
Community No/low social cost

Higher social benefits
An insight to Business Studies 1

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Internal Stake Holders
Stakeholder Interest
Share holder /owner Earn maximum profit or dividend

Growth of the business
Stability of the business
Directors
(Normally from share holders) Maximum powers of strategic decision making
Maximum fringe benefits
More funds for their respective apartments
Manager more decision making functional power

Attractive salary packages
Fringes benefit
Workers/staff fair and timely wages

Job and life security
Fringes benefits
Friendly working environment
Social working hours
Conflict between different Stake holders
Due to the demands placed on businesses by so many different stakeholders, it is no surprise that there are
often disagreements and conflict between the different groups. Some of the more common areas of
conflict are:
Shareholders and management: Profit maximization is often the over-riding objective of

shareholders resulting in large dividend payments for them. However, it is far more likely
that the managers of the business will aim to profit satisfy rather than profit maximize (that is,
they will aim to earn a satisfactory level of profits, and then use the remaining resources to
pursue other objectives such as diversification and growth). This conflict between these two
groups is often referred to as divorce of ownership (the shareholders) and control (the
management).
Customers and the business: Customers are unlikely to remain loyal and repeat purchase from
the business if the product that the have purchased is of poor quality and/or is poor value for
money. More customers are prepared to complain about the quality of products and after-sales
service than ever before, and the business must ensure that it has in place a number of
strategies designed to satisfy the disgruntled customer, reimburse any financial loss that they
may have incurred and persuade them to remain loyal to the business.
Suppliers and the business: Suppliers are often quoted as complaining about the lack of prompt
payments from businesses for deliveries of raw materials, and if this became a regular problem
then the suppliers may well refuse credit to the businesses or may even cease all dealings with
them. On the other hand, many businesses have been known to complain about the late
deliveries of raw materials and components from suppliers, and the dubious quality of the
parts once they have been inspected.

The community and the business: As outlined previously, the local community can often suffer
at the hands of a large company through the negative externalities of pollution, noise,
congestion and the building of new factories in areas of outstanding beauty. However, if the
business faces strong protests from residents and from pressure groups concerned about its
actions, then it may decide to relocate to another area; causing much unemployment and a fall
in investment in the community it leaves begin.
Starting up a business
Identifying an Opportunity
It is vital for the success of a business that it manages to identify an unsatisfied consumer need in a market
and then produce a product, or provide a service, which meets the consumers needs. The new product /
service can be protected against competition by the use of copyrights and patents. These protect the owner
inventor from having their products or ideas copied and reproduced by other people without their
permission.
Some of the most common reasons for starting up a new business include the need for independence; to
achieve your personal ambitions; being bored with your current job; links with your hobbies and interests;
redundancy from your previous job. Many businesses which have started over the past 25 years have
failed within the first 3 years of trading. To reduce the probability of failure, it is vital that businesses carry
out market research in order to establish if a profitable gap exists in a market and to see if their business is
in a strong enough position to fill this gap.
In order to make a success of the new business venture, the entrepreneur must be hardworking, ambitious,
firm, decisive, organized, a good negotiator and must be able to recognize an opportunity when it arises.
The Business Plan
Once an entrepreneur has recognized an opportunity, he/she must draw up a business plan. This is a
document which outlines the marketing, production, and financial plans for the proposed business. It is
used to try and persuade investors (banks) to lend money to the entrepreneur to fund his/her new business.
The main sections of a business plan include:
The aims and objectives of the business

Details of the new product or service being offered
An outline of the existing market details (i.e. size of the market, number of existing
competitors)
How and where the product will be produced
The proposed number of employees
A cash flow forecast, a projected profit and loss account and balance sheet for the end
of the first year's trading
Details of the finance required and the forecasted rate of return on this.
Problems of Start-ups
Most new businesses will face a number of problems when they are starting up and if these problems are
not tackled immediately, then they may lead to the insolvency and failure of the new venture.
Raising finance and meeting the repayments: Raising finance and meeting the repayments is often cited
as the major reason for the failure of many new business ventures. It can often be difficult for a budding
entrepreneur to persuade banks and other financial institutions to lend money to a new business, and often
they will only lend the money at a high rate of interest. These repayments can cripple the business and
eventually lead to its insolvency.
As well as the repayments, the bank will insist that some security (or collateral) is provided by the
business, so that if the business defaults on the loan repayments, then the bank will take ownership of an
asset of the business which will cover the amount of the outstanding loan.
Having a positive cash flow: having a positive cash flow is vital for the survival of the business.
Liquidity is the financial term given to express the ability of a business to raise cash at short notice. Any
new business must have sufficient cash available to meet its short-term needs (such as paying employees,
paying suppliers, rent and utility bills)
Many businesses have a lot of cash tied up in stocks, which are often difficult to sell and therefore the
business may find it difficult to raise cash quickly. Further to this, if the business gives its customers
credit (i.e. buys now, but pays us at a later date) then this will simply add to any cash flow problems that
the business is facing.
Paperwork and legal requirements: All businesses face a variety of paperwork and legal requirements,
and if any of these are overlooked or completed inaccurately, then this could lead to the failure of a new
business. Taxation and insurance payments are vital for the smooth running and survival of new
businesses. Any oversight on these payments could land the entrepreneur with a large tax bill or, perhaps
worse, property, and stock which will not be insured against fire and theft.
Enticing consumers to try the new product: Enticing consumers to try the new product / service can
also be a major problem for any new business, especially if there are already a handful of established
businesses which dominate the market. Ensuring that consumers try your product and then buy it again at
a later date (consumer loyalty) can often only is done through extensive (and costly) advertising and
promotional campaigns.
Legal Structure of the Business Organization

Sole Trader
A sole trader is a one-person business, commonly found in trades where only small amounts of finance
are required to set up and where there are very few advantages to the existence of larger organisations (e.g.
hairdressing, newsagents, and market traders).
Sole traders often employ waged employees, but they alone have to provide all the finance (often savings
and bank loans) and bear all the risks of the business venture. In return, they have full control of the
business and enjoy all the profits. A sole trader faces unlimited liability for his/her debts and it is
referred to as an unincorporated business this means that there is no legal difference between the
business and the owner.
Features of sole trader
Ownership and control: It is owned and controlled by one person who is solely
responsible for managing the business with or without the assistance employees.
Allocation of profit: All profits go to the sole proprietor who bears all the risks and losses.
Capital: He obtains capital from personal savings, loans from relatives, friends or the bank.
Other sources of finance include hire purchase, leasing and trade credit.
Liability: In the event of a business failure, his liability is unlimited.
Examples: This type of business is predominant retail trade (e.g. food stall, sundry shop)
and in service trade (e.g. Beauty salon, laundry) where the required capital and scale of
operation are small.
Advantages of being sole trader
Simplicity: No formalities are required to set up business; only registering the business name under
the Registration of Business Act. It is easy to organize, manage and dissolve as the proprietor does
not need to consult anyone when making decisions.
No separation of ownership and management functions: Personal supervision of business

ensures effective operation. Personal attention is given to customers whose needs are catered for.
There is personal incentive of the sole proprietor to work hard and succeed as all profits go to him.
Lower tax burden: The sole proprietorship is subject to personal income tax which is on a sliding
scale unlike companies which are taxed a higher flat rate.
Disadvantages of being sole trader
Limited Capital: Expansion of the business is limited by the lack of capital which depends solely on
the personal resources of the proprietor and on his credit-worthiness.
Unlimited liability: The proprietor is personally liable for all debts incurred by the business in the
event of a business failure.
Lack of continuity: Since the success of the business depends largely on the proprietors ability,
skill and ingenuity, its continuity is uncertain, if he has no successor.

Partnership
To overcome many of the problems of a sole trader, a partnership may be formed. A partnership is an
association of individuals and generally there will be between 2 and 20 partners.
Each partner is responsible for the debts of the partnership and therefore you would need to choose your
partners carefully and draw up an agreement on the responsibilities and rights of each partner (known as a
Deed of Partnership or The Articles of Partnership). The most common examples of a partnership are
doctors surgeries, veterinarians, accountants, solicitors and dentists.
As stated earlier, most partners in a partnership face unlimited liability for their debts. The only exception
is in a Limited Partnership. This is where a partnership may wish to raise additional finance, but does
not wish to take on any new active partners.
To overcome this problem, the partnership may take on as many Sleeping (or Silent) Partners as they wish
these people will provide finance for the business to use, but will not have any input into how the
business is run. In other words, they have purely put the money into the business as an investment. These
Sleeping Partners face limited liability for the debts of the partnership. A partnership, just like a sole
trader, is an unincorporated business.
Features of Partnership
Ownership: A form of business unit whereby two but not more than twenty persons combine
to carry on a business with the aim of making profits.
Allocation of profit: The division of profits or losses and of managerial responsibilities

depends on the terms of the partnership agreement.
Capital: Capital is obtained from partners contribution and loans.
Liability: The business and the partners are considered as one and, like a sole proprietorship,
it has an unlimited liability and is subject to income tax.
Types of partnership: There are two kinds of partnership:
o Ordinary or general partnership: In an Ordinary or general partnership all partners

enjoy unlimited liability
o Limited partnership: While in Limited partnership the limited partners liability is

restricted to the amount of capital invested in the business.
Control: A limited partner, however, has no say in the management of the business. All final
management of the business. All final management decisions, including the admission of new
partners, are made by the general partner or partners.
Advantages of partnership
Simplicity: A partnership is easy to form and organize as fewer restrictions govern its formation and
operations as compared to companies.
More Capital is available because of the contribution of the partners. Thus, a greater expansion of
the business is possible as compared to a sole proprietorship.

Pooling of expertise: This ensures a greater degree of specialization, resulting in a more efficient
management of the business
Additional help: Partners can consult each other regarding business matters. Duties being divided,
partners can take time off easily
Lower tax burden: Like a sole proprietorship, a partnership is subject to a personal income tax
rather than a company tax. The tax is distributed among the partners so that the total tax burden is
reduced.
Disadvantages of partnership
Unlimited liability: All partners, except the limited partner, have unlimited liability.
Inevitable friction: Disagreement among partners may lead to the dissolution of the partnership.
Lack of continuity: Death, bankruptcy, insanity or retirement of a partner may end a partnership.
Group commitment: Action of any partner, except that of the limited partner, is binding on all
partners.
Limited capital: Expansion of the business is limited to the amount of capital contributed by the
partners, the total number of which cannot exceed 20.
Limited Company
Limited companies are incorporated businesses with limited liability of shareholders and thee
companies have separate legal identity which means these companies can sue and can be sued and
business is separate from the owners.
Private Limited Company
This is a type of joint-stock company (that is, it is an incorporated business where the business has a
separate legal identity from the owners). Often private limited companies are small, family run
businesses which are owned by shareholders.
Each shareholder in a private limited company MUST be a part of the business and under no
circumstances can any shares be sold to members of the general public. Each share entitles the owner to 1
vote at the companys Annual General Meeting (AGM.) and also to a share of the companys profit at the
end of the financial year (a dividend). Each shareholder has limited liability for the companys debts and
can, therefore, only lose the value of their investment in the company.
A company is run by a Board of Directors (who are elected by the shareholders) and a Chairman Heads
this. Before a company can be formed, a number of legal documents must be completed most important
are the Memorandum of association and the Articles of Association. These cover details such as:
The objectives of the business

Its headquarters and registered office
The amount of capital to be raised from the sale of shares
Details concerning meetings within the business
The arrangements for auditing the accounts of the business.
When these are completed, they are sent to the Registrar of Companies, who will then issue the business
with a Certificate of Incorporation, which allows the business to trade as a Private Limited Company.
The companys name must finish with the word Limited and it must raise less than 50,000 of share
capital.
It can be very difficult for a shareholder in a private limited company to sell their shares, since a buyer
must be found within the framework of the company.
Public Limited Company (PLC)
This is the other, much larger, type of joint-stock company and, just like a private limited company, a PLC
is an incorporated business, is run by the Board of Directors on behalf of the shareholders and has an
AGM, at which shareholders vote on certain key issues relating to the company.
If a private limited company wishes to become a PLC, then it must change its Memorandum and Articles
of Association and re-submit them to the Registrar of Companies.
If the company is considered to have acted legally and for the best interests of its shareholders, then it will
be issued with a new Certificate of Incorporation and also with a Certificate of Trading, which will allow
it to sell its shares on the Stock Exchange. The price of the shares will then fluctuate according to
investors perceptions of the PLC.
It is often the case with a PLC that the owners of the company (shareholders) will wish the PLC to make
as much profit as possible, so that the shareholders will receive a very handsome dividend per share.
However, the Board of Directors and the management will often wish to devote some of the PLCs
resources to growth and diversification (such as the introduction of new products) and this will clash with
the shareholders desire for maximum profits. This is known as the divorce of ownership and control.
The PLC has to publish its annual accounts (known as disclosure of accounts) and therefore is
extremely vulnerable to investors and bankers perceptions about its progress and success. PLC is also at
risk of a takeover from an outside body, if they manage to accumulate over 50% of the shares in the PLC.
Advantages of being a limited company
Availability of capital: It can tap the capital resources of members of the public as in the
case of a public as in the case of a public limited company which can raise capital
through a public issue of shares.
Expansion of the firm: With the availability of capital it can produce on a large scale and
enjoy economies of scale (like employing specialists, bulk purchases at good discounts)
Continuity: Being a separate legal entity from its shareholders, it can have a more permanent
existence. There is continuity in business even though there may be changes in the ownership
of shares of the company.
Limited Liability: The principle of limited liability has encouraged investment with a
limited risk by large and small investors.
Transferability of ownership: Capital or ownership rights can easily be transferred through

the Stock Exchange.

Disadvantages of being limited company
Greater restrictions: There is more restrictions government its formation and operation.
This is especially true in the case of a public limited company which is required to keep
proper accounts and also to publicize its audited accounts. All these involve a lot of work and
expenses.
Lack of incentive: Separation of the ownership and management functions occurs when
salaried managers are employed in a public limited company.
Tax Liability: The Companys tax burden is heavier as it is subject to a flat rate of 27% on
company profits. Unincorporated businesses pay income tax.

Similarities between a private limited company and a public limited company
Both the companies are owned by the share holders who have voting rights
Both businesses are separate legal entity and are separate from its shareholders.
All the shareholders enjoy limited liability.
The company is controlled by a board of directors, elected by shareholders. However, the

ultimate control rests with the shareholders as they have the power to replace these
directors by the strength of their votes at the annual general meetings.
Both companies are registered under the Companies Act with the word Ltd as part of its
name.
Public ltd companies and private ltd companies must have their financial accounts audited
each year.
both companies can be started with minimum of two share holders (members)
Differences between a private limited company and a public limited company
Private limited company Public limited company
Ownership is open to private individuals whose It can invite members of the public to subscribe
shares are not transferable without the consent of to shares which are freely transferable, and, if
the other shareholders. listed on the Stock Exchange, it can be bought
and sold through the Exchange.
There is no requirement of minimum capital and Public limited company requires to have a paid
can be started with any amount of paid up capital up capital of 500000 pounds
The number of shareholders is subject to a The number of shareholders is subject to a

minimum of 2 and a maximum of 50. minimum of 2 and there is no maximum limit.
The limit on the number of shareholders restricts It can raise more capital and expand the business,
its capital resources and, hence, its expansion. As enjoying economies of scale, i.e. lower unit cost
a result, it tends to operate on a smaller scale as the scale of operations increases.
than a public limited company.
It can secure family control. Control is in the hand of those shareholders with
the largest shares.
A director must be a shareholder. Directors of the company need not be
shareholders (but most of directors are from
shareholders)
It can keep its financial accounts private, It is required by law to make public its annual
provided its shares are not held by other audited financial accounts, a copy of which has
companies and no debentures have been issued. to be sent to the Registrar of Companies.

Co-operatives
A cooperative is a non-profit making voluntary organization where members associate on the basis
of equal rights to obtain economic and social benefits for themselves. There are different types of
cooperatives, e.g. retail cooperatives, wholesaler cooperatives, producer cooperatives, cooperative
banks, thrift and loan societies, housing cooperatives.
Features of co-operatives
Registration: All cooperative societies are registered under the Cooperative Ordinance. A
cooperative society exists as a separate legal entity from its members and thus has the rights to hold
property, enter into contracts, to sue and be sued. There is perpetuity in its existence.
Ownership: The members of the society have ownership rights through purchase of shares.
Individual shares cannot exceed 1000 in UK. The shares are not transferable but they can be
withdrawn at short notice.
Control: The members are entitled to one vote each, irrespective of the amount of shares held. This
committee formulates the general policy of the cooperative. It then appoints a manager, a secretary
and other staff to run the cooperative. In big cooperatives, salaried non- member staff may be
employed to help run the society.
Return on capital: Members are paid a fixed rate of interest on their share capital whether profits
are earned or not.
Distribution of profits: The main aim of the cooperative is not to make profits. However, if any
profits are earned as a result of its activities, part of this trading surplus will be ploughed back into a
reserve fund and the rest will be returned to the members in the form of patronage dividends.
Advantages of Co-operatives
Limited liability: All members enjoy limited liability. Their liabilities are limited to the
capital they have invested business.
Continuity: The cooperative exists as a separate legal entity so that it can have a permanent
existence.
Democracy: Since members are entitled to one vote each, irrespective of shares held, they
have equal say in the running of the cooperative.
Patronage dividends: Members share in the profits of the business in proportion to their
purchases. In this way, the society is assured of the patronage of its members. Moreover,
since the members are its customers, the society will know the type and quality of goods and
services required.
Disadvantages of Co-operatives
Inability to compete: Cooperatives cannot compete with other business units in the same
area of operation because of the following reasons:
They lack capital because they depend mainly on members subscriptions. The low
capital means they cannot enjoy economies of scale.

They lack expertise, as members lack management ability and experience. This is the
chief factor for the failure of many cooperatives.
They offer less competitive prices and rates.
Ownership of shares is limited to a certain amount
Limited return on capital
Difference between a cooperative and a public limited company
Cooperative Public limited company
Objective: Not to make profit but to obtain

economic and social benefits for members. To make profits.
Registration:
Registration under the Cooperative Ordinance Registration under the Companies Act.
Ownership: Membership is open to certain Members of the public can subscribe to the
groups of people through the purchase of shares shares of the company. The shares are freely
after satisfying certain conditions. There is no transferable especially if they are listed on the
transferability of ownership rights and shares can Stock Exchange.
only be withdrawn upon notification.
Control; Members are entitled to one vote each, Control is based on one-share one vote. Thus
irrespective of the amount of shares held. There control is in the hands of the largest shareholders.
is democratic control. There is a restriction on There is no limit to the amount of shares held by
the amount of shares held by each shareholder. each shareholder.
Return on Capital: Fixed rate of interest on Return on capital is not fixed as it depends on the
share capital whether profits are earned or not. profit of the business. Only the preference
shareholders receive a fixed rate of dividend.
Patronage Dividends: Members receive No patronage dividends are issued to the

patronage dividends on the basis of patronage of shareholders.
the cooperative.
Trading Surplus: The trading surplus, unless The trading surplus, unless ploughed back, is
ploughed back, is distributed to its members in distributed to its shareholders in proportion to the
proportion to the amount of purchases each has amount of shares owned.
made at the cooperative, and not in proportion to
the amount of shares owned.

Public Enterprises (Public Corporation)
A government undertaking set up not with the aim of making profits but to promote the public
interest and to maximize social welfare by providing essential goods and services.
Difference between the public Corporation and Public Limited Companies
Public Corporation Public Limited Companies
Purpose: To promote public interest by To make a profit by selling goods or rendering

providing essential goods and services at services to those who have the means to purchase
reasonable rates to those who need them, whether them.
rich or poor.
Formation: It may be established by a special It is formed through registration with the

Act of Parliament which governs its operations. Registrar of Companies and its operation is
governed by the Companies Act.
Capital: This is provided by the government or This is provided by shareholders. Loans in the
local authority. Loans and advances are obtained form of debentures and bank advances have to be
through the government. negotiated for.
Ownership and control: It is usually owned and It is owned by the private sector, i.e. those
administered by a local authority or a Govt body. members of the public who have shares in the
company.
Management and control: This is usually in the This is undertaken by a board of directors elected
hands of a board of directors appointed by the by the shareholders at the Annual General
local authority or government concerned. The Meeting.
management board is usually vested with a
greater degree of autonomy than that of a
government department.
Distribution of profits: Profit, if any, are Profit is distributed to shareholders as dividends.

ploughed back for the expansion of the Ploughed back for expansion of the company.
corporation. Used to subsidize rates or cover
losses.
Advantages of public corporations
Promotion of public interest: The public corporation supplies goods and services to those
who need them, i.e. the rich as well as the poor.
Economies of large scale production: Since it is usually a monopoly or sole supplier of a

product or service it can operate on a large scale and thus is able to reduce unit cost.
Strategic advantages: The government has a control over the essential goods and services
public corporation supplies.

Disadvantages of public Corporations
Unprofitable venture: Absence of the profit motive and self-interest reduces efficiency.
Complexity of management: If the corporation is large, management may be more complex.

The formulation and execution of policies may be hindered by red tape.
Growth (integration)
In long term each and every business tries to expand its business activity. Sometimes by diversifying their
operations and sometimes by growing in size. The basic purpose of growth is to achieve economies of
scales so that risk of failure can e reduced.
Internal -v- External Growth
Internal growth: (Often referred to as organic growth) refers to a situation where a business
increases its size through investing in its existing product range, or by developing new
products. This will normally be financed through the use of retained profits (from previous
trading years), bank loans or, if the business is a PLC, through the issue of shares. This is a
slower and safer method of expansion than external growth.
External growth: Involves much greater sums of money and takes place through the use of
mergers and takeovers (often known as growth through amalgamation, or simply integration).
Regardless of the method of growth, there are several reasons why firms wish to grow:
To achieve economies of scale and see the average cost of production decline.
To achieve a greater market share.
To satisfy the ego of the businessman.
To achieve security through becoming more diversified.
To survive in an increasingly competitive market
How to Growth
Merges Takeovers Franchise Joint ventures
Mergers
Where two or more than two businesses merge into one entity and start their operations under new name,
eliminating the previous entity
Why to merge?
To achieve economies of scale.

To avoid extra operational cost
To compete
To increase market share

Disadvantages
Established entity will be eliminated and this can hurt grand loyalty.
Conflict of interest between the managements of merged businesses.
Diseconomies of scales
Take Over
A growth technique where a business buys out more than 50% shares of any other business. It means now
all the decision making powers are divorced to the business which has bought the other one e.g. standard
chartered taking over union bank.
A
C B
25% 51%
Company A has buried 51% shares of B and 25 % share of C. Here A is known as Holding or Parent
Company. B is known as subsidiary company. C is known as associated company
Why to takeover?
To achieve economies of scales

To eliminate competition
To control the management of related industry or business so that core business can be
supported more efficiently.
Disadvantages
Diseconomies of scale
It can create private monopolies which can be harmful for the society because they can
exploit the consumer by charging very high prices.
Joint Ventures
A growth technique where two or more business join hands together for a specific project or specific
period of time under their own entities and after the completion of that project they will disperse and will
resume their own activities e.g. Bata and Hush puppies, Silt route.
Advantages of Joint Venture
Small business can take large investment projects by shaking hands

Risk can be shared and chances of failure reduce.
More capital can be generated and cost will also split on more than one business.
Pooling of expertise which can provide competition edge.
Disadvantages of Joint Venture
Conflict of interest may arise between different stake holders.

It can be to manage because each and every business has its unique way of operating.
Less profit can be there because profits will divide on more businesses.

Franchise
It is growth technique where an established business sells license to some one that his name can be used.
The basic idea of Franchise is to grow your brand name without further investment.
Franchise can sell his name to franchisee for:
To sell
To produce
To produce and sell
Advantages to Franchiser
More revenue without any further investments.

Increase bargaining power with every next new unit.
Economies of scales
Disadvantages to Franchiser
Bad repute or negative good will can be there if franchise will not be able to maintain the
quality.
Very high training and R&D cost.
Loss of revenues
Advantages to Franchisee
Less risk of failure because franchisee is operation with an established brand name.
More profits because of economies of scales.
Advertisement and Training cost is very low.
Disadvantages to Franchisee
Low of revenue has to give a limited amount of percentage to franchiser.

Very high initial cost.
Dependency on franchisee because no flexibility of policies or innovation is there.
INTEGRATION (Growth)
HORIZONTAL VERTICAL
Same product and same stage same product
(Walls taken over polka) Different stage
Vertical forward Vertical Backward
1 2 3 1 2 3
Advantages of growth: Economies of scale
As a business grows in size and produces more units of output, then it will aim to experience falling
average costs of production (i.e. on average, each unit of output costs less to produce). This is known as

benefiting from economies of scale. In other words, the business is becoming more efficient in its use of
its inputs to produce a given level of output.
Internal economies of scale
Technical economies: This refers to the fact that the use of automated equipment and machinery to
produce output is far more cost-effective than using labour, since the machinery can be used 24 hours a
day, with no breaks and with a constant level of output per hour.
Purchasing economies: Larger businesses are more likely to be able to bulk-buy their supplies and their
raw materials, and therefore secure their supplies at a far lower cost per unit than a smaller business.
Financial economies: Banks and other financial institutions are more likely to offer a lower rate of
interest on a loan repayment to a larger business than to a smaller business, since the larger business
represents less of a risk because it is more financially secure.
Managerial economies: Larger businesses are more likely to be able to afford to employ managers who
are specialists in a particular field. These managers can therefore devote all their time to specializing in
one particular field (resulting in higher levels of efficiency and hopefully falling average costs). Smaller
businesses will often employ managers who have to perform a variety of tasks and therefore cannot
specialize in a single area of the business.
Risk bearing economies:
Marketing economies:
External economies of scale
Labour economies: A large pool of available labour in a particular area of the country which has been
trained at a local college, or even at a rival business, will possess specialized skills which will be useful to
the whole industry, rather than simply to just one business.
Joint ventures Two or more businesses may decide to join forces (perhaps for R&D) in order to spread
the costs and the risks of developing a new product or manufacturing process.
Support services A wide range of commercial and support services often cluster together in a certain area
near a number of rival businesses (e.g. waste disposal, cleaning, component suppliers, distribution, .).
Clearly this benefits all the businesses in the area, rather than just one of them.
Problems of Growth (disadvantages)
However, it is also possible that as a business grows in size and produces more units of output, then it will
actually experience rising average costs of production (i.e. on average, each unit of output costs more to
produce). Rapid and unexpected growth can lead to a host of problems for businesses.
Probably the most common problem is the effect that the growth has on the companys finances -
specifically upon the liquidity and gearing of the company. Extra expenses and increased long-term

liabilities (such as loans and mortgages) may reduce the liquidity and increase the gearing levels of the
company and leave it dangerously close to insolvency.
It may simply be the case that the managers cannot cope with the extra responsibilities and workloads
that they are faced with this could lead to a rapidly expanding workforce, with the problems of
recruitment, training and lengthy communication channels that this will inevitably lead to. It is also
possible that the company may become inefficient and it may experience diseconomies of scale (rising
average costs). This could lead to a significant fall in profits, which in turn could persuade shareholders to
sell their shares this would result in a falling share price.
A major problem that a PLC can experience as it grows is the divorce of ownership and control. This
refers to the fact that the owners of a PLC (shareholders) are usually interested in maximizing the
companys profits and, therefore, their own dividend payments. However, the control of the company is in
the hands of the management and the Directors. They too want the company to be profitable, but would
also like some of the companys resources and money to be invested into new products and new markets.
This, clearly, reduces the short-term profits of the company and, therefore, also reduces the dividend
payments to shareholders.
Size of the business
Small scale
Medium size
Large size
How to measure the size of Business
Capital employed (The total resources invested in to the business from all the sources)
Number of workers employed
Market share (Number of customer using a product of a specific business out of the total market
is known as market share and it is expressed in percentage)
Turn over /revenue/sales
Output produced
Difficulties in measuring size of a business

Why some businesses remain small
Lack of resources because small scale business is normally owned by a sole owner and the main
source of finance is personal savings or informal loans.
Lack of visions, ambitions, or targets.
Lack of promotional activities (advertisement, free samples)
Lack of research and development activities.
Lack of personality trait, not confident enough to expand business or open new branches.
How small scale businesses can compete large scale businesses
Niche Market: A small segment of specialized market which is ignored by the large scale
businesses or large scale businesses is not aware of the overall potential of that market. But the
problem with niche market is that large scale businesses can exploit and take over the market any
time. Because they have huge brand following.
Personal services can be provided to the customers so that satisfaction level can be maximized.
Diversification of activities: (variety of products)
Why large scale businesses are more successful
More resources are available as they can attract new investor and can also borrow from financial
institutions.
Economies of scales bring the average cost very low so their profit margins are very high.
They can afford to conduct research and development which fives these businesses competitive
edge.
Due to excessive resources they can eliminate competition from the market by taking over the
other businesses.
They can have favorable lows by the Government by using their international, political influence.
Multinational companies (MNCs)
A multinational corporation (MNC) has facilities and other assets in at least one country other than
its home country. Such companies have offices and/or factories in different countries and usually
have a centralized head office where they coordinate global management. Very large multinationals
have budgets that exceed those of many small countries. Unilever, nestle, P&G are examples of
MNCs.
How Multi National Companies are beneficial for the host country
MNCs bring huge amount FDI (foreign direct investment) which can be used to improve BOP and
country can import machinery which is essential for economic growth.
Transfer of skills and technology because normally MNCs use local work force and to make them
more efficient and productive they provide them training which is of international standards.
Due to competition quality goods can be available at low or competitive prices which will increase
the standard of living.
Domestic producers will also become more efficient s now they have to compete international
standards and quality. So domestic producers will also plough back the puffers and try to increase
their productivity.
MNCs operate on very large scale so job opportunities will be available which will reduce
unemployment level and increase standard of living.
MNCs can also increase in economic growth level. As there will be an increase in economic
activity in that specific country.
How MNCs can be harmful for the host country
Discouragement to domestic producers because they cannot afford to produce higher quality goods
due to lack of finance and modern machinery and equipment.
In long term, MNCs can form monopolies by taking over domestic producers or by kicking them
out of the business.
In long run MNCs can cause very high unemployment rate as small scale domestic producers will
go out of the business.
Adverse BOP can be there because in long term there will be an out flow of profit from the
country.
Political influence can be there so that they can have favorable legislation.
Business Sectors
Public Private
Where all the productive resources are owned and Where all the productive resources are owned and
controlled by Government and the basic purpose controlled
of by private individuals and there is no
public sector is not to earn profit but to provide social
Government interventions accept the legislative process.
services to each and every member of the society
without any discrimination. Incorporated Unincorporated
(Limited) (Unlimited)
Corporations Nationalised Industries - Private limited - Sole traders
(WAPDA, WASA) (UBL ,HBL in 70s) - Public limited - Partnership
-Co-operatives
significance of public sector
Public sector basically represents public and protects interest of the public and it is the responsibility of
the public sector to provide the basic utilities and social services to each and every member of the society
without any discrimination.
Public sector produces public and merit goods which is essential for the community as a whole.
Public goods are those which are provided free of cost to each and every one. Public goods carry three
features. E.g., street lights, public parks, roads.
Merits goods are those goods which are provided at very cheap rates and the basic purpose is to provide
the society equal opportunities so that every member can become more efficient and productive e.g. health
and education.
Public sector is also responsible for the protection of society so that private sector can not exploit the
society by producing demerit or illegal goods, working as Watch Dog. Public sector also works as a watch
dog and monitors the activities of private sector so public interests can be protected (Demerit goods are
not illegal but harmful for the society)
Significance of Private Sector
Private sector works for profits and to maximize their profits private sectors firm try to produce variety of
high quality goods. It is responsible for the improvement in living standards a consumers sovernginity.
Private sector produces only those items where profits are available but in search of profit research and
development is conducted which can be beneficial for the society.
It also provides job opportunities and is also responsible foreign exchange through exports so private
sector is the main element quality, variety, and innovations.
Business objectives
An objective is a goal that needs to be achieved
Mission statements
This is often a simple and memorable sentence, which explains what the organization is in business to do
and what it wants to achieve. A mission statement can often be found in the front of a companys annual
report and it is, effectively, a summary of its day-to-day activities and long-term objectives, showing a
sense of underlying purpose and direction.
It is often argued that mission statements are best when they are simple and informal. For example:
Ford Motor Company PLC . is a worldwide leader in automotive products and services, as well as in
newer industries such as aerospace and communications. Our mission is to improve continually and meet
our customers needs, allowing us to prosper as a business and to provide a reasonable return for our
shareholders.
Cadbury Schweppes PLC . is a major international company with a clear focus on its two core
businesses confectionery and beverages. Our quality brands are bought and enjoyed in more than 110
countries around the world.
A good mission statement should be clearly defined, realistic, and achievable, and at the same time it
should ensure that the employees attention is focused towards the overall company aim. Mission
statements normally express the organizations objectives in qualitative terms, (as opposed to quantitative,
that is, facts and figures) and many businesses include the following variables in their mission statement:
their number one priority, their product definitions, their non-financial objectives and their overall values
and beliefs.

Business objectives
It is important to understand how business objectives 'fit in' with business aims and strategies.
- An aim states what you want

- An objectives set out what you need to have achieved to get what you want
- Strategies are course of action, which enable any business to meet its objectives.
In order for objectives to be effective, they must:
o Provide detail about what specifically needs to be achieved (often in a quantitative form)
o Have a time limit by when they need to have been achieved
o Need to state the necessary resources that they require in order to be met.
Setting clearly defined and realistic objectives will enable many employees to understand exactly what
their job entails and achieving clearly stated objectives might be linked to bonus payments - this can easily
act as an incentive and motivator to employees.
It is of great importance for a business to have well-defined objectives. These objectives will help the
business to be clear about what it wants to achieve or where it wants to go.
With objectives, the performance of a business can be assessed according to a standard, that is to say, how
effectively the business has achieved its objectives.
Primary and secondary objectives
A primary objective is an ultimate long-term goal of the business (e.g. survival, profit maximisation,
diversification, and growth). They are often referred to as strategic objectives.
A secondary objective is a day-to-day objective, and it makes a direct contribution to meeting the
primary objectives (e.g. increase sales by 5% each year, keep labour turnover at less than 4%). They are
often referred to as Tactical objectives.
Business objectives
Survival
Profit maximization
Growth
Managerial objectives
Corporate Social responsibility (CSR)
Survival as an objective
At the commencement of the business: During such stages, businesses may face many problems
because they may lack experience and resources, or they may meet with strong competition from
existing companies.

When business activity becomes difficult: During such periods, a business may face falling
demand for their products, bad debts, low confidence for its future, economic recession or
unfavorable government legislation.
When there is danger of take-over: In case of the threat of being taken over by another firm,
survival may be the main objective. Otherwise, the business may be a business owned by someone
else.
Profit maximization as an objective
Profit maximization means increasing profit as much as possible or producing a level of output which
brings the most profit for the business.
Usually, the main objective of a private sector business may be to maximize its profits. However, things
may be different for a public sector business. The main objective of a public sector business may be to
supply the best service in the past, although nowadays, they are offering services in a more and more
business like way.
A business may sometimes sacrifice short-term profit maximization for long-term profit maximization.
Possible reasons why a business might sacrifice short-term profit maximization for long-term ones are, for
example, lowering the price to build a market share and increase it when possible or operating a short term
at loss to wait for the pick-up of sales in the future
How to maximize profit
1) By changing Pricing strategy

If the business is producing on the price elastic section of the demand curve, a large
percentage change in price leads to a large percentage change in quantity demanded.
Lowering the price will have the effect of increasing total revenue and raising the price will
decrease total revenue, e.g., if the price of Mars Bars increased by 25% ceteris paribus, we
would expect their sales to fall dramatically as consumers shift to other chocolate bars. This
would have the effect of reducing their total revenue.
If the business is producing on the unitary price elasticity section of the demand curve, small
changes in price do not change total revenue as a percentage change in price will be exactly
offset by an inverse change in quantity.
If the business is producing on the price inelastic section of the demand curve, a small
percentage change in price leads to a small percentage change in quantity demanded. This
will have the effect of decreasing total revenue when the price is decreased and increasing
total revenue when the price rises. For example if a firm invented a miracle cure for the
common cold and decided upon a price of 50p a pack. The firm sold 10 million packs in the
first year of sales. Next year they decide to raise prices by 25% and sales fall to 9 million
(10% fall), the levels of sales have dropped, but the total revenue has increased.
It is important to note that the revenue maximising level of production occurs when elasticity
is unitary, but this isn't necessarily the level where profit is maximised. We don't know the
firm's costs at different levels of output. Furthermore elasticities are notoriously difficult to
calculate and errors in the elasticity figures could lead to incorrect pricing decisions.

2) By improving productivity
Productivity can be measured in several ways. A common one is to measure the output of labour over
some agreed time period. The following formula can be used:
Output (per year)

Labour productivity =
Number of employees
Increases in productivity are not simply the result of employees working harder. They may have better
equipment following an investment programmed. Other factors, such as training may also help improve
labour productivity.
An alternative approach is to measure capital productivity. This can be achieved by use of the following
formula:
Output (per year)
Capital productivity =
Capital employed or machine hours
Both capital and labour productivity measures do not fully assess the efficiency of an enterprise, since each
considers only a single input in relation to final output. A fuller assessment would require that all inputs
were considered in relation to final output.
Productivity improvements can help turn around the fortunes of a business. Gaining greater output from a
given amount of inputs helps a company to reduce costs, granting it the freedom to reduce its prices, to
increase its competitiveness or to take a greater profit margin.
Methods of improving productivity
Training Employees are likely to increase productivity if they have the skills necessary to carryout their
jobs effectively and efficiently. If employees are multiskilled, they are more able to cover for absent
colleagues or to respond to sudden increases in demand. Besides increasing skills, training can motivate
employees by fulfilling social and self-esteem needs as identified by Maslow.
Flexible employees Competitive businesses need flexible workforces that can respond to needs of
consumers. Thus, part-time employees specialists on short term contracts and temporary employees all
help a business to meet the varying demands of customers in a cost-effective manner
Motivation Techniques to improve motivation (e.g. job enrichment and team working) may result in
employees being more committed to the organization and producing larger quantities of better quality
output.
Capital expenditure To maintain productivity at the levels achieved by the most efficient businesses, it is
essential to provide the labour force with the tools to do the job. Car manufacturer s have increased
productivity significantly; by investing in robotic equipment for the production line. Such equipment can
be used 24 hours a day and produces consistently high quality products.
Ensuring high capacity utilization A business can operate most efficiently and productively through
using all the capacity available to it. Greater utilization of premises, employees, and equipment contributes
to lower unit cost of production and an increase in productivity as economies of scale are achieved.
Growth as an objective
Growth objective may refer to the goal of a business to become larger, stronger or more competitive.
Many businesses regard growth as their main objectives.
Possible reasons for a business to regard growth as an objective:
To survive, no growth may mean final death.

To introduce new products in order to meet customer changing needs.
To reduce risks of business: In fierce competition, if a business cannot become strong enough, it is
more likely to be eaten up by other stronger competitors.
To have low costs and more profits on a larger scale (economy of scale).
To make employees, managers, and owners all feel happy and secure.
Managerial objectives
The managers own objectives in the business. The owners of the business do not usually control the day
to day running of the business. It is the management that control and run the company according to their
own objectives and the owners strategic decisions.
Common examples of managerial objectives:
Maximize their departmental budgets

Maximize number of employees under their control or in their charge
Maximize their personal benefits such as entertainment expenses or company cars
Maximize their leisure or free time
Maximize their personal salary
Delegate as much work as possible
Sometimes, when managers and employees are paid according to their sales revenues rather than the
created profit, sales revenue maximization may become the main objective of the business. The business
wants to enlarge the market share first and then benefits in the long run.
Corporate Social responsibility as an objective (CSR)
It refers to a management philosophy that highlights the social and economic effects of managerial
decisions or the managements acceptance of the obligation to consider profit, consumer satisfaction, and
societal well-being of equal value in evaluating the firms performance. Image and social responsibility
have become more and more important objectives of businesses.

Triple bottom line (TBL or 3BL) The TBL is an accounting framework with three dimensions:
social, environmental (or ecological) and financial. The TBL dimensions are also commonly called
the three Ps: people, planet and profit and are referred to as the "three pillars of sustainability". Use
of triple bottom line concept has been growing in profit, non-profit and government sectors. Many
organizations have adopted the TBL framework to evaluate their performance in a broader context.
The concept of TBL demands that a company's responsibility lies with stakeholders rather
than shareholders. In this case, "stakeholders" refers to anyone who is influenced, either directly or
indirectly, by the actions of the firm. According to the stakeholder theory, the business entity should
be used as a vehicle for coordinating stakeholder interests, instead of maximizing shareholder
(owner) profit.
The triple bottom line consists of social equity, economic, and environmental factors. "People, planet
and profit" compactly describes the triple bottom lines and the goal of sustainability.
"People" pertains to fair and beneficial business practices toward labour and the community and
region in which a corporation conducts its business. A TBL company conceives a reciprocal social
structure in which the well-being of corporate, labour and other stakeholder interests are
interdependent.
An enterprise dedicated to the triple bottom line seeks to benefit many constituencies and not to
exploit or endanger any group of them. The "up streaming" of a portion of profit from the marketing
of finished goods back to the original producer of raw materials, for example, a farmer. In concrete
terms, a TBL business would not use child labour and monitor all contracted companies for child
labour exploitation. It would pay fair salaries to its workers, would maintain a safe work
environment and tolerable working hours, and would not otherwise exploit a community or its labour
force. A TBL business also typically seeks to "give back" by contributing to the strength and growth
of its community with such things as health care and education.
"Planet" (natural capital) refers to sustainable environmental practices. A TBL company attempts to
benefit the natural order as much as possible or at the least do no harm and minimize environmental
impact. A TBL business strives to reduce its ecological footprint (negative impact of business
practices) by carefully managing its consumption of energy and non-renewable resources and
reducing manufacturing waste as well as rendering waste less toxic before disposing of it in a safe
and legal manner.
A triple bottom line company does not produce harmful or destructive products such as weapons,
toxic chemicals or batteries containing dangerous heavy metals.
Currently, the cost of disposing of non-degradable or toxic products is borne financially by
governments and environmentally by the residents near the disposal site and elsewhere. In TBL
thinking, an enterprise which produces and markets a product which will create a waste problem
should not be given a free ride by society. It would be more equitable for the business which
manufactures and sells a problematic product to bear part of the cost of its ultimate disposal.
Ecologically destructive practices, such as overfishing or other endangering depletions of resources
are avoided by TBL companies. Often environmental sustainability is the more profitable course for
a business in the long run. Arguments that it costs more to be environmentally sound are often
specious when the course of the business is analyzed over a period of time.
"Profit" is the economic value created by the organization after deducting the cost of all inputs,
including the cost of the capital tied up.
It therefore differs from traditional accounting definitions of profit (Which states that it is a surplus
of revenue generated after deduction of cost of production and other operating expenditures).

In the original concept, within a sustainability framework, the "profit" aspect needs to be seen as the
real economic benefit enjoyed by the host society. It is the real economic impact the organization has
on its economic environment. This is often confused to be limited to the internal profit made by a
company or organization (which nevertheless remains an essential starting point for the
computation).
Therefore, an original TBL approach cannot be interpreted as simply traditional corporate accounting
profit plus social and environmental impacts unless the "profits" of other entities are included as a
social benefit.
Private and public sector objectives
Private sector
Private sector objectives will often differ considerably from objectives set in the public sector. Profit
maximisation is often quoted as the over-riding objective for businesses in the private sector. This will
involve trying to produce at the point where there is the maximum difference between the firms total
revenue and its total cost - resulting in large dividend payments for the shareholders. However, it is far
more likely that businesses will aim to profit satisfy rather than profit maximise (that is, they will aim to
earn a satisfactory level of profits to keep shareholders content, and then use the remaining resources to
pursue other objectives such as diversification and growth).
Another objective in the private sector, for a rapidly growing business, may well be to maximise sales (or
sales revenue) and so increase their market share in order to gain a competitive advantage.Many
businesses set objectives to improve their image and to appear more socially responsible and
environmentally friendly this is often achieved through strategies of recycling materials, sponsoring
local events and strictly adhering to all employee legislation (e.g. pay levels, Health & Safety,
discrimination, ..)
Public sector
Public sector objectives have, traditionally, been centered on providing a public service, rather than make
a profit. This regularly led to loss-making organisations being subsidized by the government, and
complacency crept in with regards to customer service, quality levels, and response times.
The remaining public sector organisations were told to run in a more cost-efficient manner and to improve
the quality of their services to c consumers. Performance targets were set for many Local Health
Authorities, Local Education Authorities, and council services in an attempt to make them more
accountable, to reduce their costs, and to improve the quality of their output.
A strategic decision is one which is very high-risk and is likely to influence the overall long-term policy
and direction of the business. It is likely to be dealt with by senior management (e.g. what new products
to develop).
A tactical decision is a fairly routine, predictable, short-term decision, which is normally handled by
middle management (e.g. what price to charge for products). Other decisions which are repetitive, day-to-
day and fairly risk-free are handled by lower-level management, and are generally referred to as
operational decisions (e.g. how long should tea-breaks be?).
Businesses have to make decisions in order to achieve their objectives.
There are eight key stages involved in the traditional decision-making process:

1. Set objectives. The decision-making process cannot proceed without an achievable, realistic, and
identifiable target to be met.
2. Gather data. Use market research to collect as much information as possible from inside and
outside the business, so to enable the decision-makers to have the necessary data with which to
make an effective decision.
3. Analyze the data. Look at the different courses of action and decide which ones look the most
achievable and realistic to meet the objective.
4. Make a decision. This stage is vital to the whole process. The decision-makers must ensure that
they follow the correct course of action and do not reject a better alternative.
5. Communicate to the whole organisation. The relevant people, both inside and outside the
organisation, need to be informed about the decision and how it may affect them.
6. Implement the decision. The course of action that has been decided upon is implemented, using
the available resources of the business.
7. Look at the results. Obtain as much feedback as possible concerning the recently implemented
decision, from as many sources as possible.
8. Evaluate the outcome. Did the decision work? Was it the best course of action? How can it be
improved next time? What went wrong?
Businesses can rarely carry out their decision-making in a totally open and risk-free environment, and
there are often many constraints which exist, that will limit the possible options available to a business.
These constraints can be internal (such as the lack of available finance or the lack of a multi-skilled
workforce) and external (such as a rise in interest rates, a new competitor entering the market, or new
legislation which restricts the activities of the business).
There are many tools available to a business that will help it limit both the risk involved and the chance of
failure, when making a vital decision (such as launching a new product, taking over a competitor, or
breaking into foreign markets).


An Insight Ot Business Studies

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What is business

Why people start their own business

Commitment with some product or idea

Stake holders of the business

There are two types of stake holders

External stake holder internal stake holder

EXTERNAL STAKE HOLDERS

Stake holders Interest

Government Business must pay taxes

Suppliers Prompt payments

Customer High quality products

Community No/low social cost

An insight to Business Studies 1

Share holder /owner Earn maximum profit or dividend

Manager more decision making functional power

Workers/staff fair and timely wages

Conflict between different Stake holders

Shareholders and management: Profit maximization is often the over-riding objective of

An insight to Business Studies 2

The Business Plan

The main sections of a business plan include:

The aims and objectives of the business

Legal Structure of the Business Organization

An insight to Business Studies 4

Features of sole trader

Liability: In the event of a business failure, his liability is unlimited.

Advantages of being sole trader

No separation of ownership and management functions: Personal supervision of business

Disadvantages of being sole trader

An insight to Business Studies 5

Allocation of profit: The division of profits or losses and of managerial responsibilities

Capital: Capital is obtained from partners contribution and loans.

Types of partnership: There are two kinds of partnership:

o Ordinary or general partnership: In an Ordinary or general partnership all partners

o Limited partnership: While in Limited partnership the limited partners liability is

An insight to Business Studies 6

Private Limited Company

The objectives of the business

Public Limited Company (PLC)

Advantages of being a limited company

Transferability of ownership: Capital or ownership rights can easily be transferred through

An insight to Business Studies 8

An insight to Business Studies 9

All the shareholders enjoy limited liability.

The company is controlled by a board of directors, elected by shareholders. However, the

Differences between a private limited company and a public limited company

Private limited company Public limited company

The number of shareholders is subject to a The number of shareholders is subject to a

An insight to Business Studies 10

An insight to Business Studies 11

They offer less competitive prices and rates.

Ownership of shares is limited to a certain amount

Limited return on capital

Difference between a cooperative and a public limited company

Cooperative Public limited company

Objective: Not to make profit but to obtain

Patronage Dividends: Members receive No patronage dividends are issued to the

An insight to Business Studies 12

Difference between the public Corporation and Public Limited Companies

Public Corporation Public Limited Companies

Purpose: To promote public interest by To make a profit by selling goods or rendering

Formation: It may be established by a special It is formed through registration with the

Distribution of profits: Profit, if any, are Profit is distributed to shareholders as dividends.