1.2 Understanding different business forms CHANGING BUSINESS FORM, NON-PROFIT ORGANISATIONS AND THE EFFECT OF OWNERSHIP ON MISSION OBJECTIVES, DECISIONS AND PERFORMANCE 1 Learning outcomes Understanding the nature and purpose of business What you need to know: The effects of ownership on mission, objectives, decisions and performance.
2 Non-profit organisations such as charities and mutuals Non-profit organisations: are organisations established for particular social, community, environmental, welfare or cultural aims and objectives and not for financial gain. Any profits will be reinvested into the organisation to further its objectives. They will operate under different legal structures, as do charities and trusts. Charities: are a registered not-for-profit organisations with the main aim of raising money for a specific cause or purpose. E.g. WaterAid, Cancer Research UK, Save the Children Fund, Oxfam GB, RSPCA Mutuals: are organisations that are owned by, and run for the benefit of, their current and future members. Their main aim is to serve their members (usually customers and/or employees) and often to contribute positively to society.
They take many forms including building societies, co-operatives, friendly societies, mutual insurers, housing associations, clubs, employee-owned businesses, credit unions, football supporters trusts and community mutuals. 3 Non-profit organisations: Examples of mutuals Nationwide Nationwide has mutual status rather than being a public limited company, which means it is owned by and run for, the benefit of its members (its customers). Nationwide is the world's largest building society, one of the largest savings providers in the UK and a top-three provider of mortgages in the UK. It is also a major provider of current accounts, credit cards and personal loans. Nationwide has over 14 million members.
Their aim is to offer a broad range of mortgages, savings and other financial products, while charging as little as possible for day-to-day services. They have 160 years of expertise and experience at being a building society, looking after the interests of their members and attempting to deliver great value to their members. Adapted from: http://www.nationwide.co.uk/about/why-choose-nationwide/all-about-membership) 4 The effects of ownership on mission, objectives, decisions and performance: Activity Organisations may have different priorities and ways of making decisions depending on the type of ownership Task: In groups discuss the following example organisations and make notes on the questions below.
1. A sole trader web-designer 2. A private limited family-run company 3. An international public limited company such as Tesco plc. 4. A mutual private sector firm such as Nationwide 5. A not-for-profit public sector organisation such as the NHS 6. A not-for-profit charity such as Greenpeace Consider and explain how the following issues will differ for each of the 6 business types: Will they take more of a short- or long-term perspective and why? How will decisions be made in the organisation and by whom? State some example objective they may set. What would be the most important objective for this type of business and why? 5 Exam-style question 1. Analyse the benefits Poundland Ltd. would gain from becoming a public
limited company. (9 marks) 2. Discuss whether you think a mutual like Nationwide can remain competitive with other public limited companies such as Barclays in the banking industry in the long-term? Justify your view. (16 marks) Exam tip: Always apply your points to the case study provided. Look for what is unique and different about the business being discussed. Consider issues such as their target audience, market conditions, rivals, product type, financial position, objectives, staff, etc. All points and judgements must be influenced by the case and always consider why your point would be important for this particular business when writing. 6
Summary A firms legal structure will define the type of objectives it sets, the way it makes decisions and whether it focuses more on the short or long term in its strategies. They will determine how easy it is to raise finance but also the level of legal implications and public scrutiny they face. Choosing the right legal structure will ultimately be determined by the type of market the company is in, the structure of its rivals, the views of the existing owners and its need for external finance to implement its growth plans. 7
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