Business Types and Market Structure

1. Main types of businesses

(1) Private and
(2) Public sectors
The two sectors make up a mixed economy.
(1) Private sector:
 Sole traders / sole proprietors
 Partnerships
 Private limited companies (Ltd)
 Public limited companies (Plc)
 + Some special business relationships, such as franchises, cooperatives,
holding companies, and building societies
(2) Public sector:
 Municipal undertakings
 State undertakings
What should be taken into consideration when establishing a business?
- How the business raises money
- Issues of taxation
- Liability
- Documents / records that should be kept
Sole traders
- People who open a business alone
- This is the easiest to set up
- Very easy, there are only a few obligations and legal formalities
- It is possible to employ workers
- Finance: the individual’s own savings → banks consider it too risky → loans only
with support
- Owned and run by one person
- Possible to borrow money
- Sole traders exercise all the rights in their own name
- Assets (eszközök) and debt are owned by the proprietor
- The owner has unlimited liability
Pros Cons
 Relatively cheap to start  All problems have to be solved
 Fewer regulations alone
 Decisions are made by the owner  Too much responsibility and
→ no disagreement liability → all can be lost
 Owner knows everything  Nobody to turn to
 Owner can take all the profits  Difficult to get loans
 Financial information can be  Higher rate of bankruptcy
kept private  The business may suffer if the
 Very simple accounts owner is on holiday or is sick or
 dies
 Division of labour is difficult
 Hard to feel motivated after a
while
 Prices are higher than those
offered by bigger companies who
buy in bulk
Partnerships
- 2-20 partners who all control the business
- They share the profit and the losses either
- 2 types of partners:
o General:
 Typical in the US → verbal agreement
o Limited
 Not liable for the partnership, risk only own investment
- One person must accept unlimited partnership
- Full and associate partners (beltag, kültag)
o Full: unlimited liability
o Associate: liability cannot be more than their investment
- Bt:
o Easy to establish
o 2 members: one full and one associate
- Partnership contract is required
- The agreement defines how much the partners contribute, how the business is run,
how much money can be withdrawn, how partnership could be left, etc.
- Sleeping partner: invests, but does not take active part in the business; considers it
kind of an investment
- Typical fields: legal, beauty salon, accounting
- Limited partnership act
o BUT: English and Scottish law is different

Pros
 Easy to set up
 More people to contribute and
provide money
 Flexible
 Responsibility is shared
 Workload is shared
 Finances are shared
 Everybody can add different
expertise
Cons
 Someone takes more risk
 Disagreements
 Still hard to get a loan
 One partner can ruin the whole
business
 Not easy to maintain equal
distribution

Private Limited Companies (Ltd)

- Required to have limited or incorporated in their names (Ireland: Teo, Wales: Cyf)
- Owned by at least 2 people
 - Unlimited partners
- Not offered on the stock market
- Usually family businesses (e.g. fashion)
- Relatively expensive to set up
- Always a contract / act
Pros Cons
 Unlimited number of owners →  Can be difficult to raise capital
everyone can provide capital
 Easy decision-making
 Liability is limited
 Easy to get a loan

Public Limited Companies (Plc)

- Limited amount of shared capital
- Traded on the stock exchange
- Shares = ownership
- Once a year (AGM) shareholders get together to discuss the past and future plans
o There is always a chairperson
o Managers

Pros
 Limited liability
 Easy to raise capital
 Easy to get loans
 Possible to buy raw materials in bulk
 Tenders
Cons
 Lots of documentation
 Lots of money to set up
 Difficult to manage
 Information-flow is hard
 Decision-making process is hard
 Financial accounts are made public
 Sale of ownership is hard
 Not easy to close down (all
shareholders should agree)
 → Intentional bankruptcy

Some special business relationships

a.) Franchises
- Restaurants, pharmacies, language schools, stores (clothes)
- Popular form of business
- A right granted to an individual or a group to market a corporation’s goods or services
in a geographical place
- Franchisee: the person / group who runs a franchise
- Franchisor: from who the franchisee purchases the right
- Franchise: royalty fee (together with a percentage of the profit)
o Depends on the profit
- First franchise: Singer (sewing machine)
- 1955: McDonalds → has the most franchise units in the world
 - A great way for individuals to operate their own businesses with the help of the
franchisor
- Advantages:
o Corporate image + brand awareness is already established
o The franchisor provides training (home-office + on the spot training, too)
o Time: shorter process to establish
o The rate of failure is relatively low
o Advertising: no need for extensive advertising
 Most franchisors provide help
o Motivation: franchisees are motivated because of payments to the franchisor
o Experience of the franchisor: they share their expertise
o Ongoing advice
o Ongoing research and development
o They make profit from the very beginning
o Synergy
- Disadvantages:
o Working with the system can be difficult → obeying to the rules, etc. → not
easy to get out
o Cost: very expensive + ongoing costs + charge for additional services
o Risk: lower, but there is still risk
o False expectations: instant success expected
o Managing the business can be hard
b.) PPPs (Private Public Partnerships)
- Köz- és magánegyüttműködés
- A contract between a public sector authority and a private investor
c.) Cooperatives
- Owned by their own workers
- E.g. TÉSZ (agriculture)
d.) Building societies
- Financial institutions
- Mortgage-lending
- Building
- Great-Britain
- e.g. Fundamenta
e.) Holding companies
- Partial or complete interest in another company / companies
The Public Sector
a.) Municipal undertakings
- They are financed from taxes
- Önkormányzati
b.) State undertakings
- Businesses operated by the state
- E.g. schools, universities, post offices
2. What is a corporation?
- Limited liability
- In the states
3. Main functions of Companies House or Companies Registry
- Cégbíróság
- They store data of the company
- Accounts
- Memorandum
- Made public

4. The Memorandum of Association / Corporate Charter or Certificate of Incorporation

- The most important document
- Needed for establishing a business
- Everything that should be known about the company

5. Entrepreneurships & Entrepreneurs

- Riskier types of businesses

6. Multinationals
- Companies that operate in at least 2 countries
- Powerful influence to international relations
- Huge role in globalisation
 horizontally integrated: operate in different countries, offer the same / similar
products
 vertically integrated: produce products which are used for production in
another country
 diversified: present in different countries with different products
- They can stimulate the economy: jobs, innovation, better infrastructure
- BUT: can exploit established businesses

7. Joint ventures
- Business undertaking
- 2 or more companies involved
- Cooperate on one or more projects
- E.g. oil and gas (local + foreign)
- They can complement one another
- Same goals
- Improve competitiveness