CIMA F3 Syllabus A. Financial policy decisions - Types of organisations - Notes ^{1 / 13}

can be:

1. Private

   Owned and operated by private individual

2. Public

   Owned by state
   

Motive of Private organisations can be:

• For - Profit

  Strategic financial objectives is:
  - maximising shareholder wealth (by paying dividends and increasing the share price) or
  - providing a surplus (e.g. additional cash in the bank)

• Not-for-profit
  

  Strategic financial objectives is Value for money

For - Profit organisation

Business organisations engage in commercial and industrial activities, with the purpose of making a profit.

1. Sole Trader

   An individual sets up business on his own

   Sole traders are people who work for themselves.  

   Examples include: 
   - a hairdresser
   - a local stationer
   - a plumber

   The owner has UNLIMITED LIABILITY for the debts of his business.

   It means that the law will not distinguish between the private assets and liabilities of the owner to those of the organisation.

   In case of bankruptcy the owner can lose his personal assets.

   e.g. if the business has debts that it is unable to pay, the sole trader will become personally liable for the unpaid debts and would be required, if necessary, to sell his private possessions (e.g. his car or house) to repay them.

2. Partnership

   Partnerships occur when two or more people decide to run a business together.

   Examples include:
   - an accountancy practice
   - a legal practice 
   - a medical practice

   The owners have UNLIMITED LIABILITY for the debts of their business.

   In general, the partners have unlimited liability although there may be circumstances when one or more partners have limited liability

3. Incorporated entities (Companies)

   These companies have a LIMITED LIABILITY

   This means that the maximum amount that an owner will lose in the event that the company becomes insolvent and cannot pay off its debts, is his share of the capital in the business.

   In all cases, we apply the separate entity concept, i.e. the business is regarded as being separate from the owner (or owners) and the accounts are prepared for the business itself.

   The shareholders cannot normally be sued for the debts of the business.
    
   Their risk is generally restricted to the amount that they have invested in the company when buying the shares (limited liability).
   

   The strategic financial objective of a company - Maximisation of shareholders wealth

Types of company:

• Quoted company

  a company whose shares can be bought or sold on the Stock Exchange

• Unquoted company

  A company with previously issued securities that are no longer quoted or traded on formal exchanges.
   
  Shares in these companies are available in the over-the-counter market (OTC)

Summary

The entity can be:

1. Incorporated

2. Unincorporated

Unincorporated entities

are not incorporated as companies.

They have Unlimited personal liability (joint & several)

They can be:

• for profit 

  e.g. Sole trader, Partnerships

  The strategic financial objective is to maximise profit

• not-for-profit 

  e.g. clubs and societies

  The strategic financial objective is to achieve value for money

Not-for-profit organisations

A non-profit organisation (NFP) works with a prime intention (primary goal) of providing a good or a service to different sectors of society for which they are set up to provide a benefit.

NFP has to be efficiently managed so that their resources are used effectively to meet the objectives of the organisation while not making a financial loss

• For example, a school is set up to provide education.  

  Charities, such as, the Red Cross is set up to provide a medical service.
  

Public Sector organisations are owned or run by the government

They are funded by and accountable to the government.  

A major challenge that any government faces is that of balancing their limited resources with a huge demand for public services.

Examples of a public sector organisation are:

1. Hospitals

2. Armed Forces

3. Centrally funded agencies

4. Most schools & Universities

5. Government Departments