| Special
private companies (Part 2)
Yvonne
Harvey, Contributor
 |
A
section of the audience which attended the opening of Science Awareness week at
Bridgeport High school on Monday, February 20, 2006 under the theme: "Portmore
keeping it green" watches the presentation. - Photo by Anthony Minott |
Hi friends.
You will remember that last week we looked at multinational corporations and conglomerates
as two special private companies. As promised, this week's lesson will be based
on franchises and holding companies. These are two other special private companies.
Franchises
A
franchise is a right sold by one company or individual to another and it allows
the company or individual to make a profit by selling goods and services under
the franchiser's name. We can also describe the franchise as an existing usually
well-known established company allowing someone the exclusive right to sell its
goods and services in return for an initial fee and annual royalties. The
franchise owner and the franchisee enter into an agreement. The franchisee must
abide by the guidelines and regulations of the franchiser. The franchise is usually
set for a specific period of time and the franchisee must pay the franchiser a
fee known as a royalty for operating under the name. Many fast food outlets in
Jamaica are franchises, e.g., KFC, Burger King and McDonald's, Holiday Inn and
Juci Patties. Characteristics
1.
It is formed when a successful idea is sold or rented to other people known as
franchisees. 2.
It is an already existing business idea. 3.
They operate in many different countries and are usually large in number. 4.
An initial fee and regular royalties are paid to the franchisor. 5.
The franchise is identical to the original company and allows the franchise to
expand its market base. 6.
In many cases, the franchise is a sole trader, but partnerships and companies
could hold franchises also. Advantages
- A
great amount of profit can be made by the franchisee.
- The
franchisee receives assistance from the parent company in terms of advice and
training.
- The
franchisee benefits from the franchiser's marketing which boosts his sales and
revenue.
- They
normally sell goods and services of high quality.
Disadvantages
- The
franchisee must meet most of the losses incurred.
- The
line of products is restricted.
- The
franchisee often cannot afford to pay the high royalties required by the franchiser.
Holding
companies These
are joint stock companies that arise from mergers and takeovers and are formed
for the sole purpose of having shares in other companies. They do this in order
to increase their profits by increasing the size of their enterprise, diversifying
and achieving economies of scale. Many holding companies are formed in order to
eliminate competition. Holding
companies publish one set of consolidated accounts and report one combined level
of profits. However, the parent company has its own memorandum of association
and articles of association and so, separate registration is done for each company
in the group. The
company taken over by the parent company is known as the subsidiary company and
it may retain its original name or identity and its original board of directors.
An example of a holding company is Neal and Massey Holding Limited, which assembles
and sells motor vehicles. Advantages
The
size of the parent company's enterprise is increased. Also, economies of scale
can be achieved and the company can diversify its production and be able to compete
externally. Disadvantages
The
chief disadvantage of holding companies is that the mergers and takeovers, which
take place in order to form holding companies, often eliminate healthy competition.
Now
for your assignment. You may use points from last week's and this week's lesson.
(a)
Define the term 'private company'. (2 marks). (b)
State TWO characteristics of each of the following: (1)
Multinational corporations
(2) Conglomerates
(3)
The franchise
(4)
Holding companies (8 marks). Total
marks: 10 See
you next year. Yvonne
Hardy teaches at Glenmuir High School. | 
