Sole Traders, Partnerships, Social Enterprises + Franchises

• A sole trader is the simplest form of a business organisation.
• Features of a sole trader :

  • It has one owner but can employ a number of employees
  • Most sole traders are retailers or running small shops, others may offer services such as tutoring, hairdressing, web design etc.
• Setting up a small business as a sole trader is simple because there are no legal requirements. However, all sole traders have unlimited liability, this means if a business fails, a sole trader can lose more money than what they originally invested. This is because a sole trader will be forced to pay from their personal wealths to cover any business debts.
• sole trader → business owned by a single person.
• unlimited liability → owner of a business is personally liable for all business debts
• A partnership exist when between 2-20 people own a business together.
• Features of Partnerships →

  • The owners will share responsibility for running the business, they also share profits.
  • Professions such as accountants, doctors, real estate agents etc. are examples of partnerships.
• There are no legal requirements to complete to start a partnership, and like sole traders they have unlimted liability. However, partners may produce a deed of partnership.
• A deed of partnership is a legal document that states the partners’ rights if there was ever a dispute:

  • how much capital each partner will contribute.
  • how profits and losses will be shared between partners.
  • the procedure for ending a partnership.
  • how much control each partner has.
  • rules for taking on new partners.
• deed of partnership → binding legal document that states the formal rights of partners.
• One approach to running a business is to buy a franchise. This may suit someone who wants to start abusiness, but doesn’t have a business idea to pursure.
• Features of Franchises →

  • owners of franchises are called franchisors.
  • Franchisors have developed a succesful business and are prepared to allow others, the franchisees, to trade under their name.
  • Franchisees pay fees to the franchisor.
  • Examples of franchises are McDonalds, Subway etc.
• franchisee → structure in which a business (the franchisor) allows another operatore ( the franchisee) to trade under their name.
• franchisor → a business that gives franchisees the rights to manufacture, distribute or sell branded products, in returen, for a fixed sum of money or royalty payments.
• franchisee → a business that agrees to manufacture, distribute or sell branded products under the license of a franchisor.
• What does the franchisor offer the franchisee?

  • A license to trade under the recognised brand of the franchisor.
  • A start-up package, including help, advice, and essential equipment.
  • Training in how to run a business like theirs, inclusing how to operate systems used by the franchise.
  • Provide all the equipment and materials needed.
  • Marketing support
  • An exclusive geographical area in which to operate, to ensue no competiton from other franchises.
• In return for these services the franchisees will have to pay a certain fee:

  • A one-off start-up fee.
  • An ongoing fee (usually based on sales).
  • Contribution to marketing costs
  • Franchisors may make a profit on some of the materials, equipment and merchandise supplied to franchisees.
• merchandise → goods that are being sold.
• Some businesses operate as social enterprises. These aim to improve human and environmental well-being rather than make profit for owners.
• Features of Social Enterprises →

  • They are sometimes reffered to as non-profit organisations.

  Generally social enterprises :

  • have a clear social/environmental mission.
  • generate most of their income through trade and donations.
  • reinvest all of their profits.
• A social enterprise is a proper business that makes mony in a socially responsible way. These ventures are not neccesarily formed to reinvest all profits into communities, however the business model is made to benefit others.
• Advantages of being a sole trader?

  • the owner keeps all the profit
  • They are independent and have full control.
  • It is simple to set up since there are no legal requirements needed.
  • Can offer personal services because they are small.
• Disadvantages of Sole traders?

  • Have unlimited liability.
  • May struggle to raise finance - they are seen as risky business therefore no money would be lend to them.
  • Long hours and very hardwork
  • Usually too small to exploit economies of scale.
• Advantages of Partnerships?

  • Easy to set up and run - no legal requirements.
  • Partners can specialize in their areas of expertise.
  • The job of running a business is shared.
  • More capital will be raised because of more owners.
• Disadvantages of Partnerships?

  • Partners have unlimited liability.
  • Profit has to be shared.
  • Partners may disagree and fall out.
  • Partnerships still tend to be small.
• Advantages of Franchisees?

  • Less Risk - the idea has been tested out.
  • Back- up support from franchisors is always available.
  • Set-up costs are predictable.
• Disadvantages of Franchisees?

  • Profit is Shared with the franchisor.
  • Strict contracts have been signed.
  • Lack of Independence - franchisors are always in control.
  • Can be an expensive way to start a business.
• Advantages of Franchisors?

  • Fast method of Growth
  • Cheaper method of growth.
  • Franchisees take some of the risk.
  • Franchisees more motivated than employees.
• Disadvantages of Franchisors?

  • Potential profit is shared with franchisees.
  • Poor franchisees may damage the brand’s reputation.
  • Cost of support for franchisees may be high.