1.3 Business ownership

• Sole trader 


  A business owned by one person
• Partnership 


  A business owned by between 2 and 20 partners
• Private limited company (ltd) 


  Usually a smaller business, it can sell shares to invited people only
• Public limited company (plc) 


  It can sell shares to anyone who wants to buy
• Deed of partnership


  A document stating who owns partnership, how much each has invested and role in business
• Share


  Part ownership in a business
• Advantages of a sole trader

  • Easy to set up (few forms)
  • Easy for owners to control (make all decisions)
  • Business info kept private (no info of profits must be published)
  • Workload (owner makes all decisions but may have to work long hours)
• Disadvantages of a sole trader

  • Continuity (stops when owner dies)
  • Raising finance (limited bcs only one to invest savings and banks may find risky to lend to, can't sell shares to raise)
  • Unlimited liability
• Advantages of a partnership

  • Easy to set up (only needs deed of partnership)
  • Easy for owners to control (make all decisions between)
  • Business info kept private (none about profits must be published)
• Disadvantages of a partnership

  • Not easy for owners to control (may disagree which lead to problems w decision making, profits must be shared between owners)
  • Continuity ( new deed needed when an owner leaves/joins
  • Raising finance (usually only few to invest and banks find risky to lend)
  • Unlimited liability for partners
  • Workload(shared between owners but the fewer the more of each)
• Advantages of an ltd

  • Easy for owners to control(shareholders restrict who can buy shares)
  • Continuity (continues even if a shareholder sells shares or dies)
  • Raising finance (new shareholders can invest and banks willing to lend, large amounts can be raised compared to sole traders and partnerships)
  • Limited liability
• Disadvantages of an ltd

  • Not easy to set up (registrar of companies requires legal documents - takes time)
  • Business info not private
  • Workload (managers need to be employed to make decisions)
• Advantages of an plc

  • Continuity (continues even if shareholder sells shares or dies)
  • Raising finance (new shareholders can invest, banks willing to lend , large amounts can be raised)
  • Limited liability
• Disadvantages of a plc

  • Not easy to set up (registrar of companies requires legal documents - takes time)
  • Not easy for owners to control (anybody can buy shares)
  • Business info not kept private
  • Workload (managers needed to make decisions)
• Unlimited liability 


  Owner of business responsible for paying back all debts of a business
• Limited liability


  Owners can only lose what they've invested
• Effect of limited liability on owner 


  Shareholders who own company don't have to use own savings or private possessions to pay off debts if business fails
• Effect of unlimited liability on owner 


  Owner must pay back all debts , if goes bankrupt owner must sell any assets of business , if not enough owner can be ordered to use savings or sell private possessions to raise money
• Effect of limited liability on business 


  Helps businesses start up and raise extra finance to expand bcs people prepared to invest knowing its without risk of losing all personal possessions
• Effect of unlimited liability on business 


  People may be discouraged to set up bcs of risk to savings and personal assets , can limit creation and expansion of sole trader and partnership businesses
• Other impacts of limited liability


  Forming a business as a limited company can be complicated bcs various legal documents needed to be sent to registrar of companies
• Other impacts of unlimited liability


  Easier to set up as sole trader or partnership bcs legal documents not needed to be sent to registrar of companies
• Assets


  Items owned by the business e.g. stock , buildings and vehicles or good reputation
• Start ups 


  New businesses just beginning
• Established businesses 


  Business that has been trading for some time
• Finance 


  Money used to start up or expand business usually from savings or loans , used for capital items like investment in buildings or machinery
• Suitability of a sole trader business 


  Suitable for start ups that:

  • only need small amount of finance
  • usually have low financial risk
  • require limited or non specialist skills
• Suitability of partnership business


  Suitable for start ups or established businesses wanting to grow that:

  • need larger amounts of finance than sole trader
  • have fairly low financial risk
  • need wider range of skills than sole trader
  • have owners who want to keep control
• Suitability of ltd's


  Suitable for start ups or established businesses wanting to grow that:

  • need larger amounts of finance
  • have increased or high financial risk
  • have owners who wish to keep control
• Suitability of plc's


  Suitable for established businesses that:

  • wish to grow
  • need v large amounts of finance
  • has v high financial risk