1.5.4 forms of businesses

• business form

  • is a legal structure that it take (in UK). could be a soletrader, partnership, ltd or plc
  • most (not all) businesses in UK are ltd - this is so that they can sell shares to friends and family to raise money to expand AND get the benefit of limited liability
• soletrader

  • 1 owner, but can take on staff
  • also known as sole proprietor
  • can employ but not involved in control of business
  • tends to be a small business
  • unlimited liability
  • example include: small shops, accountants that work from home, online traders, plumbers etc.
• soletrader

  advantages:

  • owners keep all profit
  • quick decision making
  • own boss/full control
  • less capital needed
  • taxed differently
  • personal attention to customers
  • no info made public
• soletrader

  disadvantages:

  • higher workload
  • less start up finance
  • unlimited liability
  • no takeover when sick/away
  • no economies of scale
• partnership

  • 2-20 owners
  • profit and gains shared among partners
  • each partner personally responsible for paying tax on their share of profits and gains
  • partners raise money for business out of their assets and/or with loans
  • partners themselves usually manage the business
  • eg, vets, solicitors, accountants, dentists
• partnership

  advantages:

  • easy to set up
  • small capital needed
  • small business = good working relationships
  • no public info
  • partners contribute range of skills
  • share problems and decisions
• partnership

  disadvantages:

  unlimited liability

  disagreements in decisions:

  • control of business
  • sharing profits
  • withdrawal from partnerships
  • inviting new partners
• private limited company (ltd)

  • soletraders may grow and expand and want to become ltd company
  • friends and family can buy shares in business, will make part-owners
  • shares cannot be brought by public
  • owners control who buys shares
  • expand by selling more shares, giving business more capital
  • have benefit of limited liability
• ltd

  advantages:

  • limited liability
  • can raise extra capital by selling more shares
  • can employ managers to run business if owners dont want do themselves
  • own legal status
• ltd

  disadvantages:

  • accounts are not private
  • audited every year
  • copy send to Registrar of Companies
  • available for public to see
  • more difficult + expensive to set up - more administration
  • cannot sell shares on stock exchange which limits amount of capital that it can raise
• growth to plc

  • once a limited company has grown in size and needs further investment, it may consider becoming a plc
  • going public is expensive
  • lawyers to draw up legal paperwork
  • publications
  • advertising and admin
  • company must have £50 000 in share capital
• plc

  advantages:

  • quick access to finance
  • no repayment
  • no interest on selling shares
  • limited liability
  • better bargaining power with banks
  • selling shares on market opens wide range of potential investors
• plc

  disadvantages:

  • all data becomes public
  • loss of control
  • share profits with other shareholders
  • bad year could affect future investors
  • harder to regain shares once sold
• franchise

  where a small business owner buys the rights to sell the goods + services of a large, well-established company
• franchisee

  small business owner who is buying the rights
• franchisor

  large business who are selling the rights eg, subway
• franchise - advantages

  • franchisor - know what characteristics makes a successful franchise
  • franchisor decides how much money franchise must invest in business
  • franchisor provides support - training - franchisee solve problems
• franchise - disadvantages

  • franchisee has no freedom of running own business - no independence/creativity
  • franchisee pays % of profit in royalties
  • franchisee never own the business outright
• social enterprise

  • a business that trades for a social and/or environmental purpose
  • at the core of a social enterprise is the objective to help society or the planet in some way, they are not charities (which rely on donations)
• lifestyle business

  • the aim of a lifestyle business is to provide great quality of life for the owner
  • owners start a business hoping to sustain a certain level of income
  • may start a business doing something they really enjoy
  • it allows an entrepreneur to live how they want and still run a business
• online business

  • easy to set up, eg, ebay, business could be up and running in an hour after some online form filling
  • paypal used to take money from customers, who can now use credit cards and it converts to paypal money for the business owner
  • available to customers 24/7
  • can be managed from anywhere, owner does not need to be sat in an office.
• sole entreprise

  advantages:

  • for a good cause
  • attract more customers
  • lead to brand awareness + good reputation

  disadvantages:

  • business not always fulfill promise of helping society
• lifestyle business

  advantages:

  • owner has high level of expertise
  • highly motivated = higher efficiency

  disadvantages:

  • demotivating if repetitive
• online business

  advantages:

  • open 24/7 - easy to access
  • no premises - no fixed costs

  disadvantages:

  • other costs eg, deliveries, wages, suppliers