Sole traders, Partnerships, Ltds and PLCs

• Sole Traders Advantages

  • being your own boss
  • all profits go to the owner, few legal formalities
  • easy and cheap to set up
  • small as they can respond quickly to changes in circumstances
  • financial detals do not have to be published
• Sole Trader Disadvantages

  • unlimited liability
  • long hours with limited holidays leading to stress
  • hard work, difficulties when the owner wishes to go on holiday or is ill
  • sources of finance is limited
  • rely heavily on their own ability to make decisions
• Sole Traders

  • owned by individuals
  • 60% of all businesses in the private sector are sole traders
  • approximately 200,000 small businesses are established in the UK each year
  • they are normally relatively small businesses
  • not uncommon for sole traders to hire other people but owner remains repsonsible for the business and are actively involved in the running
  • owner may work on their own and must have confidence to make decisions in the range of skills needed to run the business
• Partnerships

  • a business form in which two or more poeple operate for the common goal of making a profit
  • 7% of all businesses in the UK are partnerships
  • there are three different types of partnerships, an ordinary partnership, a limited partnership and a limited liability partnership
• Partnership Advantages

  • easy and cheap to set up
  • few legal formalities although a deal of partnership is recommended
  • easier to raise finance than a sole trader as there are more owners
  • more skills, specialism can be brought into the business
  • financial details do not have to be published
• Partnership Disadvantages

  • unlimited liability
  • problems can occur if partners disagree
  • slower decisions as partners have to be in agreement
  • the profits will have to be shared
• Private Limited Companies

  • have LTD after their name
  • generally smaller than plc
  • relatively cheap to set up and register with companies' house
  • various documents inc. Memorandum of Associates and Artciles of Association (process known as incorporation)
  • owned by shareholders
• Private Limited Companies Advantages

  • limited liability
  • incorporated
  • ability to raise capital through sales of shares
  • access to more external sources of capital than sole traders and partnerships
  • more financial privacy than plc
  • more flexibility than plc
  • shareholders receive dividends
• Private Limited Companies Disadvantages

  • shares are less attractive as they can't be traded
  • cannot advertise shares for sale and has to advertise privately
  • few legal formalities than sole traders and partnerships
• Public Limited Companies

  • shares traded on stock exchange
  • plc after name
  • owned by shareholders, ran by board of directors
  • lengthy and expensive process to become a PLC
  • lots of legal requirements
  • minimum shareholders must be two
  • accounts must be filed within 6 months of year end
  • company secretary must be a qualified person
  • minimum number of directors is two
• Public Limited Companies Advantages

  • limited liability
  • incorporated
  • ability to raise large amounts of capital through sales of shares
  • ability to gain publicity
  • shareholders recieve dividends
  • suppliers tend to be more willing to give credit
• Public Limited Companies Disadvantages

  • must publish a great deal of financial information
  • greater scrutiny of activities
  • significant administrative expenses
  • founders of firm may lose control
  • stock exchange listing means pressure from investors may lead to more emphasis on short term financial results
• Floatation is becoming a public limited company