UNIT 1.4 TYPES OF BUSINESS

• types of business ownership

  Sole traders

  Partnerships

  Private limited companies

  Public limited companies
• A sole trader is a business that is set up and

  run by one person
• A partnership is formed when two or more people join together

  to set up a business with a common purpose

  All partners will have equal and shared ownership,

  decision-making, profit, workload and risk unless a Deed of

  Partnership is drawn up and signed by the partners
• The Deed of Partnership may state different terms to the above,

  such as one partner may receive a larger share of the profits

  compared to the other partners
• A private limited company is a type of business whereby shares

  can only be traded privately to family and friends
• A shareholder is a person who buys shares in a limited company

  and therefore becomes a part owner
• The more shares that are bought, the more control a shareholder

  has over the company
• Shareholders may be given a dividend (a share of the profits) as a

  reward for being a shareholder
• Private limited companies

  Ltd is written after the business name

  Usually small, but not always the case

  Minimum number of shareholders is one

  Shareholders usually manage the business on

  a day-to-day basis

  Full control over the sale of shares
• Public limited companies

  Plc is written after the business name

  Are large businesses such as M&S and Tesco

  Plcs must have at least two shareholders and a

  minimum of £50,000 share capital

  A board of directors will be appointed by the

  shareholders to manage the business on a

  day-to-day basis

  Finance is able to be raised through the sale of

  shares on a stock exchange
• Limited and unlimited liability are two business terms that are commonly

  confused by students
• Limited liability is where the owners will only lose the money that they have

  invested in a business if it fails. This is because the business is seen as a

  separate legal entity to the owners. Private limited companies and public

  limited companies have limited liability
• Unlimited liability means that the owners are legally responsible for all the

  debts of a business; this means they may need to sell personal assets to pay

  off these debts. Sole traders and partnerships have unlimited liability
• reasons why a business may want to change ownership from

  a sole trader to a partnership

  Reduced workload

  Liability is shared

  Increased knowledge/ skills / finance available
• features of a public limited company

  that is different to a private limited company

  Can raise finance through selling shares on a stock

  exchange

  Accounts are available to view by the general public

  Often gain lots of media attention

  Vulnerable to takeover

  Time consuming to set up
• Partnerships

  6) Unlimited liability

  5) Unincorporated business

  3) Accounts are kept fully private

  7) Usually 2-20 owners
• Private limited companies

  1)Limited liability

  4) Owners are called shareholders

  8) Finance raised through private sale of

  shares

  2) Dividends are paid out of profits
• plc

  
• public lc

  
• summary

  
• Franchise

  The right given by one business to another to

  sell its goods or services using its name
• Brand – “a named product which customers

  see as being different from other products”
• The franchisee:

  Pays a start-up cost – this covers equipment and

  sometimes a premises.

  Pays a royalty each year – this is a percentage of the

  revenue earned.

  Must follow the rules laid down by the franchisor.
• The franchisor:

  Provides equipment and resources

  Provides training
• Private limited company

  Ltd

  Shares are bought by family, friends and business

  associates

  Shares can only be sold with the consent of the

  other shareholders

  Easier to raise finance than partnership and sole

  trader

  Shareholders get a dividend paid each year out

  of profits
• Limited liability – only lose business assets if you

  go bankrupt
• Board of directors

  All limited companies

  Directors elected by shareholders

  Elected at AGM (Annual General Meeting)

  Make important decisions and run company
• Chair of board – responsible for way board

  run
• Managing director – Overall running of

  company
• Memorandum of Association

  External relationship of the company.

  The name of the company.

  The aims and objectives of the company.

  The legal address of the company.

  The type of company - (ltd.) or (plc.).

  Details of the capital, i.e. types and number of shares.
• Articles of Association:

  Internal workings of the company:

  The procedure for calling meetings

  The election of the directors

  The powers of the directors
• Statutory Declaration:

  This states that the promoters have complied with the requirements of the

  company’s act (the law), and is signed by a minimum of two (2) promoters.
• Stock Exchange market

  This is the place where the shares in Public

  Limited Companies are traded.
• Public limited companies

  Traded on

  stock exchange

  Used to raise money

  Start-up shares

  £50,000

  Dividends to shareholders

  Run by a board of directors

  AGM
• Minority shareholders – small number shares
• Major shareholders – large number shares
• Bull Market: Buyers think that the value of shares is going UP.
• Bear Market:

  Sellers think that the value of shares is going DOWN.
• Formation of a Public Limited Company

  The first steps are the same as those of the Private

  Limited company.

  Then….

  The Memorandum of Association is changed to

  state that the company is now a PLC.

  Minimum of shares issued.

  Financial accounts made public (anyone can see)

  Listed on Stock Exchange

  Produce a prospectus
• Limited liability is a characteristic of PLCs.