Types of business organisation

• What is a sole trader?

  owned by one individual(proprietor). They are the same 'identity'
• What are advantages of a sole trader?

  100% control

  Quicker decision making

  All profits kept by the owner

  Easy to set up with few legal or administrative costs and procedures involved.
• Disadvantages of a sole trader?

  Unlimited liability

  limited access to capital

  no holiday or sick cover

  Lack of continuity
• A partnership is a business owned by two or more people who share the profits and losses. They will either have a partnership agreement or follow the 1890 Partnership Act
• Advantages of a partnership

  Shared liability

  Shared responsibility

  access to more capital

  more skills/expertise

  shared losses

  cover for holiday/sickness

  easy to set up
• Disadvantages for a partnership

  unlimited liability

  shared profits

  longer decision making

  shared control
• Private limited companies have no limit to the number of owners, however the shareholders tend to be family or friends as they have to be invited into the business. The owner(s) and the business are separate entities.
• advantages of an LTD

  Limited liability

  access to greater amounts of capital

  possible tax advantage (corporate tax being 19% instead of income tax which is 20%)
• Disadvantages of an LTD

  Loss of control

  financial statements must be filed with companies house and pay an annual fee to submit

  statements are public, meaning competitors may see them

  costly and time consuming to set up

  profits must be shared

  financial statements must be audited
• Public limited companies are owned by at least 2 shareholders. Managed by a board of directors, the owner(s) and the business are separate identities
• advantages of a PLC

  Mostly the same as LTD

  benefit from economies of scale

  funds can be raised by selling shares to the public

  easier to raise finance from lenders
• Disadvantages of PLC

  Mostly the same as LTD

  At risk of Hostile takeover bids

  High cost in setting up(must raise £50,000 of share capital)
• factors when choosing a legal structure include the need and ability to raise finance, the nature of the business, how liable you are willing to be, the size of the business that you want/have
• internal sources of finance are:

  retained earnings/profits

  owners capital

  partners capital
• external sources of finance are:

  bank overdrafts

  Loan

  mortgage

  ordinary shares

  debentures