1.5.4 Forms of businesses

• Sole trader

  • A business that has a single owner (although they may still hire employees)
• Advantages - Sole trader

  • They are easy and inexpensive to set up
  • The owner has complete control over the business
  • All profits belong to the owner
  • Simple tax arrangements
• Disadvantages - Sole Trader

  • The sole trader is responsible for any debts the business incurs
  • Limited access to finance and capital
  • Limited skill set of the single business owner
• Partnership

  • Two or more people join together to form a business.
• Advantages - Partnership

  • Easy to set up and inexpensive
  • Shared responsibilities and decision-making
  • More skills and knowledge are available
  • Increased access to finance and capital
• Disadvantages - Partnership

  • Partners have unlimited liability.
  • Potential for disputes between partners.
  • Profits are often shared equally, regardless of the contribution.
  • Difficult to transfer ownership.
• Private Limited Company

  • ownership of the business is broken down into a specified number of shares.
  • Decision-making - person appointed to run the company (CEO)
  • Shares can be sold by the owner, usually to friends and family or to venture capitalists
• Advantages - Pvt Ltd

  • Limited liability, meaning the owners are not personally responsible for the company's debts
  • Access to greater finance and capital
  • Easier to transfer ownership
  • Can have a professional image and reputation
• Disadvantages - Pvt Ltd

  • More expensive and time-consuming to set up.
  • More complex legal requirements and regulations than sole traders.
  • Annual financial reporting and auditing are required.
  • Shareholders have little control over the company as the founder usually imposes their agenda.
• Franchising

  • a business model where an individual (franchisee) buys the rights to operate a business model, branding, and support from a larger company (franchisor) in exchange for an initial lump sum plus ongoing fees.
• Social Enterprise

  • a business that has the primary purpose to create social or environmental impact (in addition to generating profits).
  • Profits are usually reinvested back into the business or used to create positive social change or address an environmental issue.
• Lifestyle Business

  • typically small, owner-operated businesses that prioritise a specific lifestyle or personal interest of the owner over profits or growth.
  • often run from home or in a location that allows the owner to maintain a particular lifestyle or work-life balance.
• Online business

  • often have low overhead costs and can operate from anywhere with an internet connection
  • These businesses are still required to have a legal structure, such as a sole trader or private limited company
• Becoming a public limited company

  • When business grows rapidly, it requires significant amount of capital to fund expansion.
  • To secure funding, may choose to transition from a private limited company (LTD) to public limited company (PLC)
  • complex process with many legal requirements and involves undergoing a stock market flotation
• Advantages of becoming plc

  • Access to capital - Significant amounts of capital can be raised very quickly. - More cost effective than borrowing money from banks or other lenders.
  • Shared risks - spread among a larger group of shareholders - reduces financial risk to individual.
• Advantages of becoming plc

  • Increased liquidity - ompany's shares become more liquid (they can be bought and sold more easily) on a public stock exchange
  • This can increase the value of the company's shares and make it easier for shareholders to buy/sell shares
• Advantages of becoming plc

  • Extended decision making - a board of directors made up of independent directors and representatives from major shareholders
  • extend decision-making process & bring additional expertise/perspectives that can help the company grow and expand
• Advantages of becoming plc

  • Greater public profile - increase visibility with customers, suppliers, and potential investors
  • help the company attract new business and grow its customer base