1.5.4

• Forms of Business

  • Sole trader
  • Partnership
  • Private limited company (Ltd)
  • Public Limited Company (Plc)
  • Franchising
  • Social enterprise
  • Lifestyle businesses
  • Online businesses
• Chain of command


  Span of control
• Bonus


  Commission
• Sole trader, partnership and private limited company (Ltd) are forms of business from Edexcel
• Franchising, social enterprise, lifestyle businesses, online businesses are forms of business from Edexcel
• Growth to PLC and stock market flotation are forms of business from Edexcel
• Businesses like dentists, vets, and solicitors have in common that they are all forms of business
• Business form


  The legal structure that a business takes (in the UK). It could be a sole trader, a partnership, a private limited company (Ltd) or a public limited company (PLC).
• Limited liability


  Means that the owner of the business has no personal liability for business debts. The owner has a separate legal identity from the business and is NOT liable for payment of the debts from their own personal funds.
• Unlimited liability


  If a business gains debts, goes bust or is sued this could be a problem for the owner. If there is no money in the business then the owner would need to pay using their own savings, and finances, they may even have to remortgage their home or even sell their car to pay the debts.
• Sole trader


  • Business owned by one owner, but they can take on staff
  • Also known as a sole proprietor
  • Can employ people but they will not be involved in control of business
  • Tend to be small businesses
  • Has unlimited liability
• Sole trader jobs and professions

  • small shops
  • accountants that work from home
  • online traders
  • plumbers
• Partnerships

  • 2 to 20* partners share the risks, costs and responsibilities of being in business
  • The profits and gains of the partnership are shared among the partners, unless the partnership agreement states otherwise
  • Each partner is personally responsible for paying tax on their share of the profits and gains
  • Partners raise finance for the business out of their own assets, cash or with loans
  • The partners themselves usually manage the business, although they can delegate certain responsibilities to employees
  • It is possible to have 'sleeping' partners who contribute capital investment to the business but are not involved in running the business
• Partnership professions


  • dentists practice
  • group of dentists who have started the business as a partnership
• LLP


  Limited Liability Partnership
• Private limited company (Ltd)


  • LTDs can expand and grow by selling more shares, giving the business more capital
  • Friends and family can buy shares in the business, this will make them part owners
  • Shares cannot be bought by the public
  • LTDs owners have full control of who buys the shares
  • LTDs have the benefit of limited liability, those that own or buy shares in the business can only lose their original investment, their private assets remain safe
• Limited liability businesses


  • scaffolding company
• Franchise

  An entrepreneur may choose to set up with an established business name and buy a franchise. There is less business risk by buying a well known brand.
• What is a franchise?


  A company has a great and successful business. It wants to expand but it doesn't want the problems and expense of opening more stores, so it sells the business idea. If an entrepreneur buys a franchise it is a "business in a box", as well as signage and training they will get support of a national company and a brand that customers already know.
• Franchisee


  The business owner who is buying the rights e.g. Gurdeep
• Franchisor


  The business that is selling the rights e.g. Subway
• Cost of a franchise


  • Cost of buying the franchise rights at the start
  • Monthly royalty payment to the franchisor
• Franchising

  • The franchisor chooses the franchisees carefully, they know what characteristics that make a successful franchisee
  • The franchisor decides how much money the franchisee must invest in the business
  • The franchisor provides support, management advice and training
  • Franchisees do not have freedom of running their own business
  • Franchisee bound by rules cannot vary the price or products sold
  • Franchisee pays percentage of profits in royalties to the franchisor
  • Franchisee will never own the business outright
• Social enterprise


  A business that trades for social and/or environmental purposes. 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 start-up is to grow big enough to provide a return of investment for investors. 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. They 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, for example an eBay business could be up and running in an hour after some online form filling
  • PayPal used process payment transactions from customers
  • Wix can be used for small business owners to quickly build a shop and a website
  • Online businesses can be managed by the owner from their home
  • It means the business is open via the website 24/7, what does this mean for international customers?
• Growth to PLC

  Once a limited (Ltd) company has grown in size and needs further investment, which it cannot get from its current pool of owners, it may consider becoming a PLC. If it intends to float shares on the stock market, so they can be bought by anyone, it will need to first issue a prospectus where potential investors are invited to purchase share before flotation (called an IPO). Going public is expensive - lawyers to draw up legal paperwork, publications, advertising and admin. Company must have £50,000 in share capital.
• Public Limited Company (PLC)


  A form of business that has floated its shares on the stock market to sell to the general public
• Sole Trader


  A simple business structure where there is only one owner. They are liable for all losses but can keep any profits that they make
• Private Limited Company (Ltd)


  A form of business where the owners have limited responsibility for debts and shares can be sold to friends and family
• Partnership


  A form of business where 2- 20 people will own a business and jointly share responsibility for it