Business ownership

• Sole trader


  A business that is owned and run by one person, with only one owner who may have employees
• Sole traders


  • Usually start-ups or small businesses
  • Have unlimited liability - the owner is personally responsible for the debts of the business
  • Pay income tax on their earnings
• Unlimited liability


  When the business owner or owners are personally responsible for all the debt of the business, no matter what the value
• Income tax


  Tax that someone pays based on their personal income (the money that they earn)
• Advantages of sole trading

  • Quick and easy to set up
  • Business owner(s) have a lot of control over the business and its money
  • Gives individuals the opportunity to be their own boss and make all the business decisions
  • Low set-up costs
• Disadvantages of sole trading

  • Risk of unlimited liability
  • Can involve long work hours and stressful conditions
  • High level of responsibility for the owner
  • Owner often performs many different roles in the business
• Partnership


  A type of business that has between 2 and 20 owners who decide to set up and run a business together
• Partnerships


  • Lawyers
  • Doctors
  • Accountancy practices
• Deed of partnership


  A document that is signed by all of the owners of a business setting out the terms they must abide by and their obligations as owners
• Deed of partnership


  • Specifies how profits are allocated
  • Percentage of the business each person owns
  • Roles and responsibilities
  • Percentage of any business debts that each person would have to pay
• Income tax


  Tax that someone pays based on their personal income (the money that they earn)
• Advantages of a partnership

  • It is usually quick and easy to set up
  • There is shared decision-making by the owners
  • There is shared responsibility for debt by the owners
  • Partners bring more skills and ideas
  • There is more capital available to invest
• Disadvantages of a partnership

  • It can involve long work hours
  • Profits have to be shared between the partners
  • Conflict amongst owners can occur
  • There is the risk of unlimited liability
• Unlimited liability


  When the business owner or owners are personally responsible for all the debt of the business, no matter what the value
• Private limited company


  A small or large business with limited liability, often with 'Ltd' after the business name
• Private limited company


  • Any type of business can set up as one
  • Owners are known as shareholders
  • Shareholders have to be invited by the business before they can purchase a share
• Shareholders


  Part owners of a private or public limited company
• Shares


  A percentage or portion of a company
• Corporation tax


  A tax on the profits of a business
• Registering a private limited company


  • More paperwork required
  • Have to register with Companies House
  • Have to file annual financial reports
• Advantages of a private limited company

  • Owners have limited liability
  • Gives individuals the opportunity to be their own boss
  • New shareholders need to be invited, protecting the business from outside influence
  • Shares can be sold to raise money
• Disadvantages of a private limited company

  • More paperwork
  • Financial information can be viewed by others
  • Time consuming to set up
  • May require outside professional help to manage finances
  • Shareholders expect to receive dividends
• Private limited companies pay corporation tax
• Dividends are a sum of money paid regularly by a company to its shareholders out of its profits
• Public limited company (PLC)

  A business where shares are sold to the public on the stock market. Shareholders become part owners and have a voice in how the business operates.
• Public limited company (PLC)


  • The business has the ability to raise additional finance through share capital
  • Shareholders have limited liability
  • Increased negotiation opportunities with suppliers due to economies of scale
• Disadvantages of being a PLC

  • It is expensive to set up, requiring a minimum set up cost of £50,000
  • There are more complex accounting and reporting requirements
  • There is a greater risk of a hostile takeover by a rival company as the company cannot control who buys its shares
  • Shareholders will expect to receive a percentage of the profits as dividends
  • Shareholders may clash when making decisions about the business
• When a business sells shares on a stock market, this is known as 'floating on the stock exchange'.
• Share capital


  The money raised when a business becomes a public limited company by offering shares in the business in return for capital.
• Limited liability


  When the business owner or owners are only responsible for business debts up to the value of their financial investment in the business.
• Economies of scale


  Where the average costs (of production, distribution and sales) fall as the business increases the amount of product that it produces, distributes and sells.
• Hostile takeover


  A takeover of one company (called the 'target company') by another (called the 'acquirer') that is accomplished without the agreement of the target company's management. Instead, the acquirer approaches the company's shareholders directly or fights to replace the management to get the takeover approved.
• Dividends


  A sum of money paid regularly by a company to its shareholders out of its profits.
• Not-for-profit organisation


  A business that aims to do something other than to make profit for the owners, such as providing a public service or helping people
• Not-for-profit organisation


  • Needs to make enough money to cover its costs, but any surplus is reinvested into the business or used in other ways
• Types of not-for-profit organisations

  • Charity
  • Social enterprise
• Charity


  Businesses whose aim is to raise money for good causes, or to help people, animals and the environment
• Charities


  • Funded mainly by donations, get some tax relief, and are eligible for certain types of grant
• Social enterprise


  Businesses that make money by selling products or services like a traditional for-profit business, but they use their profits to benefit society
• Examples of social enterprises

  • The Eden Project
  • The National Trust
  • The Big Issue
  • Divine Chocolate