types of business organisation

• Types of business organization

  • Sole traders
  • Partnerships
  • Private limited companies
  • Public limited companies
  • Franchises
  • Joint ventures
  • Public corporations
• Sole trader


  Usually owned by one person, easy to set up, all capital must go to the business
• Partnership


  Owned by at least two people, easy to set up, partners contribute to capital, must agree to partnership agreement
• Sole traders


  • Advantages: You're your own boss, have freedom and complete control, close contact with customers
  • Disadvantages: No one to share ideas with, no limited liability, only your money can go into business, likely to remain small, risk, can't pass on business when you die
• Partnerships


  • Advantages: Can put more capital into business, tasks and responsibility shared, losses shared
  • Disadvantages: No limited liability, partners can suffer if one is not good, potential disagreements
• Limited liability


  If business goes into debt, owners/shareholders only risk the amount of money they initially invested
• Incorporated business


  Company has a separate legal identity, if owner dies business continues
• Unincorporated business


  Company does not have a separate legal identity, if owner dies business dies
• Private limited companies


  • Advantages: Can keep control by limiting shares, incorporated, limited liability
  • Disadvantages: Cannot advertise shares publicly, more paperwork, cannot transfer shares freely, accounts less secret
• Public limited companies


  • Advantages: Can sell shares publicly for a lot of money, limited liability, incorporated, no restrictions on shares
  • Disadvantages: Legal formalities complicated, more regulations, accounts must be public, expensive to sell shares publicly, may lose control
• Shareholders


  Own part of the company, benefit from profits
• Annual General Meeting (AGM)


  Where shareholders can vote for the board of directors
• Franchise


  Business based on using an existing successful brand's name, promotional logos, and trading methods
• Franchisor


  Sells the right to use the brand to the franchisee
• Franchisee


  Buys the license to operate the business from the franchisor
• Advantages of franchises for franchisors

  • Franchisee pays for license, faster business expansion, franchisee responsible for management, franchisee must obtain products from franchisor
• Disadvantages of franchises for franchisors

  • Poor management of franchise outlet can damage brand reputation, franchisee keeps profits
• Advantages of franchises for franchisees

  • Lower risk of business failure, use of well-known brand and customer loyalty, franchisor pays for advertising, training provided, easier to get bank financing
• Disadvantages of franchises for franchisees

  • Less independence, must stick to franchisor's brand and decisions, must pay license fee
• Joint venture


  Two businesses agree to start a new project together, sharing capital, risks and profits
• Advantages of joint ventures

  • Share costs, access local knowledge, share risks
• Disadvantages of joint ventures


  • Profits have to be shared if successful, potential disagreements over decisions, different ways of running business
• Public corporation


  Business in the public sector owned and controlled by the state, often nationalised industries
• Advantages of public corporations

  • Government ownership considered essential for important industries like natural monopolies, government can buy failing businesses, government can control broadcasting
• Disadvantages of public corporations

  • Profit may not be main motive, government subsidies can lead to inefficiencies, no competition, government may use for political reasons