1.5.4 Forms of Business Flashcards
Sole trader
A business that has one single owner.
Benefits and drawbacks of a sole trader
+ Easy and inexpensive to set up.
+ The owner has complete control over the business.
+ All profits belong to the owner.
- Unlimited liability, meaning the owner is personally responsible for any debts the business incurs.
- Limited access to finance and capital.
- Limited skill set.
Partnership
A business owned by 2 or more people. Can have up to 20 owners.
Benefits and drawbacks of a partnership
+ Easy to set up and inexpensive.
+ Shared responsibilities and decision-making.
+ More skills and knowledge are available.
+ Increased access to finance and capital.
- Unlimited liability
- Potential for disputes between partners
- Profits are often shared equally, regardless - of the contribution
Private Limited Company
A company that is owned by shareholders and not offered to the general public. Shares are sold to close friends and family and that can only be done if all shareholders agree. Has at least one director.
Benefits and drawbacks of Private Limited Companies
+ Limited liability.
+ Access to greater finance and capital through shareholders known to the business.
- Cannot raise large amounts through selling shares publicly.
- Profits are shared between more members.
- Harder to set up than sole trader or partnership.
- Accounts published and publicly available.
Public Limited Company
A company that is owned by shareholders and is offered to the general public. Shares can be freely sold and traded on the stock exchange. Must have 2 directors.
Benefits and drawbacks of Public Limited companies
+ Huge amounts of money made through stock market flotation.
+ Size makes it easier to gain economies of scale.
+ Can dominate market because of size.
+ Limited liability – risk spread.
+ Board of directors extend decision making and bring in additional expertise.
- Accounts published and publicly available.
- Shareholders expect dividends.
- Less control over decision making and possible takeover.
Franchising
A contractual relationship between a franchisor and franchisee that allows the business owner to use the franchisor’s brand and method of doing business to distribute products or services to customers.
Benefits and drawbacks to a franchisor
+ Effective way to grow business.
+ Set up fee and royalty payments.
- Risk of franchisee damaging brand if not run effectively.
Benefits and drawbacks to a franchisee
+ Business in a box – plans, products, marketing and a recognised brand.
+ Provided with training and support from franchisor.
- Expensive set up fees and little freedom to change business format.
- Royalty payments.
Social Enterprise
A business that trades for a social or environmental purpose. They trade in order to benefit the community. The businesses have social aims as well as financial.
Lifestyle business
Provides a good quality of life for the owners. Owner starts business hoping to sustain a certain level of income doing something they really enjoy. Allows entrepreneur to live how they want and still run a business.
Online business
Easy to set up, available to the customer 24/7, can be managed anywhere, owner doesn’t need to be sat in an office.
