3.6 - Business Structures

Question 1

Sole Trader

Answer 1

This means that the business has only one owner and they are the legal identity of the business. So they are personally liable to meet government regulation for the government like taxation. The owner will have full responsibility for the debts of the firm, this is known as unlimited liability and may be required to use personal assets to meet the debts of the business.

• Advantages*
• Don’t have to share decision making
• Get all the profits
• Low cost to commence and simple system to operate
• Disadvantages*
• Fully liable for the debts of the business (Unlimited Liability)
• Fully responsible for all tasks that can lead to high work loads.
• Problem when sick or need to take a holiday as noone is left to run the business.
• Need to raise the finance to commence which can be difficult.

Question 2

Partnership

Answer 2

This is when between two and twenty people join together to run a business. In certain circumstances like accounting and legal firms, partner levels can be higher.

• Advantages*
• Share the workload which will allow a partner to take a break.
• When starting, there is greater access to finance amounts and skill levels from the different partners.
• It is simple and low cost to set up
• Disadvantages*
• You need to share decision making that can create conflict.
• You need to share your profits
• Unlimited liability by the partner for the debts of the business. This means that any partner can be liable for the business debts if the other Partner can not pay.

Question 3

Company

Answer 3

A company is created with its own legal identity. This means that it is responsible to meet all government regulations like taxation. The owners of the company are known as Shareholders because they own a share of the company.

There are two key types of companies, Private Listed and Public Listed

• Advantages*
• As it is its own legal identity, it is responsible for its own debt so the shareholders are not.
• As it is its own legal identity, it can continue to operate long term which supports long term planning.
• It allows for one shareholder and director which allows one person to keep total control.
• Disadvantages*
• The cost to establish and provide documents need each year is expensive.
• Reports need to be published each year which means that information is available to competitors.
• If the company was to operate while insolvent (unable to pay bills) then the directors can be held liable for the amount sowed in this period.

Question 4

Private Listed Companies

Answer 4

• A private listed company can have between one and fifty shareholders with a minimum of one director. The sales of a partnership share are restricted and require the approval of the other directors.

Question 5

Public Listed Companies

Answer 5

• These companies are listed on the Stock Exchange and the public can buy and sell shares in them. The number of shareholders can be unlimited and they must have a minimum of three directors. To maintain a listing on the Stock Exchange they are required to meet a number of conditions as set by the Stock Exchange.