Business Studies- Sole traders, partnerships and franchises Flashcards
People who set up businesses are called….
entrepreneurs.
entrepreneurs are…
Innovators- try to make money
Organisers
Risk takers
Decision makers
Unincorporated:
Businesses where there is no legal difference between the owner and the business. Everything is carried out in the name of the owner. These tend to be small and owned by one person, or a small group of people.
Incorporated:
An incorporated business is one which has a separate legal identity from that of its owners. In other words, the business can sue, be sued, taken over or liquidated. Incorporated businesses are often called limited companies and the owners are shareholders.
A sole trader is ….
the simplest form of business organisation. It has one owner but can employ any number of people. Sole traders may be involved in a wide range of business activity. In the primary sector they may be farmers or fisherman. In the secondary sector they may be small builders or manufacturers. However, most sole traders are found in the tertiary sector. Many are retailers running small shops. Others may offer services such as web design, tutoring, hairdressing, taxi driving, garden maintenance and so on.
Advantages of a sole trader
All the profit is kept by the owner
They are independent- owner has complete control
It is simple to set up with no legal requirements
Flexibility- e.g. can adapt to change quickly
Can offer a personal service because they are small
May qualify for government help
Disadvantages of a sole trader
Have unlimited liability
May struggle to raise finance- too risky for lenders
Independence may be a burden
Long hours and very hard work
Usually too small to exploit economies of scale
No continuity- the business dies with the owner
Partnerships
A partnership exists when between 2 and 20 people jointly own a business. The owners will share responsibly for running the business They also share the profits. Partnerships are often found in professions such as accountants, doctors, estate agents and solicitors.
There are no legal formalities to complete when a partnership is formed. However, partners may draw up a dead of partnership. This is a legal document which states partners’ rights in the event of a dispute. It states:
how much capital each partner will contribute
how profits (and losses) will be shared amongst the partners
the procedure for ending the partnership
how much control each partner has
rules for taking on new partners.
Advantages of partnerships
Easy to set up and run- no legal formalities
Partners can specialise in their area expertise
The burden of running a business is shared
More capital can be raised with more owners
Financial information is not published
Disadvantages of partnerships
Partners have unlimited liability Profit has to be shared Partners may disagree and fall out Any partners’ decision is legally binding on all Partnerships still tend to be small
Limited partnerships
This is where some partners provide capital but take no part in the management of the business. This partner will have limited liability. It is also called a sleeping partner.
Franchises
One approach to running a business to buy a franchise. This may suit someone who wants to run the business does not have their own business idea. Owners of franchises are called franchisors they have developed a successful business and are prepared to allow others, the franchisees, to trade under their name. Franchisees may pay fees to the franchisor. Examples of some international franchises are McDonald’s and subway.
What does the franchise or off by the franchisee?
A license to trade under the recognised brand name of the franchisor
A start-up package including help advice and essential equipment
Training in how to run the business and operate the system used by the franchise
Materials and equipment and support services that are needed to run the business
Marketing support which is organised on behalf of all franchisees
An exclusive geographical area in which to operate. This means that the business will not face competition from other franchisees in the same franchise group.
In return for these services the franchisee has to pay certain fees.
A start-up fee- a lump sum
An ongoing fee (usually based on sales)
Contribution to marketing costs
Franchise or it may make a profit on some of the materials, equipment and merchandise supplied to franchisees.
