Main Types of Business Ownership Flashcards
Sole Trader
An unincorporated, unlimited type of business organization that is owned and controlled by one person who also receives all profits.
Partnership
An unincorporated, unlimited type of business organization that is owned, financed and run by 2 to 20 people that also requires a deed of partnership to be used.
Private Limited Company
(LTD.)
An incorporated, limited type of business organization that only allows shares to be sold to invited shareholders.
Public Limited Company (PLC.)
An incorporated, limited type of business organization that allows shares to be sold to the public through the stock market.
Franchise
An agreement between a company with another business organization to allow the distribution of the company’s goods and services and the use of its brand name or trademark through the other business organization;
An agreement between the franchisor and the franchisee to allow product distribution.
Franchisor
The company that allows the distribution of its goods and services; it usually is well-known, has an identity with a market and brand name for its product.
Franchisee
The business organization that buys the rights to use the company’s brand name, business name, production method, etc.
Directors
These are people who are major shareholders in the company but who also have control over it
Shareholders
These are people who have shares in the company, but do not run or manage the company.
Stakeholders
Any person, group of people or other organization that has an interest in the activities of a business
Social enterprise
An organization that exists with a clear goal to help the community but runs the organization like a business. All profits are reinvested back into the organization.
Unlimited liability
The liability on business owners to repay all of the debts of their business;
The owner/s are personally and fully responsible for all losses and debts of the business
Limited Liability
When investors only repay for the capital they’ve invested in the business.
Pros of a Sole Trader
+ few legal requirements
+ owner has full control of the business
+ owner receives all profits after tax
+ can be set up with little capital
+ owner can personally contact customers, thus improving customer loyalty
Cons of a Sole Trader
- unlimited liability
- may often lack capital to expand
- owner may lack all the skills needed to appropriately manage the business
Pros of a Partnership
+ few legal requirements
+ expansion is easier to fund(due to more partners and, thus, more funding)
+ a wider array of skills and expertise are brought into the business
+ responsibilities for decision making and management are shared
+ business risks and financial risks are shared but limited partners have limited liability
Cons of a Partnership
Partnership
- disagreements can occur between partners
- profits are shared
- unlimited liability
- raising additional capital may be difficult depending on the allowed maximum number of partners (if max is 20, a company with 20 partners can no longer invite another person)
Pros of an LTD.
+ limited liability
+ separate legal identity
+ shareholders get dividends
+ capital can be significantly increased
+ shareholders elect directors
Cons of an LTD.
- there has to be a record for everything in the business
- large shareholders can veto decisions
- shareholders can only sell shares with the consent of all other stockholders
- directors can act on their own interests rather than that of the shareholders
- required by law to hold AGMs with stockholders
Pros of a PLC
+ limited liability
+ separate legal identity
+ shareholders get dividends
+ capital can be significantly increased
+ shareholders elect directors
Cons of a PLC
- expensive to form a PLC
- tedious to form(e.g. many legal requirements)
- publishing of annual reports is time-consuming
- shareholders who own at least 51% of shares can veto decisions
- directors can act on their own interests rather than that of the shareholders
- required by law to hold AGMs with stockholders
Pros of a Social Enterprise
+ Good reputation – Attracts loyal customers
+ Easier funding – Grants & ethical investors
+ Motivated employees – Inspired by social mission
+ Competitive advantage – Stands out in the market
+ Sustainable – Focuses on long-term impact
Cons of a Social Enterprise
- Lower profits – Money reinvested into social causes
- Funding issues – Hard to secure consistent funds
- Difficult balance – Social and financial goals clash
- Slow growth – Expansion can take longer
- High costs – Ethical sourcing & wages increase expenses
Pros of Franchise (Franchisee)
+ Selling/making of an established product reduces risk of failure
+ Banks are often more willing to lend money to franchises
+ Training for staff, provision of supplies and promotional materials are all provided by the franchisor
Cons of Franchise (Franchisee)
- Fees and other ongoing payments may get too expensive
- Franchisor monitors performance
- Role of business owner is reduced to being a branch manager as most decisions are made by franchisor
Pros of Franchise (Franchisor)
+ Offering a franchise is quicker and easier for expansion of the business, growth of sales and market share
+ Additional funds coming from payments from fees from franchisee
+ Additional funds coming from potential franchisee’s buying rights
+ Management costs are lower since the franchisee is managing their unit
Cons of Franchise (Franchisor)
- If franchisee isn’t monitored, they could ruin the reputation of the franchisor
- franchisees get more of the profits from their unit
- If franchisee isn’t monitored enough, quality of the franchisor’s goods and services may be hindered.
