Sole traders, partnerships, social enterprises and franchises Flashcards
Roles of an entrepreneur
1- Innovator
2- Risk taker
3- Organiser
4- Decision maker
Unincorporated and Incorporated business
Unincorporated- no separate legal identity from owner, not registered with Registrar of Companies, everything carried out under owner’s name, owner has unlimited liability
Incorporated- separate legal identity, can enter under contracts, sue, be sued and liquidated. Are limited companies, owners are shareholders
Sole trader
- Simplest form of bus organisation, no legal requirements
- One owner, can employ any no. of people
- Unincorporated bus
- Unlimited liability
Advantages of Sole Trader
- simple to set up, no legal requirements
- owner keeps all profit
- has full independence
- may qualify for govt. help
- flexible, can adapt to changing conditions easily
- can offer personal services since they are small
Disadvantages of Sole Trader
- unlimited liability
- complete independence can be a burden
- difficult to raise finance, seen as risky by lenders
- no bus. continuity
- too small to exploit econs of scale
- long hours, v hard work
Partnership
- between 2 and 20 people own business together
- share responsibility for running the business
- share profits
- usually in professions (docs, lawyers, accountants)
- no legal formalities but deed of partnership can be drawn up
Deed of Partnership
Legal document stating rights of partners in the event of a dispute, including:
- how much capital each partner contributes
- how profits and losses will be shared
- rules for taking on new partners
- procedure for ending the partnership
- how much control each partner has
Limited partnership (sleeping partner)
- partner contributes to capital and takes share in profit but is not involved in day-to-day management of bus.
- has limited liability
- at least one partner must have unlimited liability in such a case
Franchise
- structure where business has developed successful bus (franchisor) and allows other business to operate under their name (franchisee)
- suits someone who wants to run bus, but doesn’t have bus. idea
- franchisee pays fees to franchisor
Franchisor offers
- licence to trade under recognised brand name of franchisor
- start up package incl. help, advice and essential equipment usually including branding material
- exclusive geographical area to operate
- national marketing organsied on behalf of all franchisees
- training in how to run business and operate franchise systems
- materials, equipment and support services needed to run bus
Franchisee fees
- one-off start up fee
- ongoing fee based on sales
- contribution to marketing costs
- franchisors may make profit on some merchandise supplied to franchisee
Advantages to franchisee
- less risk, tried and tested idea
- back-up support is given
- start-up costs are predictable
- national marketing may be organised
Disadvantages to franchisee
- profits shared w/ franchisor
- may still be expensive
- lack of independence (strict operating rules)
- strict contracts
Advantages to franchisor
- some risk of running bus. is spread out to the franchisee
- fast method of growth
- cheap method of growth
- franchisees more motivated than employees (have to put in effort or financial loss)
Disadvantages to franchisor
- profits shared w/ franchisee
- franchisee may buy merchandise from elsewhere (standardisation)
- poor franchisee can damage entire brans rep
- cost of support may be high
