Types of business ownership Flashcards
What are the 5 types of business ownerships?
Sole trader Private limited company Public limited company Not for profit organisations Franchising
Sole trader
Single person who is the exclusive owner of a business.
Retains all profits but personally liable for business debt
Advantages of a sole trader
Easiest business to set up
Own boss
Decides what to do with profits
Easy to change structure if circumstances change
Disadvantage of Sole trader
Unlimited liability - no difference between your assets and business assets
Hard to get finance - banks see them as risky
All responsibility is yours - eg: decision making. Someone else can help
Harder to keep employees - no share of profit
Public limited companies
Sell shares on the stock exchange. Anyone can buy them
Often used by companies to expand as it leads to more finance for investment
Advantages of Public limited companies
Raises money for investment. Leads to business growing faster and bigger
Easier for business to get loans form banks because they are less of a risk because of number of investors
Shareholders have limited liability
Disadvantages of Public limited companies
Owners have little say over business management. Hard to agree on how business is run.
Anyone can take over company by buying enough shares. Buying more than half give them control.
Company’s accounts have to be public. Competitors can see what the company is doing.
Flotation
Business becomes public to raise finance
Example of flotation
Snapchat in 2017 to expand business
Private limited company
Is when ownership of shares is limited. For the company to sell shares, all shareholders have to agree
Advantages of Private limited company
Shareholders have limited liability
Owners (shareholders) have a lot of control over business
Easier to get loan as thy are seen as less risky. Increase access to finance.
Disadvantages of Private limited company
Obliged to publish accounts each year. Competitors can use them to be more competitive
Finance needed to incorporate business. Upfront fee and cost with the paperwork. Difficult for smaller businesses
Franchising
A business gives someone the rights to sell its products and use its trademarks. In return the business gets an upfront fee and a percentage of the profits.
Example of franchising
KFCs around the world are not owned by KFC but are franchises. They can use the KFC brand and ‘original recipe’
Advantages franchising
Business can expand without large investment
Doesn’t need to risk of becoming a large corporation such as diseconomies of scale
Increases brand awareness of the business’ products
