1.5.4 - Business Forms

What is a sole trader?

An individual who runs their own business and is registered as self-employed by the HMRC

What are advantages of being a sole trader?

• Cheap and easy to set up

• Get all profits

• Autonomy with decisions

• Motivation is high as success of the business and the individual are the same

What are disadvantages of being a sole trader?

• Unlimited liability

• Limited capital for investment

• Will have to buy specialists

• Hard to find cover when ill

What is a partnership?

Where two or more people share the costs, risks and responsibility of being in the business together

What are advantages of being a partnership?

• Risks, costs and responsibilities are shared

• More specialist skills

• Flexible

• More capital raised than as a sole trader

What are some disadvantages of being a partnership?

• Unlimited liability

• Arguments can occur in decision making

• If anything happens to the partner then the partnership is dissolved

• Must have significant trust

What is a private limited company?

Owned by shareholders who are known to the company. Shares cannot be sold to the public, only to family and friends

What are advantages of being a private limited company?

• Limited liability

• Separate legal identity

• More capital raised through the sale of shares

• More flexible than a PLC

What are disadvantages of being a private limited company?

• More complex to set up due to increased legal requirements

• Some loss of control as shareholders have voting rights

• Unable to sell shares to the public

What is a public limited company?

A business where shares can be sold openly on the stock exchange, there is normally separate ownership and control (shareholders own the company but management runs the company)

What are advantages of being a public limited company?

• Limited liability

• Separate legal identity

• Financial records remain relatively private

• More capital can be raised through the sale of shares

What are disadvantages of being a public limited company?

• Lack of privacy as financial performance is available for all to view

• More complex to set up due to increased legal requirements and ongoing administrative costs

• Some loss of control as shareholders have voting rights

• Risk of hostile takeovers

What is a limited company?

A business that is incorporated at companies house and has a memorandum of association, article of association, form 10 and form 12

What is franchising?

The replication of a successful business formula by giving permission to franchisees to trade using its name or goods in return for a fee and share of profits

What are advantages of being a franchisor?

• Rapid expansion (maximises profitability)

• Cheap investment

• Motivation (franchisee has capital tied up in the business)

• Economies of scale

What are disadvantages of being a franchisor?

• Loss of control

• Have to manage growth

• Litigation (a failed franchisee is a court case waiting to happen)

What are advantages of being a franchisee?

• Lower risk

• Established product and firm

• Brand awareness

• Proven operation

• Assistance with everything

What are disadvantages of being a franchisee?

• Lack of control

• Higher than expected costs (e.g. start-up, supplies, franchise renewals)

What is a social enterprise?

Where the objective is not profit, but rather doing good for society

What is a lifestyle business?

When entrepreneurs run a business to suit and meet the needs of their own lifestyles

Objectives are likely to be based around profit satisficing, independence and work-life balance

What is an online business?

A business that trades in a virtual marketplace

Advances in technology has led to an increase in these