types of business organization

define sole trader

a business organization that is owned, controlled and financed by an indivdual

define partnership

a business organization that is owned, controlled and financed by two or more people known as partners.

advantages of being a sole trader

does not need to share profit

business information is not public

easy to set up

be you own boss

freedom to choose holidays, hours of work and prices

close contact with customers

disadvantages of being a sole trader

unlimited liability

lack of business continuity

does not have a large amount of capital

difficult to raise finance

limited access to resources and expertise

unincorporated business

advantages of partnerships

shared workload

more capital than sole trader

easy to set up

shared decision making from diverse perspectives and expertise leads to better decisons

disadvantages of partnerships

shared profits

disputes between partners

lack of continuity in the business

unlimited liability

difficulty in raising large amounts of finance

no separate legal identity

difference between incorporated and unincorporated businesses

incorporated businesses have a separate legal identity/status from their owner while unincorporated businesses do not, meaning the owners are personally liable for the business's debts.

incorporated business features

business continuity even if one of the owners die

company can make contracts and legal agreements

company accounts are separate from the owner's personal accounts

define private limited company

businesses owned by shareholders but they cannot sell their shares to the public

features of private limited company

small number of shareholders

limited liability

incorporated business

difficult to raise additional capital relative to public ltd

define public ltd company

businesses owned by shareholders and can sell shares to the public and through stock exchanges.

advantages of public ltd

limited liability

incorporated business

can raise large amounts of capital

no restriction on buying and selling of shares

increased public profile and credibility

easier to get finance from financial institutions

disadvantages of public ltd

complicated legal formalities so difficult to set up

more regulations and controls

business information is publicly available

owners can lose control

selling shares to the public is expensive

define dividends

are payments made to the shareholders from the profits after tax. It is the return shareholders get for investing in the company

define franchise

a franchise is a system where an individual or firm can buy the right to use the name, logo and product of an existing business. The franchisee buys the license from the franchisor

advantages to the franchisor

expansion of this business is much faster

management is franchisee’s responsibility

all products sold must be obtained from franchisor

advantages to the franchisee

chances of business failure is reduced

franchisor pays for advertising

supplies obtained from franchisor

fewer decisions regarding price, store, layout etc

training for labour is provided by the franchisor

banks more willing to lend to them because they are relatively low risk

disadvantages to franchisor

poor management from franchisee could lead to damaged reputation

franchisee keeps profits

disadvantages to franchisee

less independence

unable to make locally fitting decisions

licence fee must be paid

define joint ventures

where two or more businesses start a new project together by sharing capital, risks and profits

advantages of joint ventures

sharing of costs

risk shared

local knowledge

disadvantages of joint ventures

shared profits

disputes

different management styles

define public corporations

a business in the public sector that is owned, controlled by government/state

advantages of public corporations

important industries being controlled by the government is essential

government monopolies are better than private monopolies

nationalization helps keep intact failing businesses

noprofits for public welfare

disadvantages of public corporations

no private shareholders to insist profits and efficiency

government subsidies lead to inefficiency

no close competition so no incentive to increase choice, customer service etc

can be used for political reasons

deciding on the right business organization

no:of owners => more means choose incorporated

owner’s role is management => if they only want to invest, choose incorporated

attitude towards financial risk '

how quickly they want to start the business

potential size of the business