Types of Business Ownership

Sole Trader

A single person that owns and operates a business who has no legal separation between themself and the business.

Advantages of a sole trader business

Owner has full control over the business, retain all profits, make all decisions, and relatively easy to set up.

Disadvantages of a sole trader business

Unlimited liability, difficulty in raising capital, no shared workload and lack of business continuity.

Partnership business

A type of business owned and operated by two to twenty owners/partners, they are governed by the Partnership Act 1895, the act can be overridden by a formal Partnership Agreement.

Advantages of a Partnership business

Contribution of more skills and money, shared responsibilities, easy to establish.

Disadvantages of a Partnership business

Unlimited and shared liability, shared profits and disagreements are common between partners.

Small Proprietary Company

A business run by directors and owned by shareholders., It is a separate legal entity with a maximum of fifty owners, and has the words Proprietary Limited (Pty Ltd) in its name.

Advantages of a small proprietary company

limited liability, more ability to raise capital and easy transfer of ownership (shares)

Disadvantages of a Small proprietary company

Costly to set up, subject to more regulations by having to operate within the Corporations Act, shared profits among shareholders and less say in the running of the business.

Not-for-profit Organisation

An organization that is not operating for the profit or gain of its individual members. This means that any profits of the business, go back into the operation of the business and are not distributed to its members.

Advantages of a Not-for-profit Organisation

Inexpensive to incorporate, few formalities and low compliance requirements, and can be exempt from tax concessions

Disadvantages of a Not-for-profit Organisation

Organisations are limited to operating in the state of incorporation and they are not closely monitored or regulated meaning there are no clear guideline for operating and for reducing disputes.

Franchise

A business arrangement where the franchisor (the owner of the business) licences the business model to franchisees in return for ongoing fees or royalties.

Advantages of a franchise business

A well-established brand for the businesses product or service, offers management training and assistance, ongoing administration support from the franchisor and established management systems.

Disadvantages of a Franchise business

Must operate the business according to the franchisors’ procedures, less autonomy in business decisions and ongoing cost of payments to the franchisor.