Types of businesses and business ownerships

Linited liability

The business owner or owners are only responsible for business debts up to the value of their financial investment in the business. This means that a creditor can only take assets or finances belonging to the company. Limited liability only applies to certain types of business, such as private limited companies.

Unlimited liability

The business owner or owners are personally responsible for all of the debts of the business, no matter what the value.

Sole trader

Is a business that is owned and run by one person. There is only one owner, but they may have employees who work for them.

Businesses that usually have a sole trader

Photographers, electricians, hairdressers, graphic designers, social media influencers, bloggers, small online clothing brand owners and beauty therapists may set up as sole traders.

Advantages of sole trading

• it is quick and easy to set up as a sole trader

• the business owner will have a lot of control over the business and its money

• it gives individuals the opportunity to be their own boss and make all the business decisions

• It has low set-up costs

Disadvantages of sole trading

• it has the risk of unlimited liability

• it can involve long work hours and stressful conditions

• there is a high level of responsibility for the owner

• often the owner performs many different roles in the business

Partnership

Type of business that has 2 or more owners. They decide to set up and run a business between them.

In a partnership, the owners agree a set of rules. These are outlined in a document called a deed of partnership. As an example, this document may specify how profits are allocated, what percentage of the business each person owns, their roles and responsibilities, and the percentage of any business debts that each person would have to pay. The owners in a partnership pay income tax on their earnings.

Businesses that may have a partnership

Businesses that provide a professional service, such as lawyers, doctors and accountancy practices

Advantages of a partnership

• they are usually quick and easy to set up

• there is shared decision-making by the owners

• there is shared responsibility for debt by the owners

Disadvantages of a partnership

• they can involve long work hours

• conflict amongst owners can occur

• there is the risk of unlimited liability

• one partner may let the others down by not upholding their responsibilities in the business

Public limited company

Can be a small or large business. A private limited company has limited liability and often these types of business have ‘Ltd’ after the business name.

Examples of what a Ltd company could be

Any type of business can set up as a private limited company.

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