1.4.5 - Advantages and Disadvantages

Sole trader advantages

• Sole trader has full control over the business, they are motivated to keep the business surviving

• Being small in size allows for more direct contact with customers, improving service and loyalty

• The sole trader keeps 100% of the profits made by the business - no shareholders or staff to pay

Sole trader disadvantages

• Limited access to capital as the business is likely to have little to no previous sales data

• Sole traders may lack expertise in certain areas like marketing, which would lead to poor brand awareness

• The owner may handle all areas of the business (finance, sales, admin) which may lead to burnout or inefficiencies

Partnership advantages

• More capital available as each owner can contribute funds, allowing enough cash to be invested into growing or setting up the business

• Workload and decision-making is divided between partners, each who may have a specific skill set, leading to increased efficiency

• Easy to set up and allow the business to start trading and generating revenue as soon as possible as it requires less legal formalities

Partnership disadvantages

• Profits must be divided between partners, which may lead to disagreements and cause conflict, potentially resulting in demotivation

• Decision-making will be slower if partners disagree, leading to less market agility and competitiveness

Private Limited Company (Ltd) Advantages

• Greater control over ownership as shares are sold privately (usually to friends and family), which prevents hostile takeovers from other larger companies who may want to kill future competition

• Not as much pressure from shareholders compared to a PLC, as owners can choose who buys the shares. This means they can focus on long-term goals without needing to meet short-term profits for shareholders in a PLC

• Ltds have more privacy as they do not have to publish as much financial information, giving them a competitive edge in keeping business strategy private

Private Limited Company Disadvantages

• Slower growth potential as Ltds cannot raise large sums of capital from public investors that is required for rapid expansion

• PLCs are often viewed as more successful and established as they are publicly listed and have access to large-scale investment, so Ltds may struggle to compete for large contracts

• Less market visibility as they are not listed on the stock market, which means they cant gain the benefits of this which include an enhanced brand, attracting media attention or attracting investor interest)

Public Limited Company (PLC) Advantages

• Has access to a larger pool of capital as they can raise significant funds via the stock exchange

• PLCs tend to have an enhanced status, as being listed publicly boosts reputation, leading to an increase in awareness of the brand

• Shareholders may be more attracted to PLC’s as shares are more liquid, as they can be bought and sold easily on the stock exchange as opposed to privately with LTDs, making raising capital easier.

Public Limited Company Disadvantages

• Original owners risk losing control if too many shares are sold to shareholders, impacting their decision making

• PLCs will face much more intense shareholder pressure who only care about short-term profits, and must appease them. They may have to sacrifice long-term growth because of this

• PLCs must meet stock market regulations, which include regular reporting of business performance to shareholders, publishing financial statements and hosting the Annual General Meeting where shareholders can vote on key issues. This will lead to extra costs and time being consumed, which may slow down decision making.