1.4 Types of business organisation

What is a sole trader?

It is a business owned and controlled by one person.

What are advantages of sole traders?

• Easy to set up

• Full control

• Sole trader receives all profit

What are the disadvantages of sole traders?

• Unlimited liability (if unable to pay debt so property seized)

• Full responsability

• Lack of capital

• Lack of continuity (if owner dies)

What is a partnership?

A partnership is a legal agreement between two or more people to own, finanace and run a business jointly.

What are the advantages of partnerships?

• Easy to set up (partnership deed)

• Provides new skills and ideas

• More capital

What are the disadvantages of partnerships?

• Conflicts (decision makind)

• Unlimited liability (requisition of assets)

• Lack of capital

• No continuity (if owners die)

What are franchises?

It is when the owner of a business (franchisor) grants a licence to another person or business (franchisee) to use their business idea.

What are the advantages of a francise to the franchisor?

• Rapid, low cost method of business expansion

• Generates income in the form of franchise fees and royalties

• Franchisee can introduce new concepts and ideas

• Franchisee runs operations

What are the disadvantages of a francise to the franchisor?

• The profit is kept by the franchisee

• Loss of control over the running of the business

• If one fails, it ruins the whole brand image

• Raw materials and training is expensive

What are the advantages of a francise to the franchisee?

• It is an already established brand, so chances of failure are lower

• Technical and managerial support

• Franchisor will supply raw materials and products

What are the disadvantages of a francise to the franchisee?

• The cot of setting up the business

• No control over the business, has to follow the rules

• Profits have to be shared

• Royalty and franchise fees

• Need to advertise/promote themselves

What is a joint venture?

An agreement between two or more businesses to work together on a project. eg geoogle+nasa = google maps

What are the advanteges of a joint venture?

• Reduced risks and reduced costs for each

• Different expertise

• Market potential for all firms involved is increased

• More knowledge

What are the disadvanteges of a joint venture?

• Any mistake will reflect on all the businesses

• Conflict over different decisions, styles of leadership and business culture