1.2 Business ownership

Sole trader

Someone who sets up a business on their own.

Advantages of being a sole trader

1. Simple, quick and inexpensive

2. Person who owns the business keeps all the profits

3. The owner has total control and makes all the decisions

Disadvantages of being a sole trader

1. Hard work and stressful

2. A wide range of skills is needed

3. Unlimited liability means that if a sole trader business fails, its owner’s personal possessions can be sold to pay the business’s debts.

4. It is often difficult to raise money to start or expand a business

5. A sole trader business ends when its owner dies

Partnership

when two or more people join together in a business enterprise to pursue profit.

Advantages of partnership

1. There is likely to be a wider range of skills available

2. Access to more finance, as each partner can contribute funds.

3. They have different skills and can cover for each other during holidays

Disadvantages of partnership

1. Disagreements as partners may have different ideas

2. Profits must be shared between partners

3. Most partnerships have unlimited liability. However, some partnerships can benefit from the protection of limited liability.

4. Decision making can be slow as all partners are normally consulted

Unlimited liability

if a sole trader business fails, its owner’s personal possessions can be sold to pay the business’s debts.

Limited liability

Exists when a business and its owners are legally separate. This means that the owners’ personal possessions cannot be sold to pay the business’s debts.

Company

A business that has its own legal identity. It can own items, owe money, sue and be sued.

Shareholder (a company’s owners)

A person or organisation that owns a part of a company. Each shareholder owns a ‘share’ of the business.

Shares

Documents which represent part ownership of a company.Anyone, or any group that has more than 50 per cent of a company’s shares, gains control of the company

Private limited company

A business owned by its shareholders whose shares cannot be freely traded on the Stock Exchange. They have the letters ‘Ltd’ after the company’s name.

Public limited company

A large business owned by its shareholders whose shares can be sold freely on the Stock Exchange. have the letters ‘plc’ after their names.

Private limited companies +

• Limited Liability: Shareholders only lose the money they invested.

• The business is separate from its owners, so it continues even if the owners leave or die.

• Customers often view companies as more reputable than a sole trader.

Private limited companies -

1. They're more complicated, regulated, and expensive to set up and run

• Loss of Control: Selling shares to raise money means the original owners lose some control.

• Public Information: Some financial data must be made public, which competitors can see.

Public limited companies +

• Easy to Raise Money: They can sell shares to anyone on the Stock Exchange, making it simple to raise large amounts of capital quickly.

• Media Coverage: Being public often leads to free advertising which can boost sales.

• Lender Trust: Banks and financial institutions are often more willing to lend money to PLCs.

Public limited companies -

• Short-Term Pressure: Being listed forces them to chase profits every quarter, which can sometimes harm the company's long-term health.

• High Regulation: They face the most laws and regulations

• Takeover Risk: A PLC can be bought out by another company, which can result in parts of the business being closed down.

• Negative Publicity: Being large and public means they're more likely to suffer from bad media coverage when things go wrong.

Not-for-profit organisation

An organisation that is set up to achieve objectives other than to make profit, for example a charity