Buisness 1.1

  • Kind/Types of private sector business entities (companies):

    • Sole trader (1 person)

      • Personal businesses that are owned and run personal entities 

      • This is the common type of business ownership as it is relatively easy to set up  

      • Start-up is usually obtained from personal savings and borrowing

      • Sole traders have unlimited liability 

      • Advantadges:

        • Few legal formalities

        • Profit taking 

        • Being your own boss

        • Personalized service

        • Privacy 

        • Quicker decision making

      • Disadvantages:

        • Unlimited liability 

        • Limited source of finance

        • High risk 

        • Workload and stress 

        • Limited economies of scale 

        • Lack of continuity 

    • Partnership (2 or more people)

      • Partnerships are owned by two or more persons

      • At least one partner must have unlimited liability 

      • Start up finance is raised mostly by personal funds which are posted together by the partners

      • A legal document known as a deed of partnership is drawn up to formalise agreements such as how losses are to be shared between partners

      • Advantages

        • Financial strength 

        • Specialisation and division of labour 

        • Financial privacy 

        • Cost effective 

      • Disadvantages:

        • Unlimited liability

        • A lack of continuity 

        • Prolonged decision making

        • Lack of harmony due to disputes/ disagreements

    • Privately held companies 

      • A privately held company’s shares are owned by friends and/or family 

      • These shares cannot be traded publicly on the stock exchange 

      • Shareholders can only sell theur shares if they have prior permission drom other shareholders 

      • Typically privately held companies are also family businesses 

      • A group of friends/family owns a company and are not permitted to sell 

      • shares to anyone out of the approved people 

      • Private shares  

    • Publicly held companies

      • The shares in the companies can be shared or traded publicly in the stock market 

  • Profit based organisations:

    • These are revenue-generating businesses with profit objectives at the core of their operations:

      • Their goals are to:

        • Make profit 

        • Reward owners with profits from the business

        • Return some of the profits back into the businesses for capital growth

    • Limited liability companies

      • These are businesses owned by their shareholders

      • Shareholders have invested money to provide a capital for a company 

      • Companies are incorporated buisnedded 

        • In the eyes of the law the companies are treated as a legal entity separate from it's owners

        • This means they have limited liability 

      • There are two types of companies- Privately and publicly held 

      • Advantadges

        • Raising finance 

        • Limited liability 

        • Conitnuety

        • Economies of scale

        • Productivity 

        • Tax benefits 

      • Disadvantages

        • Communication problems 

        • Added complexities 

        • Compliance costs 

        • Disclosure of information

        • Bureaucracy 

        • Loss of control 

      • Liability 

        • Unlimited vs liability 

        • When deciding on which type of organization to set up an entrepreneur needs to consider whether or not to incorporate the benefit from limited liability 

      • Incorporated vs unincorporated

        • Incorporated

          • LTDs and PLCs

          • Creation of a legal entity 

          • Business is liable for debts, not the owner personally

          • The business is separate to the owner

        • Unincorporated 

          • Sole traders and partnerships

          • No legal entity 

          • The owner is liable for debts personally 

          • The business is the owner