Business activity for Private Sector owned, financed and controled by private individuals.
- Sole Traders
- Partnerships
- Private Limited Companies
- Public Limited Companies
- Co-operatives
- Franchises
- Charities
Business Ownership
- Sole Trader: Owned financed and controlled by one individual but can employ other staff.
- Common in local building firms, small shops, restaurants, butchers etc.
Sole Traders: Advantages
- Easy to set up
- Personal incentive
- Flexibility
- Ability to offer personal service
Sole Traders: Disadvantages
- Unlimited liability
- Limited access to capital
- Potential for long hours
- Pressure of being solely responsible
- Lack of continuity
- Partnerships: Owned, financed and controlled by upwards of 2 partners. Terms of Partnership agreed through contract. It is common in professions as lawyers, accountants, architects, surveyors, estate agents, vets etc.
Partnerships: Advantages
- Greater access to capital
- Shared responsibility
- Greater opportunity for specialisation
- Easy to set up
Partnerships: Disadvantages
- Unlimited Liability
- All partners liable for the depts of the others
- Partnership dissolved on death of one partner
- Potential for conflict
- Decisions of one partner binding on the rest
- Limited access to capital
- Limited Companies:
–Private Limited Company (Ltd) Owned by between 2 and 50 shareholders
–Public Limited Company (PLC) Owned by minimum of 2 but no maximum number of shareholders - Has a separate legal identity – the company can sue and be sued
- More complex to set up
- Minimum share capital of £50,000
- Must Register with Registrar of Companies at Companies House
• Memorandum of Association
Details of the nature, purpose and structure of the company
• Articles of Association
Details of the internal rules of the company - Certificate of Incorporation – allows the company to trade
- Shareholders have limited liability – can only lose what they agreed to put into the company – no personal liability
- PLCs – shares traded on Stock Exchange
- LTDs – shares only bought and sold with agreement of existing shareholders
Limited Companies-Issues
- Divorce between ownership and control
- Potential for diseconomies of scale – communication, decision making etc
- Must publish accounts
- PLCs – shareholders may be large institutions – pension funds, insurance companies etc
- PLCs - Share value subject to volatility – affects company value
- PLCs – can be large, complex, possess market power
- Co-operatives: Ownership, finance and control in hands of ‘members’
- Exists for the benefit of ‘members’
•Consumer co-ops – members buy goods in bulk, sell to members, divide profits between members
•Worker co-operatives – workers buy the business and run it – decisions and profits shared by members
•Producer co-operatives – producers organise distribution and sale of products themselves
- Franchises: Method of business ownership backed by established ‘brand’ name
- Owner gets to run a business with less ‘risk’
- Owner buys the right to use the established companies name, format products, logos, display units, methods etc.
- Speedy way for business to expand
- Become very popular
- Owner – (Franchisee) responsible for debts, pays a royalty to owners of the brand, keeps any remaining profit.
- Franchisee – pays a fee for the purchase of the franchise
- Common franchises – Body Shop, McDonalds, Burger King, Pizza Hut, Benetton, Toys R Us, IKEA, Kentucky Fried Chicken
