Businesses are often referred to as organisations. An ORGANISATION is a body that is set up to meet needs. For ‘example, the St. John’s Ambulance organisation was originally set up by volunteers to train the public in life saving measures. Business organisations satisfy needs by providing people with goods and services. All organisations will: © try to achieve objectives; © need to be directed; © have to be accountable; ‘© have to meet legal requirements; © havea formal structuee, One method of classifying businesses is by sector. The PRIVATE SECTOR includes all those businesses which are set up by individuals or groups of individuals. Most business activity is undertaken in the private sector. The types of business in the private sector can vary considerably. Some are small retailers with a single owner. Others are large multinational companies such as Cadbury Schweppes. Businesses will vary according to the legal form they take and their ownership. * Unincorporated businesses. These are businesses where there is no legal difference between the owners and the business, Everything is carried out in the name of the owner or owners. These firms tend to be small, owned by either one person or a few partners. * Incorporated businesses. An incorporated body is one which has a separate legal identity from its owners. In other words, the business can be sued, can be taken over Figure 1: Business organisations in the private sector Wie ree La Peace) Sole trader. (Ce) and can be liquidated. Figure | shows the different types of business organisation in the private sector, their legal status and their ownership. These are examined in the rest of this unit. ‘The simplest and most common form of private sector business is a SOLE TRADER or SOLE PROPRIETOR. This type of ‘business is owned by just one person. The owner runs the business and may employ any number of people to hep. Sole traders can be found in different types of production. In the primary sector many farmers and fishermen operate like this. In the secondary sector there are small scale manufacturers builders and construction firms. The tertiary sector has large ‘numbers of sole traders. They supply a wide range of services, such as hairdressing, retailing, restaurants, gardening and other household services. Many sole traders exist in retailing and construction, where a very large number of shops and small construction companies are each owned by one person. Although there are many more sole traders than any other type of business, the amount they contribute to total output in the UK is relatively small. Setting up asa sole trader is straightforward, There are no legal formalities needed However, sole traders or selfemployed entrepreneurs do have some legal responsibilities once they become established. In addition, some types of business need to obtain special permission before trading * Once turnover reaches a certain level sole traders must register for VAT. + They must pay income tax and National Insurance contributions. eed)rior ouns Joanna Carter Contemporary Flowers in Wel cfs customers in three areas ~ ndings, corporate work fr lc private homes. Despite only sting up n July J somand has soared thanks to Joanna's growing reputation for ements. She setup as sole raver after leaving her Job to Family. 'Atr leaving my personel ob to have my chien, now pein and six, | ha time to think about whore realy wanted to go in | was keen to develop my pasion fr flavers wih proper nd 0 | took a two-year part-time course at Abingdon and Witney 2. She also gained work experience working one day a weak in a Se%SE shop in Walingor. When she graduated, she had akeady ecehed ber of offers from people wanting her to do private rangement for en. So shelf the shop to run her awn business from home Joanna aporoached the local Business Link, a fee and impartial guide ice, resources and information short after setting up the ida ls ous with highly respectad London fst Jane Packer in May. The use costs £900 and haf of the cost vl be pald for though the Skils opment Team at Business Link. | am also ooking Into a broadband i s0| can provide a slideshow of my work for potential corporate stots and wedding bookings. I'm nthe process of appyng for an Exterprising Woman grant run by Suey Unversity which wl hve me worth of funn Souree: adapted from wow businessik go. (@) Asa sole trader Joanna Carter has unlimited liability. What does this mean? Explain two advantages to Joanna Carter of operating as a sole trader. (9) How did Business Link help Joanna Carter in running her ‘small business? Some types of business activity need a licence, such as the sale of alcohol or supplying a taxi service ot public transport, ‘Sometimes planning permission is needed in certain locations, For example, a person may have to apply to the local authority for planning permission to run a fish and chip shop in premises which had not been used for this activity before Sole traders must comply with legislation aimed at business practice. For example, legally they must provide healthy and safe working conditions for their employees. Sole traders have a number of advantages, * The lack of legal restrictions, The sole trader will not face a lengthy setting up period or incur expensive administration costs, * Sole proprietorships can be set up with little or no money in the business. They don't cost anything to set up. So the capital cost of creating a sole proprietorship ean be minimal * Any profit made after tax is kept by the owner. * The owner is in complete control and is five to make decisions without interference. For many sole traders independence is one of the main reasons why they choose to set up in business, © The owner has flexibility to choose the hours of work he or she wants and to take holidays, Customers may also benefit. Sole traders can take individual customers’ needs into account, stocking a particular brand of a good or making changes to a standard design, for example. * Because of their small size, sole traders can offer a personal service to their customers. Some people prefer to deal directly with the owner and are prepared to pay a hi price for doing so. ‘> Such businesses may be entitled to government support. However, there are also disadvantages of sole traders. * Sole traders have UNLIMITED LIABILITY. This means that if the business has debts, the owner is personally liable. A sole trader may be forced to sell personal possessions or use personal savings to meet these debts * Sole proprietorships can be risky for their owners. Ifthe business is unsuccessful, sole traders can end up working for nothing or even subsidising the business out of their ‘own private resources. Also, because the business is the so trader; long term illness can have a devastating effect on it Becoming an employee is less risky and is one reason why workers may not want to work for themselves, * Sole proprietorships face continuity problems. Will the business survive ifthe sole trader dies, takes retirement or decides to do something different? Some sole traders run family businesses where parents tend to pass on their business to their children. Farming is an example However, many sole traders will not pass their businesses on to family members. So these businesses will disappear. * The money used to set up the business is often the owner's savings. It may also come from a bank loan. Sole traders ‘may find it difficult to raise money. They tend to be small and lack sufficient collateral, such as property or land, on Which to raise finance. This means money for expansion ‘must come from profits or savings, + Independence is an advantage, but it can also be a disadvantage. A sole trader might prefer to share decision ‘making, for example. Many sole traders work very long, hours, without holidays, and may have to learn new skills. * In cases where the owner is the only person in the business illness can stop business activity taking place. For example, ifa sole trader is a mobile hairdresser, illness will lead to a loss of income in the short term, and even a loss of customers in the long term, * Because sole traders are unincorporated businesses, the owner can be sued by customers in the event of a dispute. * Large businesses can employ specialist workers. 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