Types of Business

Organisation
 Sole Trader
• One person owns and controls the business
• Its an unincorporated business
• Owner doesnot have separate legal entity
• Eg: Carpenter, hairdresser, local stall owners
 Sole traders
Advantages Disadvantages

Make quick decisions Unlimited liability

Easy to set up Limited sources of finance

Keep all the profits No one to share the workload with

Business details are private Own skills and ideas to rely on

Total control Carry all the business risk

 Partnership
• Each partner has equal share in how the business runs
• Share profits equally or in an agreed ratio
• Unincorporated business
• Eg: Doctors, accountants
 Partnership
Advantages Disadvantages

Share ideas and workload Unlimited liability

More sources of finance Share profits

Business details are private Slower decision making

Partners can specialise in tasks Disagreements between partners

Share risk and responsibility Everyone is responsible for the actions of

other partners
 Limited Company
• Incorporated business
• Run by directors
• Owners have limited liability – Liable for the debts of the business up
to the amount invested
• Shareholders have no responsibility in the day-to-day activities of the
business
 Private Limited Company
• Share can be sold only if all the shareholders agree
• Shares are a unit of ownership
• Shares are sold only to family and friends
 Private Limited Company
Advantages Disadvantages

Limited Liability Expensive to set

Raise finance by issuing shares Restriction on the number of

shareholders
Easier to control that Public limited Permission required from other
company shareholders to sell shares
Incorporated Cannot sell shares in the stock exchange

Continuity of existence Financial information must be disclosed

 Public limited Company
• Sell shares to the public
• Raise vast amount of money
• Shareholders can vote in Annual General Meeting (AGM)
 Public Limited Company
Advantages Disadvantages

Limited Liability Very expensive to set

Raise large amount of finance by issuing Additional advertising cost

shares
Able to sell shares in the stock exchange Individual shareholders have little say in
how the business runs
Incorporated Greater risk of takeover

Continuity of existence Financial information must be disclosed

Permission is not required to sell shares

 Franchise
• A franchisee pays to buy the rights to sell the products in return for
known product, in return for a known product, marketing material
and support
 Franchisee
Advantages Disadvantages

More chance of success Less independence

Banks are more likely to lend money Cannot keep all the profit

Support of franchisor Can sell products only of the franchisor

Little or no choice of suppliers to lower

cost
 Franchisor
Advantages Disadvantages

Expansion of business without investing Poor management of one franchised

large amount outlet could lead to a bad reputation for
the whole business
Risk is shared with the franchisee Share profits with franchisee
 Joint Venture
• A joint venture is when two or more businesses agree to start a new
project together, sharing the capital, the risks and the profits.
 Joint Venture
Advantages Disadvantages

Access to new markets Profits have to be shared

Less risk Disagreements over important decisions

Access to new technology Different ways of running business

Increased capacity
 Public Corporation
• Owned and controlled by the Government
• Provide services to public at low price
 Summary
Type of Business Risk Liability Source of funds

Sole Trader Only the owners Unlimited Own funds, loan, savings

Partnership Shared by partners Unlimited Capital of both the

partners, loan, savings

Public limited company Limited to the amount Limited Amount is invested by

invested the public

Private limited company Limited to the amount Limited Amount is invested by

invested family and friends