Download - Legal forms of business 2015
Legal forms of Legal forms of businessbusiness
Types of businesses
• Sole Trader
• Partnerships
• Private Limited Company (LTD)
• Public Limited Company (PLC)
• Co-operatives
• Franchises
Sole Trader• An individual which trades under his/her own
name
• Is totally independent
• Makes all the important decisions
• Responsible for paying all of the debts
• Few formalities in setting up
• Can employ as many people as he/she wishes
Advantages of a Sole Trader
• Decisions can be made quickly• Leads to greater interest & more
dedicated & hard working owner• Profits are kept by the sole trader• Paperwork is minimal• Easy to start trading as the sole trader
Disadvantages of a Sole Trader
• Personally liable for all debts that it occurs (unlimited liability)
• Less capital available for expansion
• Taxed at a higher rate than a private company
• May have difficulty in managing all business functions
• When the sole trader dies so does the business
• Raising capital could be difficult for one person
Examples of Sole Traders
• Corner shop
• Coffee shop
• Carpenters
Partnerships• Can have between 2 & 20 partners
• A ‘deed of partnership’ can be used to set out the rights of the partners
• Aim to make a profit
Examples of partnerships
• Doctors
• Accountants
• Solicitors
Advantages of a partnership
• More capital is available than for the sole trader
• Better use of business expertise because each partner can concentrate on what they are good at
Disadvantages of Partnerships
• Group decision making may cause conflict between partners
• Like sole traders, partners have unlimited liability so they are liable for all the debts of the business
• Decision making can be slower which can lead to inflexibility
• Profits must be shared
Your task• Why is it important that a business
has a deed of partnership?
Key termsUnlimited liability
The owners are personally responsible for paying debts if the business goes bankrupt
Limited liabilityIf the company goes into liquidation, the shareholders of the company are not responsible for paying the debts of the business
Private Limited Company (ltd)
• A company that is a legal entity in its own right
• It can be sued and can sue• Shareholders own the business• A group of people who buy the
shares are called the shareholders• Cannot sell shares to the public
Public Limited Company
• Can sell their shares to members of the public through the stock exchange
• No maximum limit of shareholders
• Must issue a prospective detailing the history of the company & inviting the public to buy shares
Public Limited Company
• Shares are bought & sold on the stock exchange
• Accounts must be published and audited on an annual basis
• An annual report must also be compiled each year
Advantages of a public limited
company• Limited liability• Easier than private limited
company to raise capital• They can attract top management
because of their public image• Continuity of existence if a
shareholder dies
Disadvantages of a public limited
company • High formation costs
• Accounts have to be published
• Profits must be distributed to shareholders
• Ownership & control are separated because although the shareholders own the company the Board of Directors make the decisions
Key TermsShares• These are long term sources of finance• Sold to people who become shareholders of the company• A plc is able to advertise its shares for sale to the general
public• A private limited company must sell their shares privately
Shareholders• These are people who own part of the Business
Sources of finance• Internal sources of finance
• External sources of finance
Internal sources of finance
• Retained profits
• Stock reduction
• Assets sale
• Limiting credit to customers
External sources of finance
• Owners capital
• Hire purchase and leasing
• Overdrafts and loans
• Grants
What is a franchise?• Involves paying a fee & agreeing to
produce goods exactly in accordance with the franchise company’s policy
• Payments (royalties) are made on a regular basis depending on profits made
• Training & supervision are provided
Your task• Create a newspaper advert selling
a franchise• Example:
A large McDonald’s restaurant for sale as a going concern to suitable franchiseeExcellent trading figures, full training provided. Price £375,000
The public sector• The public sector includes everything that
is owned by the government
• Examples-army, police force, schools & hospitals
• Public means that they are owned by the government for the benefit of the people who run them
The private sector• The private sector contains all the
businesses owned by private individuals
• Almost all the businesses you can think of are in the private sector
• Private means that these businesses are run for the benefit of the people who own them – usually for profit
Strengths of the free market private sector
• Employers & employees can create their own personal wealth through the profit motive & hard work
• A greater range of products are supplied
• People have greater freedom to choose & but what they want
• Competition helps keep prices down & encourages new ideas
Strengths of the planned public sector
• Public services do not depend on the profit motive & will be supplied even at a loss
• The provision of basic services available to all regardless of people’s ability to pay them