Forms of business
Advantages Disadvantages
SOLE TRADER
One individual
Aim – survival
- Control
- Flexible + adopt to change
- Owner keeps profit
- Unlimited liability
- Struggle to raise finance
- Too small to exploit economies of scale
PARTNERSHIP
2 – 20 people
Aim – profit, growth and quality
- Specialise in different areas
- Shared burden
- More owners more capital
- Doesn’t have to publish info
- Unlimited liability
- Share profit
- Disagreements
- Limited growth
LIMITED PARTNERSHIP
Partners provide capital BUT take no part in management, such partner has limited liability
PRIVATE LIMITED COMPANY
Aim – growth, profit Controlled by directors Sell shares, sales of assets
Dividends retained profit
- Limited liability
- More capital more shares
- control cannot be lost to outsides
- Pay less tax
- More credible, confidence from suppliers
- Publish financial info
- Profit shared
- Cannot raise as large as public
- Less flexible
PUBLIC LIMITED COMPANY
General public can buy shares on stock exchange
Aim – growth, market share
- Huge amount of capital raised
- More credible, confidence from suppliers etc
- Exploit economies of scale lower costs, more competitive
- Dominate market due to size
- Setting up costs are high
- Outsiders can take control
- Competitors use info to advantage
- Legislation
Franchises:
FRANCHISEES
- Low risk
- Supported
- Set up costs are predictable
- Benefit from national advertising campaigns
- Shared profit
- Contracts reduce independence
- Expensive
- Strict rules
FRANCHISOR
- Fast method for growth
- Cheaper as franchisee takes financial risk
- More motivated than employees
- Profit shared
- Poor franchisee can damage brand
- Cost of supporting can be high