Forms of business

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