Business Structures Overview

Study Notes

Sole Trader

Easy to set up with low costs
Owner makes all decisions and keeps all profits
Difficult to secure loans
Unlimited liability for debts
Long working hours & limited time off
Sole responsibility for all aspects of business
Challenges if owner becomes ill

Partnership

Managed by 2-20 people
Workload shared
Partners can specialize in different areas
More capital invested
Unlimited liability for debts
Potential for disagreements
Profits shared amongst partners
Business disruption if a partner leaves

Why bring in more partners?

Gaining expertise
Generating new ideas
Increasing capital investment

Franchise

Agreement to use an established brand name and products/services
Offers a way to run a business, not a business itself

Franchisee

Reduced marketing costs due to established brand
Lower risk compared to starting independent business
Potential for training and support from franchiser
Products, pricing, and store layout often dictated by franchiser
Royalty payment (often a percentage of revenue) required
High initial costs are common

Franchisor

Fast expansion method without significant investment
Steady cash flow from royalty payments
Shared risk between franchiser and franchisee
Negative impact on reputation if franchisee performs poorly
Risk of franchisee failing to return funds

Case study: Subway

Investment of £100,000-£150,000 for a Subway franchise
Franchisee granted right to operate in a specific location and use the brand
Fees provide access to national advertising, brand awareness, and support

General Business Disadvantages

Substantial setup costs
Lack of control over who buys shares
Requirement to publish annual accounts
Need to comply with company regulations

General Business Advantages

Easy access to loans due to larger size
Limited liability

Types of Organisations

Three main sectors: private, public, and third

Types of Businesses

Private Sector:
- Sole trader
- Partnership
- Private Limited company
- Public Limited company
- Multinational company
- Franchise
Public Sector:
- Public sector organization
- Local council (government)
- Public corporation
Third Sector:
- Charity
- Voluntary organisation
- Social enterprise
- Co-operatives

Private Sector Aims

Maximize profits
Transform innovative ideas into successful businesses
Expand the business for continued growth

Private Sector Examples

Private Limited companies (Ltd)
Public Limited companies (PLC)
Franchises

Limited Companies

Private Limited Company (Ltd)

Shares are privately owned, not available to public
Minimum of one shareholder

Public Limited Company (PLC)

Shares are available for purchase by the public on the stock market
Minimum of two shareholders
Owned by shareholders
Controlled by a board of directors
Must produce a memorandum and articles of association

Private Limited Company (Ltd) Advantages

Ownership control remains with insiders
Easier to raise finance from shareholders and lenders
Boards of directors bring experience to aid decision-making

Private Limited Company (Ltd) Disadvantages

Profits shared amongst more people
Shares cannot be sold to the general public
Must comply with company regulations

Private Limited Company (PLC) Advantages

Ability to raise significant capital by selling shares
Limited liability for shareholders

Different Sectors of the Economy

Multinational Corporations (MNCs)

Operate branches or subsidiaries in multiple countries
Establish production facilities in different nations
Motivations:
- Increase market share
- Accessing cheaper labor & lower production costs
- Utilizing government grants
- Tax avoidance or reduction
- Reducing transportation costs
- Bypassing trade barriers

Public Sector

Focused on delivering high-quality services to all citizens
Utilizes taxpayer funds to provide essential services
Examples:
- Police
- Schools
- Hospitals
- Fire brigade
- Army
- BBC
Ownership and Funding: Owned/controlled by local or national government, financed by taxes.

Third Sector

Aims to support worthy causes, raise awareness, & provide quality services
Provides support for food, shelter, clothing, funding, and awareness
Organizations:
- Charities
- Voluntary Organizations
- Social Enterprises
- Co-operatives

Charities

Established to help others
Raised finances through donations, sponsorships, and fundraising
Not owned by individuals, but are set up as trusts

Description

Explore the different types of business structures, including sole traders, partnerships, and franchises. Learn about the advantages and disadvantages of each to make informed decisions for your business aspirations. This quiz will help deepen your understanding of business management fundamentals.

Business Structures Overview

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Questions and Answers

Which of the following is an advantage of being a sole trader?

What is a disadvantage of a partnership?

Only one partner can manage a partnership.

What is one advantage of a franchise?

What does a franchisor gain from a franchise agreement?

What is the minimum number of shareholders in a public limited company (PLC)?

What is the aim of businesses in the private sector?

A company whose shares are privately owned is called a ______.

What is a characteristic of multinational corporations (MNCs)?

Which of the following is NOT a type of organization in the third sector?