Types of Business Organisation

Types of Business Organizations

• Sole Trader: Owned and operated by a single individual.
• Partnership: Involves two or more individuals joining to run a business.
• Limited Companies:
  • Private Limited Company (Ltd): Shares are not publicly traded.
  • Public Limited Company (PLC): Shares sold to the public on the stock exchange.
• Additional Forms:
  • Joint Venture: Businesses collaborate for a specific project.
  • Franchise: A business model where an individual operates a business using an established brand's name and systems.

Sole Trader Features

• No continuity after the owner’s death.
• Not a separate legal entity; the owner is fully liable.
• Complete control and decision-making power.
• Unlimited liability; personal assets at risk for business debts.
• Simple setup process with minimal regulations.

Advantages of Sole Trader

• Few legal hurdles for startup.
• Total control over business decisions and operations.
• Flexibility in work schedule and pricing.
• Direct contact with customers allows for personalized service.
• Retains all profits after taxes.
• Maintains business secrecy, only disclosing to tax authorities.

Disadvantages of Sole Trader

• No alternative perspective for business decisions; isolation.
• Full personal liability for debts and obligations.
• Limited financial resources; primarily reliant on personal savings.
• Difficulty in expanding due to restricted capital.
• Business ceases to exist upon the owner's death.

Partnership Features

• Involves sharing ideas and responsibilities among partners.
• Continuity maintained if a partner leaves.
• No separate legal identity; partners share liability.

Advantages of Partnership

• Increased capital through multiple investors.
• Shared responsibilities in various business functions.
• Motivation to work due to profit-sharing and collective success.
• Diverse ideas contribute to better decision-making.

Disadvantages of Partnership

• Unlimited liability applies to all partners; personal assets at risk.
• Potential for disagreements affecting decision-making.
• Inefficiency or dishonesty from one partner can impact the entire business.

Private Limited Companies (Ltd)

• Shares are owned privately, not available for public sale.
• Limited liability protects shareholders’ personal assets.
• Incorporated status separates the business from its owners.
• Control remains with original owners unless too many shares are sold.

Advantages of Private Limited Companies

• Greater capital potential from private share sales.
• Protection from personal liability for company debts.
• Business operates as a distinct legal entity.

Disadvantages of Private Limited Companies

• Significant paperwork and compliance required.
• Shares cannot be sold without agreement among existing shareholders.
• Financial disclosures are less private than sole traders or partnerships.

Public Limited Companies (PLC)

• Shares can be sold to the public, listed on stock exchanges.
• Enhanced capital access versus other organization types.

Advantages of Public Limited Companies

• Increased capital from the sale of shares to the public.
• Limited liability for shareholders.
• No restrictions on share transferability.
• Enhanced reputation often leads to better financial opportunities.

Disadvantages of Public Limited Companies

• Complex legal requirements for formation.
• High costs associated with public share offerings.
• Financial accountability limits privacy for operations.
• Risk of losing control over the business with widespread share ownership.

Franchise Overview

• Franchisor grants franchisee rights to operate under their brand.
• Established brand presence reduces failure risk for franchisees.

Advantages of Franchising

• Lower risk due to operating an already known product.
• National advertising funded by the franchisor.
• Centralized quality supplies and training from franchisor.

Disadvantages of Franchising for Franchisees

• Limited independence in decision-making.
• Mandatory fees imposed by the franchisor.

Advantages and Disadvantages for Franchisors

• Ensured rapid business expansion through individual franchisee investment.
• Poor management choices by one franchisee can damage the overall brand.

Joint Ventures

• Collaboration between two or more businesses to undertake a specific venture, sharing costs and expertise.

Advantages of Joint Ventures

• Shared financial burden for costly projects.
• Access to local market knowledge and expertise.
• Division of risk involved in new ventures.

Disadvantages of Joint Ventures

• Profits must be shared among partners.
• Potential conflicts in decision-making and management styles.