Forms of Business PDF

Sole trader, partnership and private limited company Growth of a business Partnership Sole trader A Public Limited Company (Plc) Limited company (Ltd) B Sole trader Business own...

Sole trader, partnership and private limited company Growth of a business Partnership Sole trader A Public Limited Company (Plc) Limited company (Ltd) B Sole trader Business owned by one owner, but they can take on staff Also known as a sole proprietor Can employ people but they will not be involved in control of business Tend to be small businesses Has unlimited liability Examples include; small shops, accountants that work from home, online traders, plumbers etc. Research: Sole trader Watch the video then in pairs make a list of possible sole trader jobs and professions Share these with another pair until your class builds up a large list How many of these types of businesses would be in trouble if they remained a limited liability company? To answer this consider if they are likely to accrue large debts or be sued. Pros and cons of sole traders Disadvantages Unlimited liability, this means that if the business has financial difficulties the sole trader could lose their own assets like their savings, house or car Advantages Difficult to raise money – seen as a risk Easy to set up – no complicated Don’t have economies of scale (buying in forms bulk) Make decisions quickly No one to take over for ill-health or holidays Less capital needed All profits kept by the owner Can offer personal attention to customers Don’t have to make any information about the company public They are their own boss Partnerships 2 to 20* partners share the risks, costs and responsibilities of being in business The profits and gains of the partnership are shared among the partners, unless the partnership agreement states otherwise Each partner is personally responsible for paying tax on their share of the profits and gains Partners raise finance for the business out of their own assets, cash or with loans The partners themselves usually manage the business, although they can delegate certain responsibilities to employees It is possible to have 'sleeping' partners who contribute capital investment to the business but are not involved in running the business Research: partnerships Partnerships tend to be groups of experts who can all work in a practice together For example a dentists practice may be a group of dentists who have started the business as a partnership Carry out some research and create a list of likely partnership professions Also find out what an LLP is - it is outside the scope of you’re a Level but important to know Pros and cons of partnerships Disadvantages Unlimited liability Partners may have disagreements about; Advantages Control of business Easier than a sole trader to raise extra Sharing of profits capital, as partners all have their own Withdrawal from the partnership sources of finance e.g. savings Inviting new partners into the business Profits go to the partners, which is very motivating Smaller business means good working relationships No need to make public any information Partners contribute with range of skills Shared problems and decisions Private limited company (ltd) LTDs can expand and grow by selling more shares, giving the business more capital Friends and family can buy shares in the business, this will make them part owners Shares cannot be bought by the public LTDs owners have full control of who buys the shares LTDs have the benefit of limited liability, those that own or buy shares in the business can only lose their original investment, their private assets remain safe Research: Private Limited Companies Limited companies tend to be businesses where having limited liability is critical. For example a scaffolding company could be worried about a pole falling on the head of someone underneath and being sued. Limited liability gives the owners some protection over their personal finances Carry out some research and find 9 limited liability businesses in your local area. Use check-a- trade and yell.com websites Pros and cons of private limited Disadvantages companies (ltd) Accounts of the company cannot be kept private, they have to be available for the public to see More complex and expensive to set up Advantages - more administration Limited liability Cannot sell shares on stock exchange, which limits the amount of capital that Can raise extra capital by selling it can raise more shares, to friends and family, making it easier to expand Can employ managers to run the business if the owners don’t want to do it themselves Has its own legal status, separate from the shareholders Franchising, social enterprise, lifestyle businesses, online businesses Franchising introduction An entrepreneur may choose to set up with an established business name and buy a franchise For example an entrepreneur may wish to open their own sandwich bar and call it “Bob’s sandwiches” or they could buy the Subway franchise There is less business risk by buying a well known brand What is a franchise? Imagine a company has a great and successful business. It wants to expand but it doesn’t want the problems and expense of opening more stores, so it sells the business idea If an entrepreneur buys a franchise it is a “business in a box”, as well as signage and training they will get support of a national company and a brand that customers already know Franchising vocab Franchisee; This is the Franchisor; this is the business owner who is business that is selling the buying the rights e.g. rights e.g. Subway Gurdeep Cost of a franchise When a business person decides to buy a franchise they will need to take into consideration the costs: Cost of buying the franchise rights at the start Monthly royalty payment to the franchisor Have a look at the McDonald’s website for franchising Research: franchising Have a look at the franchising websites on the Internet Choose a franchise and find out how much it would cost to start up Include any yearly royalties and the cost of premises and staff Present your franchise to the rest of the group and explain how much revenue you expect to earn in the first year Franchising pros and cons Disadvantages Franchisees do not have freedom of running their own business Franchisee bound by rules cannot vary the price or products sold Advantages Franchisee pays percentage of The franchisor chooses the profits in royalties to the franchisor franchisees carefully, they know Franchisee will never own the what characteristics that make a business outright successful franchisee The franchisor decides how much money the franchisee must invest in the business The franchisor provides support, management advice and training Social enterprise A social enterprise is a business that trades for social and/or environmental purposes. At the core of a social enterprise is the objective to help society or the planet in some way, they are not charities (which rely on donations) Have you ever bought a bar of Divine Chocolate? Lifestyle business The aim of a start-up is to grow big enough to provide a return of investment for investors The aim of a lifestyle business is to provide great quality of life for the owner Owners start a business hoping to sustain a certain level of income They may start a business doing something they really enjoy It allows an entrepreneur to live how they want and still run a business Online business Easy to set up, for example an eBay business could be up and running in an hour after some online form filling PayPal used process payment transactions from customers Wix can be used for small business owners to quickly build a shop and a website Online businesses can be managed by the owner from their home It means the business is open via the website 24/7, what does this mean for international customers?