Forms of business

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    4

    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

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