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Types of Business Organisation (Private Sector (Unincorporated (Sole…
Types of Business Organisation
Private Sector
Unincorporated
Sole Traders
The owner must register with and send annual accounts to the government Tax Office.
They must register their business names with the Registrar of Business Names.
They must obey all basic laws for trading and commerce.
Do not pay taxes.
Advantages
Few legal formalities
Owner has total control over business
Owner gets 100% of profits
Motivation because he gets all the profits
The owner has freedom to change working hours or whom to employ, etc
Personal contact with customers
Doesn't have to share information with anyone but the tax office, enjoys complete secrecy
Disadvantages
Nobody to discuss problems with
Unlimited liability
Limited finance/capital, business will remain small
Owner spends long hours working
Parts of business inefficient: lack of specialists
No benefit from economies of scale
No continuity, no legal identity
Recommended for people who
Are setting up a new business
Do not require a lot of capital
Require direct contact for customer service
Partnership
A group consisting of 2 to 20 people who run and own a business together.
Partner is set up using a Deed of Partnership.
Contains
Amount of capital each partner should provide(i.e.) starting cash
How profits or losses should be divided
How many votes each partner has-usually based on proportion of capital provided
Rules on how to take on new partners
How the partnership is brought to an end, or how a partner leaves.
Recommended to people who
want to make a bigger business without legal complications
Professionals-such as lawyers of doctors- who cannot form a company, only a partnership
Family
In some countries(including the UK) there are Limited Partnerships(LLP) with limited liability where shares cannot be sold or bought.
Advantages
More capital than a sole trader
Responsibilities are split
Any losses shared between partners
Disadvantages
Unlimited liability
No continuity, no legal identity
Partners can disagree on decisions, slowing down decision making.
If one partner is inefficient or dishonest, everybody loses.
Limited capital, a limit of 20 people for any partnership.
Incorporated-Have their own legal identity can sue or own assets in their own right
Limited Company-shareholders have limited liability, owners not necessarily involved in running of business unless elected by board of directors.
Private Limited Companies(Ltd)
Limited liability
Continuity
Can sell shares to friends or family, with consent of all shareholders
Can make legal contracts
Advantages
Public Sector