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specialist business study - Coggle Diagram
specialist business study
Sole traders
A sole trader is the most common type of business form which involves an individual owning his/her business on their own. They can employ people to help with the business or run it but they do not own the business. This comes at a cost of the sole trader owning all the business assets personally and being personally responsible for business debts. They have unlimited liability. An example of a sole trader is the local hair salon where they have employees but are not a limited company.
Advantages of being a sole trader are that it is quick and easy to set up and can always be transferred to a limited company once launched. It is simple to run due to the complete control the owner has on decision making. Minimal paperwork is required for the business and it is easy to shut down or close.
The disadvantages of being a sole trader is that you have full personal liability (unlimited liability). It is harder to raise finance because sole traders often have limited funds of their own and security against which to raise loans. the business is the owner and the business suffers if the owner becomes ill or loses interest and the owner can pay a higher tax rate than a company.
Partnerships
A partnership is where a business is set up and owned by more than one person and is based around a legal agreement called a partnership agreement that covers areas such as how profits are to be shared,how decisions are taken,what the partners have to invest into the business and what happens if a partner wants to leave or dies. The partners between them all own the business assets and owe all business liabilities therefore having unlimited liability. A prime example of a well known business that was a partnership before it turned into a company is Ben and Jerrys ice cream.
The benefits of operating a Partnership are that it is simple to create with minimal paperwork needed once partnership agreement is set up. The business benefits from the expertise and efforts of more than one owner that can provide specialist skills, and there is a greater potential to raise finance.
however the drawbacks are that Partnerships have unlimited liability and a poor decision by one partner damages the interests of the other partners. Although it is easier to raise finance than a sole trader it is harder to raise than a company and partners are bound to honour decisions of others,and it is complicated to sell or close.
Company
A company is a separate legal entity from the founder, the company is the business and can own assets itself. The company has owners called shareholders but they do not own the business itself. Therefore if the business fails the shareholders are not liable for the debts of the business and have limited liability. The company is run by directors that are appointed by shareholders to run the company in the interests of the shareholders.
A company has advantages such as limited liability that protects the shareholders. It is easier to raise finance due to sale of shares and its easier to raise debt. And it has a stable form of structure so that the business continues to exist even when shareholders change.
Although the advantages outweigh the disadvantages there are disadvantages non the less and they consist of greater admin costs and public disclosure of company information .
Public secter
Unlike the private sector in the public sector businesses and other organisations are owned and run on behalf of the public, either by the government itself or by organisations that are funded by and report to the government. Another difference between the private and public sector is that the businesses are not generally run for profit,but exist to provide goods and services to the public using public funds. An example of one of these public sector non profit organisations is the NHS where it is run and funded by the government that is funded by the public.
LTD
A limited company is a company where the liability of members or subscribers is limited to what they have guaranteed or invested into the company.
In a limited company the advantages are as follows, it is a professional status, better tax efficiency and planning and it minimalises personal liability.
The disadvantages of a LTD are that they are required to pay an incorporation fee and that company names are subject to certain restrictions.
PLCs
A public limited company is a company that has offered shares of stock to the general public.
Advantages of having a PLC is that by allowing the general public to hold shears you are widening the shareholder base and spreading the risk of company ownership among a large number of shareholders. Shears are more easily transferable than those of the private equivalent this allows the shareholders to benefit from liquidity.
The disadvantages are that there are many more regulatory requirements in order to protect shareholders. There are ownership and control problems due to not having control over who is a shareholder of the company and who the directors are accountable to and the initial financial commitment is higher.