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Option for start-up and small businesses - Coggle Diagram
Option for start-up and small businesses
Limited liability
Owners and business are separate entities
Debts incurred by the business belong to the business and the owners can only lose money up to what they invested
Personal belongings are not liable
Reduced risk for owners
Profits shared between shareholders, depending on the size of their share
Private limited company
Advantages
Owners have limited liability
Customers may trust 'Ltd' more than other businesses
Continues to trade even if the shareholders change
Could be easier to raise finance to establish or grow the business
Disadvantages
More complex to set up than a sole trader or partnership
Shareholders may disagree
Financial information is published and can be accessed by others
More information must be reported to the government
Public Limited Company
Advantages
The business has the ability to raise additional finance through share capital
There are increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale (when average costs fall as the business increase the amount of product that it increases
Shareholders have limited liability
Disadvantages
Expensive to setup
Very complex
Greater risk of 'hostile takeover' (when rival business takes over without agreement but instead going straight to the shareholders)
Unlimited liability
Owner has unlimited liability
Owner is legally responsible for any debts
Potential for owner to lose their belongings to pay off debts
Owner has 100% control and 100% of profits
Sole traders
Advantages
Makes all decisions
Quick and easy
Keeps all the profits
Information is private
Disadvantages
Harder to raise money and start the business
A lot of pressure on one person
No one to cover when sole trader is ill takes time off
Partnerships
Advantages
Owners may have wider expertise and can share ideas and decision making
Owners share risk
Easier to raise finances
Disadvantages
Decisions made by one partner can affect all partners
No longer exists if a partner leaves
Change in business identity and culture - may clash
Profits shared
Franchising
Franchise
- Right given by one business to another to sell goods or services using the company name. Business that buys into a franchise remains independent
Advantages
Brand image and reputation is already established
Marketing costs covered by franchise
Higher customers retained
Potential to enter wider market and new customers
Higher chance of survival
Disadvantages
Cost of initial investment with no guarantee
Owner has little freedom to expand
Franchise have to pay a fee or royalty
Restrictions on where the franchise can be set up