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Booklet 10 - Forms of Business - Coggle Diagram
Booklet 10 - Forms of Business
Businesses can be
operated in numerous ways
by an entrepreneur. These are a sole trader, a partnership, private and public limited company and a franchise.
Firms can have either
unlimited or limited liability.
Unlimited liability
means the owners are personally liable for the businesses debts. They can then lose their personal assets to pay back the debt.
Limited liability
means the owners are not personally liable for the business debts. The owner and business are two separate identities.
Sole Trader
- owned by one owner. They can employ staff but they will not be involved with the control of the business. Usually small businesses operate in this way.
:check: They are
easy to set
up with no complicated forms to sign.
Decisions can be made quickly
with only one owner.
Less capital
is needed to start up the business and they get to
be their own boss
.
:red_cross: Have
unlimited liability
, this means that if the firm goes into debt that they could lose their personal assets.
Difficult to raise finance
, seen as a risk to bank loaners.
Partnership
- business owned by 2-20 partners. They all have joint ownership of the business so profits are shared equally.
:check:
Easy to set up
with no legal forms to fill in.
Easier to raise capital
with more partners. Partners can
bring a range of skills
to the business and help with tough decision making.
:red_cross: Have
unlimited liability
, partners can have
disagreements
,
decision making can be slower
due to these disagreements.
Private Limited Company
- they are owned by shareholders with a minimum of 2 needed with no maximum (shareholders - people who buy shares to have ownership in the firm). Selling of shares must be agreed upon usually to family or friends making it difficult to sell and buy shares.
:check: They have
limited liability
, this means they can only lose the amount of money they have invested into the business and their personal assets remain safe. Has its
own legal status
to help with debts.
:red_cross: The
accounts of the company cant be kept private
. It is
more expensive to set up
with legal forms having to be signed. They cant sell shares on the stock exchange making it difficult to attract shareholders.
Franchise
- where a firm sells the rights for another firm to use its name and idea. This comes along with training and support but an initial set up fee is required.
:check: It is
less risky
than other ownership structures as they business idea is already a success and so sales are likely to be high.
Support and training are provided
to help start up the business.
:red_cross: They
don't have freedom
of running the business, are bound by rules they have to follow. Franchisee has to
pay the franchisor royalties
. Could
damage the reputation
of the franchise if the franchisee ruins the business name.
Public Limited Company
- owned by shareholders but shares can be sold on the stock exchange without approval. Only 2 shareholder needed to start up.
:check:
Limited liability
,
easier to raise capital
from selling shares and banks are more willing to lend money.
:red_cross:
Expensive to set up
,
must publish financial information
, original owners can lose ownership if too many shares are sold
There are 3 other ways a business can be operated. These are as a
social enterprise
, a
lifestyle business
and as an
online business
.
Social enterprise
- a business that trades for social and environmental purposes. Their mission is social.
Lifestyle business
- The aim of a lifestyle business to to provide a greater quality of life for the owner. Owners may start a business from an interest and hope to make that a stable source of income.
Online business
- using ecommerce to run a business. Business can be open 24/7 to a wide range of customers and can be manged from anywhere.