Forms of business Flashcards
(8 cards)
Sole trader
Single owner
Advantages include
They are easy and inexpensive to set up
The owner has complete control over the business
All profits belong to the owner
Simple tax arrangements
Disadvantages include
The sole trader is responsible for any debts the business incurs
Limited access to finance and capital
Limited skill set of the single business owner
Partnership
Two or more people join together to form a business
Examples of this type of business include lawyers and accountants
Advantages include
Easy to set up and inexpensive
Shared responsibilities and decision-making
More skills and knowledge are available
Increased access to finance and capital
Disadvantages include
Partners have unlimited liability
Potential for disputes between partners
Profits are often shared equally, regardless of the contribution
Difficult to transfer ownership
Private limited company
Ownership is broken down into a specified number of shares
These shares can be sold by the owner, usually to friends and family or to venture capitalists
Decision-making often rests with the person appointed to run the company, often called the Managing Director or CEO
Advantages include
Limited liability, meaning the owners are not personally responsible for the company’s debts
Access to greater finance and capital
Easier to transfer ownership
Can have a professional image and reputation
Disadvantages include
More expensive and time-consuming to set up
More complex legal requirements and regulations than sole traders
Annual financial reporting and auditing are required
Shareholders have little control over the company as the founder usually imposes their agenda
Public limited company
Stock market flotation = sells shares on the stock market publicly
Advantages:
Access to capital
Shared risk
Increased liquidity
Disadvantages:
loss of control
slower decision making process due to more shareholders involved
Franchising
Franchising is a business model where an individual (franchisee) buys the rights to operate a business model, branding, and support from a larger company (franchisor) in exchange for an initial lump sum plus ongoing fees
The franchisee operates the business under the franchisor’s established system and receives training, marketing support, and ongoing assistance
Social enterprise
A social enterprise is a business that has the primary purpose to create social or environmental impact (in addition to generating profits)
Profits are usually reinvested back into the business or used to create positive social change or address an environmental issue
Lifestyle business
Lifestyle businesses are typically small, owner-operated businesses that prioritise a specific lifestyle or personal interest of the owner over profits or growth
These businesses are often run from home or in a location that allows the owner to maintain a particular lifestyle or work-life balance
Online businesses
Online businesses often have low overhead costs and can operate from anywhere with an internet connection
These businesses are still required to have a legal structure, such as a sole trader or private limited company
