Http:// Copyright 2006 – Biz/ed Business Ownership The Private Sector

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Copyright 2006 – Biz/ed

Business Ownership

The Private Sector



Business Ownership

• Sole Trader:– Owned, financed and controlled by

one individual but can employ other staff

• Common in local building firms, small shops, restaurants, butchers, etc.



Business OwnershipSole Traders: Advantages

• Easy to set up• Personal incentive –

• keep all the profits • make key decisions• high degree of control

• Flexibility• Ability to offer personal service



Business OwnershipSole Traders: Disadvantages

• Unlimited Liability• Limited access to capital• Potential for long hours• Pressure of being solely responsible• Lack of continuity – business ceases once

owner dies



Business Ownership

Partnerships:

• Owned, financed and controlled by upwards of 2 partners

• Terms of Partnership agreed through contract• Bound by the terms of the Partnership Act

1890• Common in professions – lawyers,

accountants, architects, surveyors, estate agents, vets, etc.



Business OwnershipPartnerships: Advantages

• Greater access to capital• Shared responsibility• Greater opportunity for specialisation• Easy to set up



Business OwnershipPartnerships: Disadvantages

• Unlimited Liability (However since 2001, Partnerships can apply to be Limited Partnerships)

• All partners liable for the debts of the others • Partnership dissolved on death of one partner• Potential for conflict• Decisions of one partner binding on the rest• Limited access to capital



Business Ownership

Limited Companies:– Private Limited Company (Ltd) Owned

by between 2 and 50 shareholders– Public Limited Company (PLC) Owned by

minimum of 2 but no maximum number of shareholders

– Has a separate legal identity – the company can sue and be sued

– More complex to set up– Minimum share capital of £50,000



Business OwnershipLimited Companies:Must Register with Registrar of Companies at Companies House

• Memorandum of AssociationDetails of the nature, purpose and structure of the company

• Articles of AssociationDetails of the internal rules of the company

• Certificate of Incorporation – allows the company to trade • Shareholders have limited liability – can only lose what they agreed to put into the company – no personal liability• PLCs – shares traded on Stock Exchange• LTDs – shares only bought and sold with agreement of existing shareholders



Business OwnershipLimited Companies – Issues

• Divorce between ownership and control• Potential for diseconomies of scale –

communication, decision making, etc.• Must publish accounts• PLCs – shareholders may be large institutions –

pension funds, insurance companies, etc.• PLCs - Share value subject to volatility – affects

company value• PLCs – can be large, complex, possess market

power



Business OwnershipCo-operatives:Ownership, finance and control in hands of ‘members’

•Exists for the benefit of ‘members’•Consumer co-ops – members buy goods in bulk,

sell to members, divide profits between members•Worker co-operatives – workers buy the

business and run it – decisions and profits shared by members

•Producer co-operatives – producers organise distribution and sale of products themselves



Business OwnershipFranchises:Method of business ownership backed by established ‘brand’ name

•Owner gets to run a business with less ‘risk’•Owner buys the right to use the established company’s name,

format products, logos, display units, methods, etc.•Speedy way for business to expand•Become very popular•Owner – (Franchisee) responsible for debts, pays a royalty to

owners of the brand, keeps any remaining profit•Franchisee – pays a fee for the purchase of the franchise•Common franchises – Body Shop, McDonalds, Costa Coffee,

Subway

Documents

Http:// Copyright 2006 – Biz/ed Business Ownership The Private Sector