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 Ownership Sole 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 Ownership Sole 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 Ownership Partnerships: Advantages Greater access to capital Shared responsibility Greater opportunity for specialisation Easy to set up

Business Ownership Partnerships: 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 1 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 Ownership Limited Companies: Memorandum of Association Must Register with Registrar of Companies at Companies House Memorandum of Association Details of the nature, purpose and structure of the company Articles of Association Details 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 Ownership Limited 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 Ownership Co-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 Ownership Franchises: 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