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 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: • 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