Level 1 Business Studies 1.1 - AS90837 Demonstrate an understanding of internal factors of a small business

Types of Business sole trader, partnership, registered company Students will identify and describe different types of legal entities: Define and recognise the legal entities of business ownership i.e. sole trader, partnership and registered company Explain reasons for different forms of legal entities Explain advantages and disadvantages of each type of entity

Sole Trader A business owned and operated by one person

Sole Trader Reasons Relatively easy to establish Few legal requirements or restrictions to set up Can employ people with the required skills

Sole Trader Advantages Can be your own boss Few legal requirements to set up Able to organise and run the business as you wish Control over employees Can choose how long and when to work Get to keep all profits

Sole Trader Disdvantages Unlimited liability – sole traders are not a separate legal entity Sources of finance are often limited which can make expansion difficult Often need to take advice from outside the business

Unlimited liability If the business cannot pay its debts as they fall due, the owners become personally responsible for them.

Partnership Business owned and operated by 2 or more people

Partnership Reasons Business run by the owners Partners contribute capital to set up and run the business All partners are able to contribute to the running and organisation of the business Partners share the profits

Partnerships Advantages Increased levels of capital compared to a sole trader Shared responsibility Increased knowledge and specialisation Partners motivated due to sharing of profits

Partnership Disdvantages Unlimited Liability – not a separate legal entity Partners can disagree on important decisions. It can be time consuming to reach a consensus. Partners can suffer if one partner is inefficient or dishonest

Private Limited Company: Companies are jointly owned by people with an interest in and have invested in the business NB: for level 1 Business Studies companies will tend to be private

Private Limited Company Reasons Owned by numerous people - shareholders Companies are separate legal entities from their owners Ability to grow and expand A company can make contracts or legal agreements in its own name

Private Limited Company Advantages All shareholders have limited liability A large number of people can purchase the shares Additional shares can be issued in order to raise capital and expand the company

Limited liability The owners of the business will not be responsible for the debts of the business if the business cannot pay.

Private Limited Company Disdvantages Legal issues when being establishing Cannot sell shares to public Difficult to transfer shares, all shareholders have to agree Directors make the decisions on the running of the business – not all shareholders are directors