Understanding Business Structures

Types of Business Structure Sole Trader Partnership Limited Companies Co-operatives Franchises

Benefits include: -Easy to set up and run -Only small amount of capital needed -Owner has total control and doesn’t have to share profits Sole Trader  Benefits

Drawbacks include: -Unlimited liability -Lack of economies of scale -The business relies on the owner 100% Sole Trader  Drawbacks

Partnership  Benefits Benefits include: -Shared responsibility -Allowing partners to specialise -Partners bring in more capital investment -Decisions, costs are shared

Drawbacks include: -Each partner has unlimited liability -Shared responsibility can lead to disagreements -Profits have to be shared according to Deed of Partnership Partnerships  Drawbacks

Limited Companies There are two types: 1. Private Limited Company (Ltd) 2. Public Limited Company (Plc)

Private Limited Companies  Benefits Benefits include: -Company can raise more capital by selling more shares -Shareholders can keep control of the business

Private Limited Companies  Drawbacks Drawbacks include: -Accounts must be audited -Limited companies are more difficult to set up -Shares cannot be sold publicly on the stock market

Public Limited Companies  Benefits Benefits include: -Easy to raise capital for expansion by selling shares on the stock market -Economies of scale are better than a private Ltd company

Public Limited Companies  Drawbacks Drawbacks include: -Expensive to set up (a lot of capital is required) -Annual accounts must be made public -Anyone can buy shares – so it’s vulnerable to takeovers

Co-operatives There are two types: 1. Worker Co-operatives 2. Consumer Co-operatives

Worker Co-operatives… …Are owned by the whole workforce …Everyone has a say in the business

Consumer Co-operatives… …Are local Co-op shops owned by the customers …The profit is paid out or used to keep prices down

Franchises An existing company (the franchisor) lets someone else (the franchisee) use its business idea and name The franchisee buys a licence to carry out the business of the franchisor

Franchises (Cont’d) The franchisee must also run the business in the same way as the franchisor In return, the franchisor helps the franchisee set up the business