Types of business ownership
After I have studied the types of business ownership, I will explain the type of ownership Tesco and Chester Zoo have and why. After I have than this I will suggest possible alternative ownerships and how these different ownerships may affect the companies’ performance. Sole Trader A sole trader is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business. All profits and all losses accrue to the owner. All assets of the business are owned by the proprietor and all debts of the business are his debts and he must pay them from his personal resources. This means that the owner has unlimited liability.
The advantages of being a sole trader are: – The firms are usually small, and easy to set up. Generally, only a small amount of capital needs to be invested, which reduces the initial start-up cost. The wage bill will usually be low, because there a few or no employees. It is easier to keep overall control, because the owner has a hand -on approach to running the business and can make decisions without consulting anyone else.
The disadvantages of being a sole trader are: – The sole trader has no one to share the responsibility of running the business with. A good hairdresser, for example, may not be very good at handling the accounts. Sole traders often work long hours and find it difficult to take holidays, or time off if they are ill. Developing the business is also limited by the amount of capital personally available. There is Unlimited Liability – if the business goes bankrupt you may have to sell all your possessions, including your house, to pay the debts.
Partnerships are businesses owned by two or more people. A contract called a deed of partnership is normally drawn up. This states the type of partnership it is, how much capital each party has contributed, and how profits and losses will be shared. Doctors, dentists and solicitors are typical examples of professionals who may go into partnership together. They can benefit from shared expertise, but like the sole trader, have unlimited liability. A partnership can also have a sleeping partner who invests in the business but does not have dealings in the day to day running of the enterprise.
Advantages of being a partnership: The main advantage of a partnership over a sole trader is shared responsibility. This allows for specialisation, where one partner’s strengths can complement another’s. For example, if a hairdresser were in partnership with someone with a business background, one could concentrate on providing the salon service, and the other on handling the finances. More people are also contributing capital, which allows for more flexibility in running the business. There is less time pressure on individual partners.
– There is someone to consult over business decisions. Disadvantages of being a partnership: The main disadvantage of a partnership comes from shared responsibility. – Disputes can arise over decisions that have to be made, or about the effort one partner is putting into the firm compared with another. – The distribution of profits can cause problems. The deed of partnership sets out who should get what, but if one partner feels another is not doing enough, there can be dissatisfaction.
– A partnership, like a sole trader, has unlimited liability. Private limited company Private limited companies are small – to medium-sized businesses that are often run by a family or small group of owners. Owners and managers draw salaries and are only liable for the business up to the amount that they have invested in the company, and are not liable for the debts incurred by the company unless signing a personal guarantee. Unlike a public limited company, a private limited company is restricted from selling shares to the public. All private limited companies protect the associated officers from financial liability should the company encounter problems.
Advantages of being a Private limited company: Easy and inexpensive to set up. Ownership and control are closely connected, e.g. Board of Directors are usually the main shareholders. Small and less bureaucratic than PLCs, e.g. decisions can be taken more quickly. Opportunities for bringing in more skills. Easier to raise larger sums of capital. isadvantages of being a Private limited company: Lack of capital due to no share issue.
Shareholders in public companies expect a steady stream of income from dividends, which might mean that the business has to concentrate on short term objectives of creating a profit, whereas it might be better to work on longer term objectives, such as growth and investment. No benefit form economies of scale, e.g. bulk buying, cheaper borrowing. – Threat of takeover, because another company can buy up a large number of shares because they are traded publicly (can be sold to anyone). If they buy enough, they can then persuade other shareholders to join with them to vote in a new management team.
Public limited company A public limited company includes any business with limited liability and a wide spread of shareholders. Owners and managers are hired by and receive salaries from the legal incorporated entity that constitutes the business. They are only liable for the business up to the amount they have invested in the company, and are not liable for the debts incurred by the company unless signing a personal guarantee. The shares of a PLC may be offered for sale to the general public.