Types of Business Ownership
A detailed Powerpoint outlining all the different forms of ownership for businesses.Including advantages and disadvantages, and examples.
Content
Sole Trader
What is a Sole Trader?
A sole trader is someone who sets up their own
business, they are the only owner and normally the
only employee, however they can choose to employee
other people, if their business grows. They are
entitled to keep all profits after tax. A sole trader is
personally liable for the business.
Example: Larry’s
This is an example of a sole trader, Larry’s Chips sells
chips in a shop on a normal road.
Finance a Sole trader
A sole trader will raise finances by using his own
money and saving.
If the sole trades doesn't have any money he can ask
for a bank loan to raise finances.
Advantage
➢ 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
hands-onapproach to running the business and can make
decisions without consulting anyone else.
Disadvantages
1. 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.
2. Sole traders often work long hours and find it difficult to take
holidays, or time off if they are ill.
3. Developing the business is also limited by the amount of capital
personally available.
4. There is also the risk of unlimited liability, where the sole trader
can be forced to sell personal assets to cover any business
debts.
Summarize
A sole trader is a business with 1 employee.
The Sole trader is liable for the company and its
finances.
Money is raised by the owner .
Partnership
What is a partnership?
A Partnership is an association of two or more
people or entities running a business together, but
not as a company
Example: Epsom Dental Centre
Epsom Dental Care which is a dentist in Epsom is an
example of a partnership. The business offers a wide
variety of high quality dental services.
How partnerships raise finance
It is usually difficult for partnerships to raise finance.
Although a partnerships can raise capital by selling equity
interests, that's very difficult to do on a large scale
because of potential personal liability and the limited
resale market for partnership equity.
Advantages of partnerships
➢
➢
➢
➢
➢
➢
Two heads (or more) are better than one
Easy to establish and start-up the business as costs are low
More capital is available for the business
Greater borrowing capacity
Employees can be promoted to partners
Opportunity for income splitting, an advantage of particular
importance due to resultant tax savings
➢ Partners’ business affairs are private
➢ Limited external regulation
➢ Easy to change legal structure later if circumstances
change.
Disadvantages of partnerships
➢
➢
➢
➢
➢
Liability of the partners for the debts of the business is unlimited
Each partner is ‘jointly and severally’ liable for the partnership’s debts;
that is, each partner is liable for their share of the partnership debts as
well as being liable for all the debts
There is a risk of disagreements and friction among partners and
management
Each partner is an agent of the partnership and is liable for actions by
other partners
If partners join or leave, you will probably have to value all the
partnership assets and this can be costly.
Summary of partnership
Doctors, dentists and solicitors are typical examples
of professionals who may go into partnership
together and can benefit from shared expertise.
The main disadvantage of a partnership comes from
shared responsibility.
Private Limited
Private Limited
A private limited is a company whose shares do not trade
on the stock exchange and is split into two categories.
Private company limited by guarantee means the
members of the company financially back it up to an
agreed amount. Its members aren’t called shareholders.
A private company limited by shares is owned by its
members (called shareholders). Each member’s liable for
the original value of the shares they were issued but didn’t
pay for.
Example of a private limited: John Lewis Partnership
The John Lewis Partnership is an employee-owned UK
company which operates John Lewis department stores,
Waitrose supermarkets and some other services. The
company is owned by a trust on behalf of all its employees
(known as Partners) who have a say in the running of the
business and receive a share of annual profits, which is
usually a significant addition to their salary. The group is
the third largest UK private company.
How private limited companies raise finance
➢
Investment of own savings
➢
Raising loans from friends and relatives
➢
Arranging advances from commercial banks
➢
Borrowing from finance companies
Advantages of private limited companies
➢
➢
➢
➢
➢
➢
➢
A Private Limited Company is a legal entity, the company’s finances are separate
from its owner’s finances.
Protection from personal liability to Limited company owners.
Added credibility for Private Limited Companies, which can make it easier for a
Private Limited Company to borrow money, raise capital and achieve financing
without personal risk.
Private Limited Companies have a reliable legal precedent to guide and direct the
shareholders and directors (or managers.)
Private Limited Companies have an unlimited life; their existence does
not cease with the death of a director or shareholder.
Ltd companies’ may bring additional taxes benefits, and are subject to
lower corporation tax.
The Private Limited Company structure is suitable for profit or
non-profit use
Disadvantages of private limited companies
➢ Private Limited Companies must hold annual meetings and the
shareholder and directors have specific formalities to observe.
➢ A Limited Company is more expensive to set up than a sole trader or
partnership.
➢ Private Limited Companies pay annual fees and have periodic filing
obligations.
➢ Owners of the limited companies have less personal control over the
company compared to sole traders due to compliance issues.
Summary of private limited companies
The ownership of a limited company is divided up into equal parts called
shares.
Whoever owns one or more of these is called a shareholder.
These types of company are incorporated, which means they have their own
legal identity and can sue or own assets in their own right.
Shares do not trade on the stock exchange.
Public Limited
What is a public limited company
A limited company grants limited liability to its owners and
management. Being a public company allows a firm to sell shares to
investors this is beneficial in raising capital. Only Public Limited
Companies may be listed on the London Stock Exchange and will have
the suffix PLC on their ticker symbol. For example, British Petroleum
has the ticker BP PLC.
Other requirements include: It must be registered as a public
company, it must have at least £50.000 or £65,000 of authorized share
capital.
Example: Apple
Apple are on the NASDAQ stock market as AAPL and
trade at $113 per share. This is public limited as
people can trade shares.
Liability
Unlimited Liability and limited liability
Liability is when the owners of the business are
responsible for the business debts. The legal responsibility
to pay the money your business owes.
Unlimited is when there isn't
a cap on the amount of
money and assets that can be
taken from you, if the
business is in debt.
Limited is when you are not
entirely responsible for the
business finances, so there's
a limit to what you pay if the
business is in debt.
Examples
Citylink is a Limited company. So when they went bust on
Christmas day 2014, the owners weren't fully liable for any
money the business owned.
What is a Sole Trader?
A sole trader is someone who sets up their own
business, they are the only owner and normally the
only employee, however they can choose to employee
other people, if their business grows. They are
entitled to keep all profits after tax. A sole trader is
personally liable for the business.
Example: Larry’s
This is an example of a sole trader, Larry’s Chips sells
chips in a shop on a normal road.
Finance a Sole trader
A sole trader will raise finances by using his own
money and saving.
If the sole trades doesn't have any money he can ask
for a bank loan to raise finances.
Advantage
➢ 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
hands-onapproach to running the business and can make
decisions without consulting anyone else.
Disadvantages
1. 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.
2. Sole traders often work long hours and find it difficult to take
holidays, or time off if they are ill.
3. Developing the business is also limited by the amount of capital
personally available.
4. There is also the risk of unlimited liability, where the sole trader
can be forced to sell personal assets to cover any business
debts.
Summarize
A sole trader is a business with 1 employee.
The Sole trader is liable for the company and its
finances.
Money is raised by the owner .
Partnership
What is a partnership?
A Partnership is an association of two or more
people or entities running a business together, but
not as a company
Example: Epsom Dental Centre
Epsom Dental Care which is a dentist in Epsom is an
example of a partnership. The business offers a wide
variety of high quality dental services.
How partnerships raise finance
It is usually difficult for partnerships to raise finance.
Although a partnerships can raise capital by selling equity
interests, that's very difficult to do on a large scale
because of potential personal liability and the limited
resale market for partnership equity.
Advantages of partnerships
➢
➢
➢
➢
➢
➢
Two heads (or more) are better than one
Easy to establish and start-up the business as costs are low
More capital is available for the business
Greater borrowing capacity
Employees can be promoted to partners
Opportunity for income splitting, an advantage of particular
importance due to resultant tax savings
➢ Partners’ business affairs are private
➢ Limited external regulation
➢ Easy to change legal structure later if circumstances
change.
Disadvantages of partnerships
➢
➢
➢
➢
➢
Liability of the partners for the debts of the business is unlimited
Each partner is ‘jointly and severally’ liable for the partnership’s debts;
that is, each partner is liable for their share of the partnership debts as
well as being liable for all the debts
There is a risk of disagreements and friction among partners and
management
Each partner is an agent of the partnership and is liable for actions by
other partners
If partners join or leave, you will probably have to value all the
partnership assets and this can be costly.
Summary of partnership
Doctors, dentists and solicitors are typical examples
of professionals who may go into partnership
together and can benefit from shared expertise.
The main disadvantage of a partnership comes from
shared responsibility.
Private Limited
Private Limited
A private limited is a company whose shares do not trade
on the stock exchange and is split into two categories.
Private company limited by guarantee means the
members of the company financially back it up to an
agreed amount. Its members aren’t called shareholders.
A private company limited by shares is owned by its
members (called shareholders). Each member’s liable for
the original value of the shares they were issued but didn’t
pay for.
Example of a private limited: John Lewis Partnership
The John Lewis Partnership is an employee-owned UK
company which operates John Lewis department stores,
Waitrose supermarkets and some other services. The
company is owned by a trust on behalf of all its employees
(known as Partners) who have a say in the running of the
business and receive a share of annual profits, which is
usually a significant addition to their salary. The group is
the third largest UK private company.
How private limited companies raise finance
➢
Investment of own savings
➢
Raising loans from friends and relatives
➢
Arranging advances from commercial banks
➢
Borrowing from finance companies
Advantages of private limited companies
➢
➢
➢
➢
➢
➢
➢
A Private Limited Company is a legal entity, the company’s finances are separate
from its owner’s finances.
Protection from personal liability to Limited company owners.
Added credibility for Private Limited Companies, which can make it easier for a
Private Limited Company to borrow money, raise capital and achieve financing
without personal risk.
Private Limited Companies have a reliable legal precedent to guide and direct the
shareholders and directors (or managers.)
Private Limited Companies have an unlimited life; their existence does
not cease with the death of a director or shareholder.
Ltd companies’ may bring additional taxes benefits, and are subject to
lower corporation tax.
The Private Limited Company structure is suitable for profit or
non-profit use
Disadvantages of private limited companies
➢ Private Limited Companies must hold annual meetings and the
shareholder and directors have specific formalities to observe.
➢ A Limited Company is more expensive to set up than a sole trader or
partnership.
➢ Private Limited Companies pay annual fees and have periodic filing
obligations.
➢ Owners of the limited companies have less personal control over the
company compared to sole traders due to compliance issues.
Summary of private limited companies
The ownership of a limited company is divided up into equal parts called
shares.
Whoever owns one or more of these is called a shareholder.
These types of company are incorporated, which means they have their own
legal identity and can sue or own assets in their own right.
Shares do not trade on the stock exchange.
Public Limited
What is a public limited company
A limited company grants limited liability to its owners and
management. Being a public company allows a firm to sell shares to
investors this is beneficial in raising capital. Only Public Limited
Companies may be listed on the London Stock Exchange and will have
the suffix PLC on their ticker symbol. For example, British Petroleum
has the ticker BP PLC.
Other requirements include: It must be registered as a public
company, it must have at least £50.000 or £65,000 of authorized share
capital.
Example: Apple
Apple are on the NASDAQ stock market as AAPL and
trade at $113 per share. This is public limited as
people can trade shares.
Liability
Unlimited Liability and limited liability
Liability is when the owners of the business are
responsible for the business debts. The legal responsibility
to pay the money your business owes.
Unlimited is when there isn't
a cap on the amount of
money and assets that can be
taken from you, if the
business is in debt.
Limited is when you are not
entirely responsible for the
business finances, so there's
a limit to what you pay if the
business is in debt.
Examples
Citylink is a Limited company. So when they went bust on
Christmas day 2014, the owners weren't fully liable for any
money the business owned.
