Business Structures

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  • Created by: George
  • Created on: 09-11-10 14:37

Business Structures

is a way of legal structure to fit as appropriate to the business and what it provides.

Decisions on the best legal structure for their business have to be made. Different structures could effect;

  • how much you pay in taxes
  • the amount of paperwork your business is required to do
  • the personal liability you face
  • your ability to raise money.

there isn't a business structure that suits every business, as each structure has advantages and disadvantages.

there are 4 types of business structure;
sole trader   - partnership   - limited companies   - franchises

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Business Structures

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Sole Traders

is owned by a single inidividual, although the owner may employ many people to work in the business.

- unlimited liability - the owner is personally liable for the businesses debts and may have to pay for losses made by the business out of their own pocket.

- complete control over your business and all profits after tax will go to you

- usually found where there is local demand (e.g. 'corner shop', florists, hairdressers)

Sole Traders are an example of an unincorporated business, which means; 

  • the owners have unlimited liability for their business debts.
  • they have no separate legal existence.
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Sole Traders

Advantages;
    -  The owner is 'the boss'.
    -  Quick and easy to set up as no formal legal paperwork is required.
    -  The owner doesn't have to share the profits with anyone else.
    -  The
owner can respond quickly to market changes.
    -  As a small-scale business, it only needs a relatively small amount of capital
     
  which reduces the initial start-up cost.

Disadvantages;
    -  The owner will have to pay for any losses, due to having unlimited liability.
    -  Its small scale makes it difficult to obtain capital in order to expand.
    -  The business will not automatically continue after the owner finishes trading.
    -  Have no one to share the responsibility of running the business with (e.g.
       good hairdresser, may not be very good at handling the accounts).
    -  They may have to work long hours and may find it difficult to take holidays or
       time off if they are ill
.

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