Forms of Ownership

In depth descriptions of several Business Ownership styles. 

BS1 topic.

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  • Created by: Callum
  • Created on: 19-05-13 12:47

Sole Trader

Sole Traders are the most popular of Business legal forms. They are often owned, and run, by a single individual.

Sole Traders are very easy and low cost to set up - hence the popularity of them. There are no legal formalities, and all you need to do, is inform Inland Revenue that you'll be going self-employed.

Decision making is very fast in such an organisation, as you're the only one normally in charge, and there won't be a need for consultations. You can also hire and fire as you please, allowing you to have the employees you wish.

Of course, there are some disadvantages - firstly, capital if very limited, as it relies only on your own savings. Setting up a business isn't cheap, so you need to have saved up a fair bit.

The skills within the business will also be limited. You're relying on a single set of skills (your own) to control the profession, as well as business functions, such as marketing, finance, HR and more. You might not be able to do all of these as effectively as you hope.

The pressure of working a Sole Trader is undoubtedly very high, as all the decisions rely on you - making this a very tough job indeed.

Finally, all liability is Unlimited. What this means is that you are liable for all business debt, creating a higher risk. If your business racks up some debt, you have to pay that back personally. It can't be written off by closing the business or something like that.

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Partnership

Partnerships involve joint ownership of a business. This ownership is split amongst normally 2 to 20 employees, or 'Partners', although it has been known to get higher. Such a form is often used by the professions, such a medical or legal services.

All rules contained within a Partnership are laid down in a Partnership agreement or Deed of the Partnership.
Information included within the Deed includes the amount of capital invested, the share of profits partners recieve, rules for breaking up of the partnership, methods of leaving & what will happen on death of a partner.

Running a business as a partnership has several advantages. There will firstly be a wider range of skills in the business, in comparison to a Sole Trader - that's because there are more employees. The larger amount of employees also leads to having a potentially higher availability of capital, although this isn't always the case, as it's still limited. (Especially if there are only 2 or 3 employees of the partnership).

A partnership is also very private. No accounts need to be published, which can be effective for planning against competition, as everything stays with you. Decision making within a partnership is also shared - meaining that the best decisions can be made, similarly to a democracy, but the decision making process may be slower.

On the other side of the coin, the liability is again unlimited to the employees, with the exception of 'Sleeping Partners' (they invest within a partnership, but do not actively have a role) who can have limited liability. Parterships are also dissolved on the death of a partner, making it very awkward to re-establish a partnership.

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Private Limited Company (LTD)

Private Limited Companies (LTD) are incorporated companies (means it is limited by shares) which are very often family businesses.

LTD's are very simple to set up - you can essentially buy an 'off-the-shelf' LTD for a small fee (around £60) and all you require apart from that are two shareholders. A Private Limited Company has a limited liability, meaning that you aren't responsible for any debt - although this only applies if you are not at fault, if you decide to make a business decsion that you know will fail, you may be liable.

It's often more easy to access capital whilst in a LTD also, a popular method would be to sell shares.

The disadvantages to running a LTD are that all the accounts must be published, which can be an expensive process to put together firstly,but also can be seen almost publically (on company house for a very small fee) and potentially used to your disadvantage. These accounts must be audited, which is another expensive process which really doesn't help you at all.

The ownership within a LTD can also be seperated, as it is only very loosely controlled by the percentage of shares each member owns.

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Public Limited Company (PLC)

Public Limited Companies are often the largest of businesses. It's shares are freely sold and traded with the public, whereas a LTD has control to where they are sold to. Therefore, major Shareholders can act as the main investment, and they are often financial institutions.

There isn't much to say about PLC's, depsite their size. They must give full the public full access to their accounts, which makes them even easier to access than those of a LTD. There won't be a fee and they will be easy to find.

Due to the share system, owners of a PLC have very little say, and really, they don't own the business, as often the shareholders will have a greater say as they, cumulatively, control a greater portion of the business.

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Co-operative

Co-operatives are businesses controlled very equally by a group of people, similarly to a partnership. The employees control and own the business equally.

All control of the firm stays within the workplace, which prevents takeovers and external influence from affecting the business. This is because each employee within the business has an equal vote with the decision making process (1 employee, 1 vote, no matter the rank).

Profit and losses within a business are shared equally, usually based upon hours or gross pay. Liability within the business is fully limited.

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