Major Business Organisations

Different Business Organisations

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SOLE TRADER

OWNED AND CONTROLLED BY ONE PERSON.

ADVANTAGES

  1. The firms are usually small, and easy to set up.
  2. Generally, only a small amount of capital needs to be invested, which reduces the initial start-up cost.
  3. The wage bill will usually be low, because there a few or no employees.
  4. It is easier to keep overall control, because the owner has a hands-on approach 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.
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PARTNERSHIP

RUN BY 2 OR MORE PEOPLE

ADVANTAGES

  1. 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.
  2. More people are also contributing capital, which allows for more flexibility in running the business.
  3. There is less time pressure on individual partners.
  4. There is someone to consult over business decisions.

DISADVANTAGES

  1. The main disadvantage of a partnership comes from shared responsibility.
  2. Disputes can arise over decisions that have to be made, or about the effort one partner is putting into the firm compared with another.
  3. 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.
  4. A partnership, like a sole trader, has unlimited liability.
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LTD (Private Limited Company)

CANNOT SELL SHARES ON THE STOCK MARKET.

ADVANTAGES

Easy and inexpensive to set up, ownership and control are closely connected, eg Board of Directors are usually the main shareholders, small and less bureaucratic than PLCs, eg decisions can be taken more quickly.

DISADVANTAGES

Lack of capital due to no share issue, no benefit from economies of scale, eg bulk buying, cheaper borrowing.

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PLC (Public Limited Company)

CAN SELL SHARES ON THE STOCK MARKET.

ADVANTAGES

Raise large amount of capital from share issue, Benefit from economies of scale, eg bulk buying, cheaper borrowing, Produce goods at lower unit cost.

DISADVANTAGES

Become too large resulting in poor labour conditions, conflict of interest between shareholders and the Board of Directors, possibility of takeover or merger because shares can be bought by anyone.

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