1.4.1 Different Types of Business Organisation

This section explores the key differences between various business structures commonly encountered in the business world. We will examine sole traders, partnerships, private limited companies, and public limited companies, highlighting their advantages, disadvantages, and legal implications.

1.1 Sole Trader

A sole trader is a business owned and run by one person, where there is no legal distinction between the owner and the business. The owner receives all the profits but is also liable for all the debts of the business.

Advantages of Sole Trader

• Easy to set up and minimal legal formalities.
• Owner has complete control and makes all the decisions.
• All profits belong to the owner.
• Simple tax structure.

Disadvantages of Sole Trader

• Unlimited liability ÔÇô the owner is personally responsible for all business debts.
• Limited capital ÔÇô raising finance can be difficult.
• Owner may lack expertise in all areas of the business.
• Working hours can be long.

1.2 Partnership

A partnership is a business owned and run by two or more people who agree to share the profits or losses of the business. There are different types of partnerships, including general partnerships and limited partnerships.

Types of Partnerships

• General Partnership: All partners share in the business's profits or losses and have unlimited liability.
• Limited Partnership: Some partners have limited liability and contribute capital but do not actively manage the business.

Advantages of Partnership

• More capital available than a sole trader.
• Shared expertise and workload.
• Relatively easy to set up.

Disadvantages of Partnership

• Unlimited liability for general partners.
• Potential for disagreements between partners.
• Shared profits.

1.3 Private Limited Company

A private limited company is a business owned by shareholders, but the shares are not offered to the general public. It has a separate legal existence from its owners (shareholders).

Key Features of a Private Limited Company

• Limited liability ÔÇô shareholders are only liable up to the amount of their investment.
• Limited number of shareholders (usually up to 50).
• Cannot offer shares to the general public.
• More complex to set up than a sole trader or partnership.

Advantages of Private Limited Company

• Limited liability for shareholders.
• Easier to raise capital than a sole trader or partnership.
• Separate legal existence.
• Continuity ÔÇô the company can continue to exist even if the owners change.

Disadvantages of Private Limited Company

• More complex and expensive to set up.
• More regulatory requirements.
• Profit is taxed at company level and again when distributed to shareholders.

1.4 Public Limited Company

A public limited company (PLC) is a business that can offer shares to the general public on a stock exchange. It has a separate legal existence from its owners (shareholders).

Key Features of a Public Limited Company

• Limited liability ÔÇô shareholders are only liable up to the amount of their investment.
• Can offer shares to the general public.
• Large number of shareholders.
• Subject to strict regulatory requirements.

Advantages of Public Limited Company

• Access to a large amount of capital through the sale of shares.
• Limited liability for shareholders.
• Prestige and public image.
• Continuity ÔÇô the company can continue to exist even if the owners change.

Disadvantages of Public Limited Company

• Complex and expensive to set up and maintain.
• Subject to strict regulatory requirements and public scrutiny.
• Loss of control for original owners.
• Pressure to deliver profits to shareholders.