TYPES OF BUSINESS STRUCTURES Sole trader Partnership Company
TYPES OF BUSINESS STRUCTURES Sole trader Partnership Company
Sole trader Ø It is the oldest form of trading. Ø It’s also the simplest and the most common type of business you’ll find. Ø The sole trader is the only one responsible for everything the business does and is often known as the proprietor. Ø This is the usual form for small shops and businesses that provide services such as beauticians, hairdressers, photographers, gardeners and so on.
When you start out in business, most often you use your own money to fund the venture. However, as you start to grow, you may need to find funding elsewhere. When this happens you may want or need to enter into another kind of business model
Partnership ØThey are made up of two or more people and any profits, debts and decisions related to the business are a shared responsibility. Ø Various arrangements are possible: all partners might share liabilities and profits equally ( general partnership), or some partners may have limited liability ( limited partnership). ØThese are common for enterprises that offer services such as accountants, dentists, doctors, solicitors and so on ( limited liability partnership). What is a partnership?
Ø Ø Despite each shareholder owning a piece of the company, in law it is seen as a legal entity – the same as an individual – that is entirely separate from the shareholders. It can be sued, make a profit or loss, be held responsible for its employees’ actions and go into liquidation – the term used for companies that go bankrupt. Ø Ø Company the correct name for this is a joint stock company and it’s made up of a number of people who put their money together to form a ‘joint stock’ of capital. These people are more commonly known as shareholders and, as the name suggests, they each own a share of the business and each expect a share of the profits too. Each shareholder puts money into the company and receives a portion of the company – shares – equivalent to what they put in. In the United States, shareholders of joint stock companies have unlimited liability for company debts, but in the United Kingdom, shareholder liability is limited to the nominal value of shares held by each shareholder
q Private Limited Companies Most small businesses are private limited companies with the shares only available privately, for example, to family members. The shares are not available to buy publically so they cannot be traded on the stock market. q Public Limited Companies Being a Public Limited Company (PLC) is much more complex and is usually reserved for larger companies. PLCs can sell their shares on the stock market so anyone can buy them. Using this method it is easier to raise money, but it also means that the company accounts are in the public domain. The company must also be audited and make certain information available to the public. PLCs can be bought out by other shareholders. PLC
Key aspects SOLE TRADER PARTNERSHIP COMPANY Is simple to set up and operate. It's relatively easy and inexpensive to set up. Is a separate legal entity. Gives you full control of your assets and business decisions. Requires fewer reporting requirements and is generally a low-cost structure. Has limited liability compared to other structures. It's not a separate entity - like a sole trader, you and your business partners are personally liable for the Is a more complex business debts of the business. structure to start and run. You have shared Has unlimited liability - all control and management your personal assets are at of the business with your risk if things go wrong. partners. Your assets can be seized to recover a debt. Involves higher set up and running costs than other structures.
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