Types of Business KA 1
Client 1:
Type of business organization: Sole Proprietorship (one owner)
I would recommend this client to start a sole proprietorship because at the young age he is at, it will be
easier to start up a sole trader business. He has never had any experience before hand, so this is the
ideal choice for him because the boy will not need to worry about any legal requirements.
Another reason to why we would recommend sole proprietorship is because he can be his own boss- he
will not have to consult with anyone prior to making decisions. He can be flexible with the hours of work
and times he has day-offs. If he decides to employ other people when he feels like he cannot do all the
work alone, he will still own his business and be able to decide how much they get paid himself.
Starting a sole proprietorship would benefit the boy because he will be having direct contact between
the customers as he is selling to his friends and family. By directly communicating with the customers he
can have a higher chance of succeeding due to the ability of hearing suggestions and criticism, which will
allow him to grow and become better.
However, if the boy’s business becomes successful and he will want to expand or rent a place to sell his
sweets in, he will struggle financially. As a sole trader, his only source of income is his own savings and
the profits he makes. He will not have the benefit of limited liability and so will be responsible for his
debts if the business fails. To minimize the impact it may have, the boy can ensure that the quality of his
sweets are high, to attract more customers and thereby increase the profit value.
Client 2:
Type of business organization: Partnership
Due to the fact that his first several attempts at starting a business were a fail, I would recommend
starting a business with a partner. This way, the responsibilities can be shared and he can give the
responsibilities of sales and marketing to his partner. He can do something he is more specialized in,
whilst his partner can handle other responsibilities.
Another reason he should consider partnership business is that he will always have someone to help him
with decision making and in times when they are struggling. He can rely on his partner’s expertise, which
could encourage him to keep working and not giving up.
Starting a business with a partner will be relatively easier as they will be able to raise twice as much
finance as there are two of them. With more capital invested into the business, expansion will be more
likely to occur and higher quality supplies could be bought. Likewise, if there are any loses made by the
business- they would be shared by both partners.
On the other side, if his partner passes away or decides to leave, there will be several complications.
Because the business won’t have a legal identity, the partnership would end and the other owner will
have to decide what to do. It will be harder due to the fact that the business is unincorporated (no legal
identity from owners). Possibly, having several partners will minimize the issue and simplify the process
after one of the partners decides to leave.
Client 3:
Type of business organization: Public limited company
I would suggest this client to start up a public limited company because he is interested in selling his
goods internationally and whilst being able to sell his shares to the public- he will have more exposure
which can lead to expansion of the business. High established and high status companies in the US can
buy shares of his company and by doing so, give him more recognition.
Companies who sell shares to the public are more likely to raise larger capital sums because there is no
limit to the amount of shareholders the business can have. This allows more money to be invested into
the business, assuring its success.
Starting up a public limited company will offer the owners limited liability, which means the client will
not have to worry about selling his possessions to pay off a debt. Likewise, because it is an incorporated
business- it will function as a separate legal unit.
One of the costs of a public limited companies is that even though there are so many benefits from
being able to sell shares to the public, it is very expensive. All the legal requirements not only consume a
lot of time to complete, but also cost a lot of money.
Client 4:
Type of business organization: Private limited company
Because this person does not have any previous experience in running his own business, he could open
up a small shop and sell his shares to his friends or family rather than the general public. By selling his
shares, he has a higher sum of capital to invest in the business- rather than trying to raise capital
himself. Since his friends are already working in an existing industry, selling the shares to them will
benefit his new business a lot.
Another reason why a private limited company would be good for him is that all the shareholders will
have limited liability, meaning, if the business does not succeed and ends up in debt- the shareholders
will not have to spend their own savings to pay for it. The maximum amount they invest in the business
is the maximum amount they could lose.
This man will not lose his whole authority after selling his shares, he will still be able to make decisions
and have control whilst the shares are not sold to way too many people.
The cost of starting a private limited company is the amount of legal matter that needs to be dealt with
in order to start the business up, there are two important forms, “The Articles of Association” and “The
Memorandum of Association”. Because this client is not experienced in running his own business, it may
be a struggle.