Understanding Business
Structures
Types of Business Structure
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Sole Trader
Partnership
Limited Companies
Co-operatives
Franchises
Sole Trader  Benefits
Benefits include:
• Easy to set up and run
• Only small amount of capital needed
• Owner has total control and doesn’t have to
share profits
Sole Trader  Drawbacks
Drawbacks include:
• Unlimited liability
• Lack of economies of scale
• The business relies on the owner 100%
Partnership  Benefits
Benefits include:
• Shared responsibility
• Allowing partners to specialise
• Partners bring in more capital investment
• Decisions, costs are shared
Partnerships  Drawbacks
Drawbacks include:
• Each partner has unlimited liability
• Shared responsibility can lead to disagreements
• Profits have to be shared according to Deed of
Partnership
Limited Companies
There are two types:
1. Private Limited Company (Ltd)
2. Public Limited Company (Plc)
Private Limited Companies
Benefits include:
• Company can raise more capital by selling more
shares
• Shareholders can keep control of the business
Private Limited Companies
Drawbacks include:
• Accounts must be audited
• Limited companies are more difficult to set up
• Shares cannot be sold publicly on the stock
market
Public Limited Companies
Benefits include:
• Easy to raise capital for expansion by selling shares
on the stock market
• Economies of scale are better than a private Ltd
company
Public Limited Companies
Drawbacks include:
• Expensive to set up (a lot of capital is required)
• Annual accounts must be made public
• Anyone can buy shares – so it’s vulnerable to
takeovers
Co-operatives
There are two types:
1. Worker Co-operatives
2. Consumer Co-operatives
Worker Co-operatives…
…Are owned by the whole workforce
…Everyone has a say in the business
Consumer Co-operatives…
…Are local Co-op shops owned by the
customers
…The profit is paid out or used to keep
prices down
Franchises
• An existing company (the franchisor) lets
someone else (the franchisee) use its business
idea and name
• The franchisee buys a licence to carry out the
business of the franchisor
• The franchisee must also run the business in the
same way as the franchisor
• In return, the franchisor helps the franchisee set
up the business
Find out more with Business.govt.nz:
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including tools and interactive content. It acts as a gateway to government
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Next steps:
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Overview of business structures
Understanding business structures
Focus on sole traders
Focus on partnerships
Focus on companies