Business Ownership
THE PRIVATE SECTOR is businesses that are owned and operate by one or more
private individuals or other groups.
Private
Sector
Sole
Trader
Partnership
Limited
Company
Private
Ltd
Frachising
Public
Plc
Co-operative
Retail
Producer/
Worker
THE PUBLIC SECTOR is businesses owned and operated by national or local
government.
Public
Sector
Public
Corporations
Government
Departments
Local
Authorities
Unlimited Liability
Being responsible for unlimited amount of business debt….may have to sell
personal possessions to pay the debts of the business.
Limited Liability
Responsible for debts limited to the amount invested…only lose the initial
investment.
SOLE TRADER
 One person owns the firm.
 Vast majority are very small firms.
 Unlimited liability – the owners of the business are responsible for all business losses.
 In order to set up the sole trader only has to inform the Inland Revenue and the
Department of Social Security.
 Has to pay National Insurance and tax on profits to the Inland Revenue.
 The sole trader may need a special license e.g. taxi, outdoor food stalls.
 Funding comes from personal savings and / or borrowing.
 The aim of the business is to make a profit.
Advantages
1. The sole trader business is a very personal one – owner has contact with customers.
2. The sole trader is his or her own boss.
3. The sole trader receives all the profit.
4. It is easy to set up a sole trader business.
Disadvantages
1. The sole trader has unlimited liability – responsible for all debts.
2. The sole trader has full responsibility for the business.
3. Sole trader lacks capital.
PARTNERSHIPS
 Partnership Act/Deed of Partnership
 Between 2 and 20 people
 Division of responsibility of who does what and how decisions are made
 How profits will be used
 If any losses are incurred, how will they be made good
 Will changes in the membership of the partnership be allowed
 What procedures will the partnership adopt for keeping the books or accounts
Advantages
1. Partnerships bring new skills and ideas to the business.
2. More partners mean more money for the business.
3. Partners can help in decision-making.
4. Setting up a partnership is easy.
5. Partners can share the profits.
Disadvantages
1. Partners can disagree.
2. Partners have unlimited liability – responsible for all the debts.
3. Partners lack capital.
LIMITED COMPANIES
Two documents needs to be completed to set up a ltd/plc:
1.





Memorandum of Association – which contains:
The company name
The main business address
What the business will produce/provide
A statement of limited liability of the members
The number and value of shares to be sold
2.

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Articles of Association – which contains:
Procedures for calling shareholder meetings
Number, rights and obligations of directors
Shareholder voting rights
Details of how accounts will be kept and recorded.
Incorporated – a legal term which applies to private and public limited
companies where the business and its owners, the shareholders, are regarded
as separate, i.e. the shareholders have limited liability.
Private Limited Company (Ltd)
 Ltd companies are usually family businesses with the company’s shares owned by
family members.
 These shares cannot be sold to the public, which obviously limits the firm’s ability to
raise finance.
 They can, however, be transferred and sold to other shareholders within the company.
 There are approximately 5000,000 Ltd in the UK, mostly modest in size.
Advantages:
1. Limited liability for shareholders.
2. Greater potential to raise capital.
3. Benefits of economies of scale and use of specialist staff.
Disadvantages:
1. The expense of setting up, especially legal costs.
2. The accounts have to be audited and this is expensive.
3. Increased paperwork associated with the legal requirements to submit annual returns
and financial statements.
4. Details of the company’s accounts must be published annually and consequently
become available for inspection by competitors, customers and suppliers.
Public Limited Companies (PLC)
 Plc’s are similar to private Ltd, but are usually much larger.
 Able to raise capital by selling their shares on the London Stock Exchange
 By law, must have the words public limited company or plc after the name of the
company.
Advantages
1. The shareholders (owners) have limited liability.
2. The shares in the company can be freely bought and sold.
3. The company can more easily raise the substantial amounts of capital (money) which it
needs for expansion and development.
4. Banks and other financial institutions are more willing to lend the company money,
usually at preferential rates of interest.
5. The company’s continued existence does not depend on the founders of the business.
6. As large organisations, PLC’s benefit from economies of scale, for instance cheaper
borrowing and bulk purchasing.
Disadvantages
1. The founder owners can lose control of the company because its shares can be readily
bought on the stock exchange.
2. Starting a plc is expensive compared with other types of business and requires a great
deal of documentation.
3. Large organisations can become difficult to manage efficiently, staff often feel ignored
by a remote management.
4. Detailed financial accounts must be published each year, providing valuable
information to competitors and prospective take-over companies.
FRANCHISE
A franchise is an agreement between a franchiser and a franchisee, that gives a person
“the right to trade as”.
Franchiser – an existing, well known company with an established market for its product.
Franchisee – a person (or group of people) who buy the right to use the business name of
the franchiser and make or sell its product in a particular location.
Advantages
1. Product likely to be well known
2. Franchiser will often advertise and promote the product
3. Banks may be more willing to lend money to a well known franchise
4. Risk of business failure is low
Disadvantages
1. Cost of buying franchise could be high
2. A proportion of business profits are paid to the franchiser
3. Franchise agreement can be withdrawn
4. Role of business owners reduced to “branch managers”. Most aspects of business will
be decided by the parent company.
CO-OPERATIVES
A co-operative is an organisation formed by people joining together to organise
production, makes decisions, and share profits. All members have an equal say in running
the business and share equally in the profits.
 It has limited liability
 Non-transferable shares (bought and sold to the society)
 Society control is democratic, each member is permitted one vote regardless of
shareholding.
Worker Co-operative: They pool their money to buy equipment and share equally in
decision-making and any business profits.
Retail Co-operatives: are shops run for the benefit of their customers.
PUBLIC SECTOR
Local Government - includes district councils and county councils. Councils raise money
in a number of ways:
 Council Tax
 Grants from central government
 Charges for services, i.e. swimming pools
 Rents from council houses
 Sale of council houses and council land
 Loans
Examples of local government services:
Street lighting
Refuse collection
Libraries
School
Cutting grass verges
Council housing
Fire services
Local road building and maintenance
Central Government - Voters elect Members of Parliament (MP) to form the central
government. The political party with the most MPs forms the government. Central
government raises money mainly from taxes.
Examples of central government:
Major road building maintenance
National Health Service
Social security payments
Air traffic control
Tax assessment and collection
Armed forces
Immigration services
Law and order
Public Corporations
responsible for the day-to-day running of industries owned and controlled by central
government
Organisations brought into public ownership are called nationalised industries. An example
is the Post Office or the BBC.
As a result of government economic policy, many public corporations have been sold to
the private sector in the last 20 years. This process is called privatisation.