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TYPES OF BUSINESS ORGANIZATIONS

Legal Form Advantages Disadvantages


SOLE TRADER
A business
owned by a
single person
Unincorporated Owner enjoys all profits
Independent owner has complete
control
Simple to set up no legal
requirements
Flexibility eg: can adapt to change
quickly
Can offer a personal service because
they are small
May qualify for government help
Unlimited liability
May struggle to raise finance less
sources + too risky for lenders
Independence may be a burden
work pressure
Long hours and very hard work
Usually too small to exploit
economies of scale
No continuity if owner dies,
business dies too
PARTNERSHIP
A business
owned by
between 2 and
20 people
Unincorporated Easy to set up and run no legal
formalities
Partners can specialize in their area
of expertise
Burden of running a business is
shared less stress
More capital can be raised
Financial information isnt published
Partners have unlimited liability
Money invested is limited to how
much 2-20 people can fund
Profits are shared
Partners may disagree on things
Any partners decision is legally
binding on all
Partnerships still tend to be small
FRANCHISES
Where a
business (the
franchisor)
allows another
operator (the
franchisee) to
trade under
their name
Unincorporated FOR FRANCHISEE
Less risk a tries and rested idea is
used
Back-up support given
Set-up costs are predictable
National marketing may be
organized
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FOR FRANCHISOR
Fast method of growth
Cheaper method of growth
Franchisees take some of the risk
Franchisees more motivated than
employees
FOR FRANCHISEE
Profit is shared with the franchisor
Strict constraints have to be signed
Lack of independence strict
operating rules apply
Can be an expensive way to start a
business
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FOR FRANCHISOR
Potential profit is shared with
franchisee
Poor franchisees may damage
brands reputation
Franchisees may get merchandise
from elsewhere
Cost of support for franchisees may
be high
PRIVATE
LIMITED
COMPANIES
Incorporated Shareholders have limited liability
More capital can be raised
Control cannot be lost to outsiders
Continuity business continues if a
shareholder dies
Has more status (eg: than a sole
trader)
Financial information has to be
made public
Costs money and takes time to set
up
Profits are shared between more
members
Takes time to transfer shares to
new owner
Cannot raise huge amounts of
money like public limited
companies (plcs)




Legal Form Advantages Disadvantages
PUBLIC LIMITED
COMPANY (plc)
Incorporated Large amounts of capital can be
raised
Shareholders have limited liability
Plcs can exploit economies of scale
May be able to dominate the
market
Shares can be bought and sold very
easily
May have a very high profile in the
media
Setting up costs can be very
expensive
Outsiders can take control by
buying shares
More financial information has to
be made public
May be more remote from
customers
More regulatory control due to
Company Acts
Managers may take control rather
than owners
JOINT VENTURE
When two or more
companies share
the cost,
responsibility and
profits from a
business venture
Incorporated Allow companies to enjoy some of
the advantages of mergers (like
higher turnover, without having to
lose their identity)
Each business can specialize in
aspects of the venture to suit its
expertise
Takeovers are expensive and incur
heavy legal/administrative costs
Mergers are takeovers are often
unfriendly; most joint ventures are
friendly
Competition may be eliminated if
companies co-operate in a joint
venture they are less likes to
compete against each other
Some do not work out there
could be control struggles. Eg: who
should have the final say in a 50:50
joint venture
Disagreements may occur about
the management of the venture
could be different views on which
direction to take
Profit from the venture is split
between investors profit
potential reduced
MULTINATIONALS
A large business
with markets and
production facilities
in several different
countries
Increase in income and
employment
Increase in tax revenue
Increase in exports
Transfer of technology
Improvement in the quality of
human capital
Enterprise development
Can exploit economies of scale
Environmental damage
Exploitation of less developed
countries
Repatriation of profits (where a
multinational returns the profits
from an overseas venture to the
country where it is based)
Lack of accountability