- sole trades;
- partnership;
- private limited companies;
- public limited companies;
- co-operatives;
- franchises;
- charities.
A sole trader is a business that is owned by one person. It may have one or more employees. It is the most common form of ownership in the UK.
The main advantages of setting up as a sole trader are:
- Total control of the business by the owner.
- Cheap and easy to start up – few forms to fill in and to start trading the sole trader does not need to employ any specialist services, other than setting up a bank account and informing the tax offices.
- Keep all the profit – as the owner, all the profit belongs to the sole trader.
- Business affairs are private – competitors cannot see what you are earning, so will know less about how the business works and how it succeeds.
The reasons why sole traders are often successful are:
- Can offer specialist services to customers – e.g. appliance repair specialists.
- Can be sensitive to the needs of customers – since they are closer to the customer and will react more quickly, because they are the decision makers too.
- Can cater for the needs of local people – a small business in a local area can build up a following in the community due to trust – if people can see the owner they feel more comfortable than if the owner is in some far off town, not able to hear the views of the local community.
The reasons for being a sole trader are often a balance between business and personal costs and benefits. Many will prefer the satisfaction of running a business with little paper work against the risks, pressure and probably long working hours.
A sole trader is liable for any debts that the business incurs. This means that any money that the owner has put into the business could be lost, BUT IMPORTANTLY, if the business continues to incur further costs then the owner has to pay these as well. In some cases they may have sell some of their own possessions to pay creditors.
Such a risk often puts potential sole traders off setting up businesses, but also makes them consider the other forms of business structure.
A partnership is a business where there are two or more owners of the enterprise. Most partnerships are between two and twenty members though there are examples like John Lewis and some of the major world accountancy firms where there are hundreds of partners.
The main disadvantages of becoming a partnership are:
- Have to share the profits.
- Less control of the business for the individual.
- Disputes over workload.
- Problems if partners disagree over of direction of business.
The next step for a partnership is to move towards becoming a private limited company. However some partnerships do not want to move to this stage.
It might be interesting:
The Technology Partnership programme in Lithuania was established in 2004. Lithuania was the third country that took part in the Technology Partnership programme.
Our partner in Lithuania is Kaunas University of Technology.
The Technology Partnership office is situated at the university in Kaunas.
Head of the office is Violeta Kauneliene.
The advantages of remaining a partnership rather than becoming a private limited company are:
- Costs money to set up limited company (may need to employ a solicitor to set up the paper work).
- Company accounts are filed so the public can view them (and competitors).
- May need to spend money on an auditor to check the accounts before they are filed.
A limited company is a business that is owned by its shareholders, run by directors and most importantly whose liability is limited.
To set up as a limited company, a company has to register with Companies House and is issued with a Certificate of Incorporation. It also needs to have a Memorandum of Association which sets out what the company has been formed to do, and Articles of Association which are internal rules over including what the directors can do and voting rights of the shareholders.
Limited companies can either be private limited companies or public limited companies.
The difference between the two are:
Shares in a public limited company (plc) can be traded on the Stock Exchange and can be bought by members of the general public. Shares in a private limited company are not available to the general public; and
The issued share capital of a plc (the initial value of the shares put on sale) must be greater than £50,000 in a plc. A private limited company may have a smaller share capital
A private limited company might want to become a “plc” because:
Shares in a private limited company cannot be offered for sale to the general public, so restricting availability of finance, especially if the business wants to expand. Therefore, it is attractive to change status
It is also easier to raise money through other sources of finance e.g. from banks.
The disadvantages of a being a public limited company (plc) are:
- Costly and complicated to set up as a plc – need to employee specialist bankers and lawyers to help organise the converting to the plc.
- Certain financial information must be made available for everyone, competitors and customers included (would you want them to know how much profit you are making?)
- Shareholders in public companies expect a steady stream of income from dividends, which might mean that the business has to concentrate on short term objectives of creating a profit, whereas it might be better to work on longer term objectives, such as growth and investment.
- Threat of takeover, because another company can buy up a large number of shares because they are traded publicly (can be sold to anyone). If they buy enough, they can then persuade other shareholders to join with them to vote in a new management team.
Shareholders own the company. They buy shares because:
Shares normally pay dividends, which is a share of the profits at the end of the year. Companies on the Stock Exchange usually pay dividends twice each year.
Over time the value of the share may increase and so can be sold for a profit – this is known as a “capital gain”. Of course, the price of shares can go down as well as up, so investing in shares can be very risky.
A co-operative is where a number of individuals or businesses work together to achieve a common purpose. They are normally formed so individuals and small businesses can benefit from being part of a larger group, meaning they have more power to buy or bargain.
There are three main types of co-operatives:
- Retail co-operatives
- Marketing or trader co-operatives
- Worker co-operatives
A retail co-operative is probably the most familiar co-op. The Co-Op shops and Leo Hypermarkets are a regular sight in the high street.
The objectives of a co-op tend to set them apart from other businesses. The objectives are normally more focused on the members of the co-operative, the local community and the world community. Though profits are required to enable them to reinvest in their business, they will not be a primary objective.
A franchise is where a business sells a sole proprietor the right to set up a business using their name.
Examples of major franchises are:
- McDonalds
- Clarks Shoes
- Pizza Hut
- Holiday Inn
The franchiser is the business whose sells the right to another business to operate a franchise – they may run a number of their own businesses, but also may want to let others run the business in other parts of the country.
A franchise is bought by the franchisee – once they have purchased the franchise they have to pay a proportion of their profits to the franchiser on a regular basis. Depending on the business involved, the franchiser may provide training, management expertise and national marketing campaigns. They may also supply the raw materials and equipment.
The advantages of being a franchiser:
- Large companies see it as a means of rapid expansion with the franchisee providing most of the finance.
- If the franchise model works, then there are large profits to made from
- - selling franchises
- - royalty payments
- - selling raw materials and equipment.
The advantages of setting up as a franchisee are:
- The franchisee is given support by the franchiser. This includes marketing and staff training. So starting a business in this way requires less expertise and is less lonely!
- The franchisee may benefit from national advertising and being part of a well-known organization with an established name, format and product
- Less investment is required at the start-up stage since the franchise business idea has already been developed
- A franchise allows people to start and run their own business with less risk. The chance of failure among new franchises is lower as their product is a proven success and has a secure place in the market
The disadvantages of setting up as a franchisee are:
- Cost to buy franchise – can be very expensive (hundreds of thousands of pounds).
- Have to pay a percentage of your revenue to the business you have bought the franchiser from.
- Have to follow the franchise model, so less flexible. You would probably be told what prices to set, what advertising to use and what type of staff to employ.
In conclusion, a buying a franchise a good way of an individual setting up a business because:
They do not have to establish themselves in the same as a sole trader might have to.
They will have the support of a tried and tested business model, often with a national marketing campaign behind them.
A charitable attitude is a very pure quality of life, ant it comes combined with transcendental qualities. In English, the word 'charity' means to give.
Trading or investment companies, sole traders, or trading partnerships that provide assistance to charities by seconding employees to them on a temporary basis can claim relief for the employment costs that they continue to incur.
