The main disadvantages are:
- Unlimited liability. This means that owners are completely responsible for all the debts of their business.
- It is difficult to raise money capital, though government schemes have made it a bit easier.
- The firms growth is often slow as one person can do only a limited amount of work.
- The risks of failure are high as there is usually great competition
- The business stops with the owners death.
The law states that in an ordinary partnership there can be between two and twenty partners in a partnership. Partners are the joint owners of a business and work together to make the business run better and make more profits.
The main advantages for partnerships are:
- Very easy to set up.
- Profits belong to the partners, who usually work in the business.
- The affairs of the partnership can be kept private.
- Partnerships are small and most of the time with good relations between the partners.
- Two people have more chance to make a profit than one.
- Extra capital for the business.
- Two people can normally raise more money than one.
The main disadvantages are:
- Working together can cause disagreement.
- Each partner can provide different amount of capital.
- Profits may be shared unevenly.
- Not sure on who should control the business.
The next thing to do in a business is to form a private limited company, (this gives the company the right to add abbreviation Ltd to its name). The share holders own the company and are usually family members of the persons who set up the business. Some of the shares my also be owned by friends, employees and business associates.
The main advantages are:
- The founders of the business are usually the main shareholders and directors of the firm.
- The people who started the business own it and have a say in everything that happens.
- If the company was in debt the main shareholders would not have to pay out of their own money.
- If they invested £1000 in shares they may lose that but not a penny more.
- Limited liability.
The main disadvantages are:
- It is more expensive to start up then a sole proprietor.
- A big company’s accounts must be audited, (they must employ and auditor and an accountant).
- The company must hold an annual general meeting (AGM).
- A company is less flexible in some ways than a sole proprietor.
A public limited company (plc) is in its own way different from a private limited company as its shares can be bought and sold by the public. To become a plc a firm must have a minimum of £50,000 share capital, the money invested in its shares. Most plc’s have a much bigger share capital totalling millions of pounds.
Share prices:
The shares can be bought and sold through a bank or a firm which deals in shares. Their current price is quoted on the stock exchange. The nominal, or original, price of the share when it was issued by the company may be £1. However, the price of the shares will rise or fall according to how well or how badly the company is performing.
Control of plc’s:
The majority of shares in practically all companies are owned by institutional investors. Their huge blocks of shares give them great influence over companies, policies and the way in which they are run. The institutions votes at company annual general meetings (AGMs).
Franchising is a form of co-operation, often between a big firm and a sole proprietor. The firm has a product known by people with its own name, such as macdonalds and in return for an initial fee and continuing royalty payments, the franchiser allows the franchisee to set up his or her own business and to use the firm’s own name.
Advantages:
Franchisee’s have many advantages and have a much greater chance of success than smaller businesses as the product has to be tested and has a secure place in the market.
Disadvantages:
- Has less independence than other sole proprietors.
- Will not be able to sell the business without the franchisers agreement.
- Does not always have the right to renew the franchise automatically.
- Has to make continually royalty payments to the franchiser.
- Sometimes has to pay a mark-up, or percentage of the price, on supplies from the franchiser.
