Type of Ownership

Type of Business Ownership

4th October 2008

Types of ownership

Sole proprietor- A sole proprietor is a single person owning a business. Sole trader have unlimited liability (all debts paid by the owner, personal possessions may be taken).

Partnership- 2 – 20 partners own, control and finance the business. They have unlimited liability. In a partnership the partners need to draw up a ‘Deed of Partnership’ to verify their company and to describe each partner’s role in the business.

Private Limited Company (Ltd)- A Company owned by shareholders. A limited number of shares are issued (99); these are owned by family and friends of the business. The business has limited liability (the only money lost is the money already invested in the company such as the shares, set up cost and others. Personal belongings are safe). A lot of small businesses are private.

Public Limited Company (PLC)- A Company owned by shareholders, unlimited amount of shareholders. It must have £50,000 of capital, and may allow its shares to be bought by the general public via the stock market. The business has limited liability. Every PLC must send an annual return to Companies House at least once every 12 months.

Franchise- Franchising refers to the methods of practicing and using another person's philosophy of business. The franchisor grants the franchisee the right to distribute its products, techniques, and trademarks for a percentage of gross monthly sales and a royalty fee. An example of ...

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Influence in choice of ownership

There are many influences in the choice of which type of ownership. Money is the biggest influence because it controls the size, the stock and most things about your business. So depending on a high capital or a low capital, the type of ownership will be varied. Furthermore, there are other influences such as your aims. If your aim was £110,000 profit in 3 years then different ownerships will cater to that or if you wanted a large scale company. Moreover, your need for a partner or in you want to be the boss with some employees. Finally, your idea may change choice in ownership, for example a man has an idea for a product but be needs someone with expertise in finance to help the business along. So he forms a partnership with a friend in business and it all works perfectly. Therefore, this man would form a partnership with his friend.

My Choice of ownership

For my retail shop, I have decided to become a sole proprietor because it is easy to set up the shop i.e. cheap, quick and simple. When I make a decision, I do not have discuss it with any partners. So therefore, I can quickly change and upgrade my business. Furthermore, I receive all the profits and there are some tax advantages. Finally, I have complete control of my own business and I choose working hours. On the other hand, there are some disadvantages such as, the main one, unlimited liability, meaning my possessions are at risk if the company has debts to resolve. Moreover, limited specialization affects the business and so does limited economic of scale. Finally, I will have to work very long hours to start the cash flow and if I’m ill there may be a lack of profit.

Why I rejected the other types of ownership

I rejected the other types of ownership because of the cost. PLCs, Ltds and Franchises are expensive to set up, while becoming a sole trader is cheap and quick. Furthermore, I did not suit a franchise. The cost was very costly and royalty fees every year would cut down the profit. Franchisees also didn’t have any choice in what they sell which is restricting creativity. Moreover, PLCs are good if you need a large capital but I don’t so I drew the line at a public limited company. I thought about becoming a Ltd for the reason that it has unlimited liability and a separate legal name however a sole proprietor was more appealing because it is cheap and easy to set up. Finally, we have a partnership and the simple reason for not being a partnership is that I don’t need a partner or want one.

Peer Reviews

Here's what a star student thought of this essay

danielbeal

19th of Mar 2012

Quality of writing

The layout isn't that great. The layout could be more simple, and by having simple sub-headings with using font size 12 using bold would allow the examiner to read the report with more ease.

Level of analysis

The different types of ownership are quite vague and doesn't provide the examiner with an in-depth understanding. For example the report states 'A lot of small business are private'. Although why is this the case? The report could include 'Small business may want to become a Private Limited Company, as this allows the business owner/s to have limited liability. In addition, this allows the business to ensure that there finances are carefully monitored and checked by an accountant, and this method is more effective in terms of tax than others'. In addition, the section 'influence in choice of ownership', states that a person may form a partnership with their friend. However the report doesn't state that this may go wrong and the two people could have a relationship breakdown and could causes issues within the company. Only including one outcome provides the examiner with limited view and the examiner is looking for all possible out comes and not just a one sided view. On the flip side, the student states that there will select the Sole Trader option, and there have assesed the benefits and drawbacks of this, which is quite good.

Response to question

In summary, the report is quite good. The report states each different type of business set-up, alongside their view and their option of an example business. However some area's lack justification and there is a lack of detail in the report. The 'Partnership' section states '20 partners own', however this is in-correct. A partnership is where 2 or upto 20 people can own the business'. The 'Private Limited Company' section states that friends and family members own part of the business, however this is false. There can own shares, although this isn't always the case. A number of PLC's have private investors who own shares for additional capital into the business.

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