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Types of Ownership

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Types of Ownership Sole Trader A single person owns this type of business although he/she may employ other people to work in the business. A sole trader is someone who decides to own and run his/her own business. He/she usually uses personal capital or something along the lines of a bank loan to get the business started. This means the sole trader is taking all the risks that are involved in running a business. If the business is successful the owner's reward is the profit. The owner can keep all the profit after expenses have been paid, this is called NET profit. The sole trader has what is called unlimited liability which means if the business is unsuccessful the owner stands to loose his/her personal possessions. There is also the risk of the owner becoming bankrupt. The sole trader can make all decisions in the business and is responsible for keeping accounts to show how much profit/loss is made each year. Benefits for the owner: * Easy to set up - There are no formal procedures to follow, particularly is the sole trader is using his/her own name. * Can offer a personal service to the customers * All decisions can be made and put into effect efficiently as there is no one else to consult. ...read more.


The shareholders (formally the owners) are no longer personally liable for their debts (limited liability). They only stand to loose the amount they initially invested into the business. The abbreviation LTD (limited) must be part of the name of the business. If the business fails the owners do not go bankrupt instead the company goes into liquidation. This means the business assets are sold to turn them into money. Money is the most 'liquid' form of an asset hence the term Liquidation. B) Provide a better 'image' to their customer, who are likely to assume the business, is more secure (whether is or is not!). Private limited companies issue shares to the owners, each share equals one vote. An owner with more than half of the shares could always outvote another shareholder. For this reason, the proportions held are often carefully thought out. Benefits for the owners: * Members (shareholders) have limited liability for the company's debts. * Capital can be raised more easily as there are usually many shareholders. * Expansion is made easier, because of the availability of finance. * The company continues even if the shareholders and directors change (continuity). Drawbacks for the owners: * The expense of setting up a private limited company is vast (solicitors' and accountants' fees). ...read more.


Franchise The franchise system was first established in the USA and is now a rapidly growing business sector in the UK. A franchise is an operation, which involves two separate parties. * The franchisor, a person who has developed a certain type of business (clothes retailing, Hamburgers etc...) and has made a well-known trading name. * The franchisee, a person who buys the right to trade under the well-known trading name and in return receives training and equipment. An example of this is the fast food chain 'McDonalds'. Benefits for the owner: * You are entering into a business that has been tried and tested on the market. * The business may have a household name such as McDonalds. * You are more likely to get a loan from a bank for a franchise. * You may receive training and in some cases tried and tested equipment. Drawbacks for the owner: * The initial cost of going into a franchise can be large * Proportions of the profits go to the francisor. * You have less independence in the way that you cannot change the name or the method of running the business. * You may receive less profit than you would in an independent enterprise. ...read more.

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