Exploring business purposes

  way.

There are also many disadvantages of a sole trader which are:

• Capital is limited to the owners saving or profits or any other money he or she can borrow.
• Responsibility for a range of activities falls upon the shoulders of the one person who runs the business.
• The owner has sole responsibility for debts -if the owner does fall into financial difficulties it may be necessary to sell his or her own personal possessions to meet the business’s debts.
• The success of the business is always dependent on how hard the sole trader wishes to work.
• Any unforeseen accident or illness could seriously affect the business since all responsibilities rest in the shoulders of that one person.

2. A partnership can be a solicitor who will provide a service.

A partnership may be formed to overcome the problems that a sole trader can have in raising capital. A partnership consists of between two and 20 people who set up in business together and share the responsibility for that business. Each partner is required to contribute some capital and the profits and the losses are shared between all the partners and decisions made by one partner are always binding on the others.

The advantages of a partnership are:

• It is easier for partners than sole traders to raise capital because all of the partners can pool their resources.
• Partners can arrange to cover one another at time of illness or holidays
• Partners can share their expertise and their workload.
• A partnership like a sole trader does not have to publish its accounts or have them audited.
• Additional capital can be raised by introducing more partners into the partnership.

The disadvantages of a partnership are:

• Each partner is personally liable for all of the firms debts
• Partnerships can only raise limited amounts of capitals as compared with businesses.
• Decision- making can be show since all partners have to be consulted.
• The death on retirement of a partner can bring a partnership to an end if such a rule is written into the deed of partnership.
• Disagreements can arise between partners about the amount of effort that each of them puts in.

3. A private limited company can be a local shop which provides goods and services.

Private limited companies are usually family concerns or were originally so. This is the form of organisation often chosen when a sole trader wants to expand and wishes to retain control of the company.

 The advantages of a private limited company are:

• It is often easier to raise finance through banks
• It becomes possible to operate on a larger scale since additional shares are offered to the public
• It is possible to employ specialists
• Directors are not liable for the debts of the company
• The company name is protected by law

The disadvantages of a private limited company are:

• The formation and running costs of a limited company can be

  expensive.

• Rates of tax on profits are often higher

4. A public limited company can be Tesco which provides goods and services

A public limited company will have plc after the company name. These companies are allowed to raise capital by selling their share on the stock exchange. This gives them a greater flexibility in raising capital. They still only need two people to form a public limited company and there is no stated maximum number of shareholders.

The advantages of a public limited company are:

•  Shareholders have limited liability
• Suppliers tend to feel more comfortable trading with legally established organisations
• It is easier to raise capital through shares
• The ill health or death of shareholders does not affect the running of the business.

The disadvantages of a public limited company are:

• All the affairs of the company are made public through the audited accounts and annual returns that the company makes

• Employees and shareholders are distanced from one another

• Decisions tend to be slow since there are a number of people involved.