Business Ownership

Business Ownership Sole Traders Partnerships Private Limited Companies (ltd) Public Limited Companies (Plc) Co-operatives

First, we must learn... (un) Limited Liability Unlimited Liability The owners are responsible for all debts Limited Liability The owners are not responsible for all debts (un)incorporated unincorporated 1 Legal entity incorporated 2 Legal entities

Business ownership Soletrader ltd Partnership Plc Co-op

Sole traders • A sole trader is an individual who owns and runs their own business. • The simplest form of business. • A sole trader has unlimited liability - they are personally responsible for all debts run up by the business. • They could lose their home and all of their assets to pay off any debts that they are unable to pay. Soletrader 1.4 Legal structure

Benefits Cheap and easy to set up All profits go to you! Competitors can’t see your accounts Highly motivated You are the boss! Drawbacks Unlimited liability Limited finance Difficult to find cover when ill Sole tradersBenefits and disadvantages of being a sole trader Soletrader 1.4 Legal structure

Choosing the appropriate legal structure Sarah has always dreamt of being her own boss and at the age of just 22 an opportunity arose. Patricia, the owner of the gift shop where Sarah worked, was due to retire and close the business that she had operated as a sole trader for over 40 years. Sarah wondered whether she had the necessary skills to run the shop herself and finally plucked up the courage to talk to her boss about her buying the shop. Soletrader • Question Time • What is meant by the term ‘sole trader’. (2 marks) • Explain one advantage of Patricia running the shop as a sole trade (2 marks) • Explain one disadvantage of Patricia running the shop as a sole trader. (2 marks) • Identify and explain three skills Sarah would need to operate the shop as a sole trader? (6 marks) 1.4 Legal structure

Partnerships • A partnership is where 2-20 people run the business • Each partner is equally responsible for debts incurred. • Each partner will take a share of the profits • Each partner usually shares in the decision making. • ‘Sleeping’ partners invest in, but do not run, the business. Partnership 1.4 Legal structure

Benefits Risks and responsibilities are shared More specialist skills Competitors can’t see your accounts Easier to raise finance than a sole trader Drawbacks Unlimited liability Arguments can occur between partners If a partner dies, resigns or goes bankrupt the partnership is dissolved Trust becomes a significant element between partners PartnershipsBenefits and disadvantages of being a partnership Partnership 1.4 Legal structure

Limited companies Ltd Plc Any member of the public can buy shares Only friends & family can buy shares

Private Limited Companies • Private Limited Companies have Ltd. after the company name. • They can have one or more members e.g. shareholders • The shareholders are often family members and have a say in the running of the company ltd 1.4 Legal structure

Starter • Spend 1 minute thinking of all the facts about one type of business ownership (partnership / private limited companies / public limited companies) • Spend another minute discussing with your partner your type of business ownership • Feed back to the class

Private Limited Companies Private Limited Companies exist in their own right. The owners and the company are separate legal entities. Therefore, the company’s finances are separate from the owner’s personal finances. Shareholders are the owners of Private Limited Companies. Shareholders have limited liability – they are not responsible for the company’s debts. Shareholders can only lose the money that they have invested in the business in the form of shares. ltd 1.4 Legal structure

Private Limited Companies Incorporation Private Limited Companies must be registered (Incorporated) at Companies House. . They must send to the Registrar of Companies the following: • A Memorandum of Association – name, registered office and what the company will do • Articles of Association – the rules of running the company They must deliver to Companies House each year a true and fair set of accounts ltd http://www.youtube.com/watch?v=CG2T7upUVAk&NR=1 1.4 Legal structure

Benefits Limited Liability Increased sources of finance More expertise available Difficult for hostile takeovers to occur Drawbacks Competitors can see financial information Difficult to sell shares for individual shareholders – other shareholders have to agree Greater legal constraints Can’t sell shares to the general public Private Limited CompaniesBenefits and disadvantages of being a Private limited company ltd 1.4 Legal structure

Choosing the appropriate legal structure Sarah has spoken to Patricia about her idea of buying the shop and was delighted by Patricia’s response. Patricia was thrilled to think the business she had built up would continue to exist after her retirement and started the process of valuing the business. That night Sarah told her boyfriend Bobby of her idea. Bobby had just been made redundant and offered to share the business with Sarah, thinking they could set it up either as a partnership or a limited company. • Question time • What is meant by the term ‘partnership’? (2 marks) • What is meant by the term ‘limited company’? (2 marks) • Explain 2 advantages of Sarah accepting Bobby’s offer of sharing the business. (4 marks) • Explain 2 drawbacks of Sarah accepting Bobby’s offer of sharing the business. (4 marks) 1.4 Legal structure

Plc • Any member of the public can buy shares in a Plc. OK, You have 2 minutes to find out as much as you can about a Plc End

Co-Operative Co-operatives are groups of people who agree to work together and pool their resources. OK, You have 2 minutes to find out as much as you can about a Co-Operative End

Do you want to start a business? The easiest way to start a business is becoming a ____________. This is a type of business ownership, when an entrepreneur ‘rents’ the idea of a business from another company.

Franchises • A franchise is when one business (the franchisor) gives another person or business (the franchisee) the right to trade using its name and to sell its products or provide its services • The franchisee normally pays a licence fee and a percentage of profit to the franchisor 1.1 Starting a Business Enterprise

Your task… You are interested in becoming a subway franchisee. • Explain why you want to become a Subway Franchise (what are the advantages) • What hesitations do you have about becoming a Subway Franchise? • Where would you like to set-up your Subway Restaurant. Why? http://www.youtube.com/watch?v=vaTHDa5jqDI

Franchises • Advantages • Lower risk option • Already established • Recognised brand • Help and support • National advertising and promotion • Tried and tested • Disadvantages • Set up and running costs can be high • Share profit • Reliant on others • Less independence in decision making • Damage to brand reputation 1.1 Starting a Business Enterprise

Tessa runs a chain of three tea shops in the Lake District, each called Tea Time Treats, followed by the name of the closest lake e.g. Tea Time Treats in Windermere. The tea shops have built a up a good reputation for fine quality teas and delicious home made cakes to eat in or take away. Tea Time Treats is now featured in many tourist guides for the area, always with rave reviews. Tessa is now keen to expand the business and is considering offering the Tea Time Treat name as a franchise. • Question time • What is meant by the term franchise? (2 marks) • Would Tessa be the franchisor or franchisee? (1 mark) • Explain two reasons why an entrepreneur might choose to buy a franchise from Tea Time Treats (4 marks) 1.1 Starting a Business Enterprise

2 Minute Test • State 2 reasons why businesses exist • State 2 sources of business ideas • What name is given to a not for profit business? • What name is given to a gap in a market? • State two reasons for starting a business • State two advantages and two disadvantages of a franchise End 1.1 Starting a Business Enterprise

Your Task • You need to make a poster, for ONE type of business ownership. This poster must contain: • Definitions • Advantages • Disadvantages • Pictures / Diagrams

Business Ownership