Legal forms of business 2015

1. Legal forms of businessLegal forms of business

2. Types of businesses
• Sole Trader
• Partnerships
• Private Limited
Company (LTD)
• Public Limited
Company (PLC)
• Co-operatives
• Franchises

3. Sole Trader
• An individual which trades under his/her own
name
• Is totally independent
• Makes all the important decisions
• Responsible for paying all of the debts
• Few formalities in setting up
• Can employ as many people as he/she wishes

4. Advantages of a Sole
Trader
• Decisions can be made quickly
• Leads to greater interest & more dedicated &
hard working owner
• Profits are kept by the sole trader
• Paperwork is minimal
• Easy to start trading as the sole trader

5. Disadvantages of a Sole
Trader
• Personally liable for all debts that it occurs
(unlimited liability)
• Less capital available for expansion
• Taxed at a higher rate than a private company
• May have difficulty in managing all business
functions
• When the sole trader dies so does the business
• Raising capital could be difficult for one person

6. Examples of Sole
Traders
• Corner shop
• Coffee shop
• Carpenters

7. Partnerships
• Can have between 2 & 20 partners
• A ‘deed of partnership’ can be used to
set out the rights of the partners
• Aim to make a profit

8. Examples of partnerships
• Doctors
• Accountants
• Solicitors

9. Advantages of a partnership
• More capital is available than for the
sole trader
• Better use of business expertise because
each partner can concentrate on what
they are good at

10. Disadvantages of
Partnerships
• Group decision making may cause conflict
between partners
• Like sole traders, partners have unlimited
liability so they are liable for all the debts of
the business
• Decision making can be slower which can lead
to inflexibility
• Profits must be shared

11. Your task
• Why is it important that a business
has a deed of partnership?

12. Key terms
Unlimited liability
The owners are personally responsible
for paying debts if the business goes
bankrupt
Limited liability
If the company goes into liquidation, the
shareholders of the company are not
responsible for paying the debts of the
business

13. Private Limited Company (ltd)
• A company that is a legal entity in its
own right
• It can be sued and can sue
• Shareholders own the business
• A group of people who buy the shares
are called the shareholders
• Cannot sell shares to the public

14. Public Limited Company
• Can sell their shares to members of the
public through the stock exchange
• No maximum limit of shareholders
• Must issue a prospective detailing the
history of the company & inviting the
public to buy shares

15. Public Limited Company
• Shares are bought & sold on the
stock exchange
• Accounts must be published and
audited on an annual basis
• An annual report must also be
compiled each year

16. Advantages of a public
limited company
• Limited liability
• Easier than private limited company to
raise capital
• They can attract top management
because of their public image
• Continuity of existence if a shareholder
dies

17. Disadvantages of a
public limited company
• High formation costs
• Accounts have to be published
• Profits must be distributed to shareholders
• Ownership & control are separated because
although the shareholders own the company the
Board of Directors make the decisions

18. Key Terms
Shares
• These are long term sources of finance
• Sold to people who become shareholders of the
company
• A plc is able to advertise its shares for sale to
the general public
• A private limited company must sell their
shares privately
Shareholders
• These are people who own part of the
Business

19. Sources of finance
• Internal sources of finance
• External sources of finance

20. Internal sources of
finance
• Retained profits
• Stock reduction
• Assets sale
• Limiting credit to customers

21. External sources of
finance
• Owners capital
• Hire purchase and leasing
• Overdrafts and loans
• Grants

22. What is a franchise?
• Involves paying a fee & agreeing to
produce goods exactly in accordance with
the franchise company’s policy
• Payments (royalties) are made on a regular
basis depending on profits made
• Training & supervision are provided

23. Your task
• Create a newspaper advert selling a
franchise
• Example:
A large McDonald’s restaurant for
sale as a going concern to suitable
franchisee
Excellent trading figures, full
training provided. Price £375,000

24. The public sector
• The public sector includes everything that
is owned by the government
• Examples-army, police force, schools &
hospitals
• Public means that they are owned by the
government for the benefit of the people
who run them

25. The private sector
• The private sector contains all the
businesses owned by private individuals
• Almost all the businesses you can think of
are in the private sector
• Private means that these businesses are
run for the benefit of the people who own
them – usually for profit

26. Strengths of the free market
private sector
• Employers & employees can create their
own personal wealth through the profit
motive & hard work
• A greater range of products are supplied
• People have greater freedom to choose &
but what they want
• Competition helps keep prices down &
encourages new ideas

27. Strengths of the planned public
sector
• Public services do not depend on the
profit motive & will be supplied even
at a loss
• The provision of basic services
available to all regardless of people’s
ability to pay them