Sole trader is a person who owns and operates their own business. They may or may not employ other people.
It is important to remember that a sole trader is usually a relatively small business with little capital available for expansion and the capital that has been invested comes from one source and that is the owner.
Sole traders are common businesses. Example of a sole trader business is a hairdresser.
Limited specialisation - as the owner has to be a purchaser, lorry driver and accountant there is no time for this person to specialise in all fields
Limited economies of scale - e.g. a small construction business would have to hire a lorry to do the required task as this would be cheaper but larger business would buy its own as this would prove to be cheaper due to the fact that lorry is in continuous use.
Sole Trader - a single owner of the business who has unlimited liability
Unlimited Liability - a legal obligation stating that the owner must settle all debts of the business. If the debt of a business is larger than his personal assets than they may be forced into bankruptcy
Economies of Scale - are the factors that cause average costs to be lower in large scale operations than in small scale ones.
Every limited company has a shareholers. The term limited company refers to the fact that if the company goes into debt each shareholder risks losing only the amount he has invested and his personal belongings are safe and can’t be touched.
Two documents required by Registrar of Companies to set up a limited company are:
The articles of association - this is basically the rule book of how the company must operate. It is agreed by the people setting up the business. The articles of association gives details such as voting rights of the shareholders, how the profit will be distributed, how decisions will be reached etc.
The memorandum of association - This is basically the CV of the company. It tells people what the business does and where it operates from. In it you could find the details such as the names of the companies and the addresses of their headquarters.
Divorce of Ownership and Control - this occurs when there is a disagreement between shareholders, managers and directors e.g. A manager of a MNC wants to invest in a country where a political situation is unstable but he thinks that the gains outweigh the risks but the shareholders disagree. If there is a continuos disagreement between managers and shareholders than this leads to Divorce of Ownership and Control
The main problem with worker CO-operatives is that there are too many managerial tasks so they bring in outsiders to perform these tasks e.g. Accountancy so soon enough the workers themselves find themselves bosses around by other agencies.
Franchisors tend to charge a fixed sum at the start of the franchise agreement to cover the costs of starting up a new branch, then they charge a fee or a percentage of the sales that the business has made.
Size - there are a lot of communication problems as the company has a complex hierarchy. The subsidiaries have been known to compete against each other due to the breakdown of communication within the its multinational structure.
Law and politics - different countries have different legal and political systems. It is very important for subsidiary to understand the system
Exchange rate fluctuations - MNCs sell their products in several different currencies. It can have an effect on their profits e.g. If the exchange rate is £1=3DM in month 1 and month 2 it was £1=4DM , it would be in parent companies best interest in order to maximise profit to withdraw its money on month 1 because they will only be paying 3DM for£1 where as in second month price goes up to 4DM for £1.