Forms of businesses 1&2
Sole trader( one owner)
Able to hire any number of staff and easy to set up as there are no legal
formalities. However there are legal responsibilities such as:
- May need to pay income tax
- May need planning permission
- May need a licence to trade if they're involved in selling
alcohol,taxi service or public transports
- Legally required to provide safe working conditions
Sole traders have unlimited liability.
This means if a business fails, has debts or is sued the owner will have
the problem. If there are no retained profits within the business the
owner would need to pay using their wealth.
Adv D.adv
● Business is independent ● Unlimited liability
and owner has all control ● Difficult to raise finance as
● Owner keeps all the profit lenders see them as too
● Easy to set up risky to offer credits
● Able to offer personal ● Can’t achieve economies of
service as the business is scale(due to lack of cash
small and storage)
● More flexible as the ● Can be a burden to be
decisions can be made independent of owner is ill
quickly to respond to
changes
Partnerships( group of individuals who share risks,costs,profits and
responsibilities.)
The profits are shared among partners relative to the % of their
investment. There are no legal formalities however partners may draw a
DEED OF PARTNERSHIP which is a legal document that covers issues
such:
-how much capital each owner will contribute
-how profits and losses will be shared
, -how much control each partner has
-the procedure of ending the partnership
-rules for taking on new partners
And if there's no deed of partnership drawn then partners will be subject
to the Partnership Act.
Adv D.adv
● Easy to set up as there's no ● Unlimited liability
legal formalities ● Shared profit
● Can contribute to different ● Disagreements
skills/partners can specialise ● Partners have limited growth
in their area of expertise potential
● Shared burden and
decisions
● Easier to raise capital as
each owner has their own
sources of finance
● Does not need to publish
financial information
Not having to publish financial information gives a business a powerful
strategic edge. It allows the company to keep its performance, costs,
and future plans confidential, which protects it from competitors and
reduces outside pressure. With fewer reporting obligations, the business
can operate more flexibly, make long‑term decisions, and negotiate from
a stronger position. Overall, financial privacy helps a business maintain
control, protect sensitive data, and strengthen its competitive advantage.
Limited companies:
-capital raised by selling shares and each shareholder owns a nr of
shares and is entitled to vote on important business decisions they are
also paid a dividend. More shares=more dividends from profits.
-owners have limited liability meaning if a business has debts or fails the
owners can only lose the original amount invested in the business they
cannot be forced to pay using their personal savings.
- need to pay corporation tax
Sole trader( one owner)
Able to hire any number of staff and easy to set up as there are no legal
formalities. However there are legal responsibilities such as:
- May need to pay income tax
- May need planning permission
- May need a licence to trade if they're involved in selling
alcohol,taxi service or public transports
- Legally required to provide safe working conditions
Sole traders have unlimited liability.
This means if a business fails, has debts or is sued the owner will have
the problem. If there are no retained profits within the business the
owner would need to pay using their wealth.
Adv D.adv
● Business is independent ● Unlimited liability
and owner has all control ● Difficult to raise finance as
● Owner keeps all the profit lenders see them as too
● Easy to set up risky to offer credits
● Able to offer personal ● Can’t achieve economies of
service as the business is scale(due to lack of cash
small and storage)
● More flexible as the ● Can be a burden to be
decisions can be made independent of owner is ill
quickly to respond to
changes
Partnerships( group of individuals who share risks,costs,profits and
responsibilities.)
The profits are shared among partners relative to the % of their
investment. There are no legal formalities however partners may draw a
DEED OF PARTNERSHIP which is a legal document that covers issues
such:
-how much capital each owner will contribute
-how profits and losses will be shared
, -how much control each partner has
-the procedure of ending the partnership
-rules for taking on new partners
And if there's no deed of partnership drawn then partners will be subject
to the Partnership Act.
Adv D.adv
● Easy to set up as there's no ● Unlimited liability
legal formalities ● Shared profit
● Can contribute to different ● Disagreements
skills/partners can specialise ● Partners have limited growth
in their area of expertise potential
● Shared burden and
decisions
● Easier to raise capital as
each owner has their own
sources of finance
● Does not need to publish
financial information
Not having to publish financial information gives a business a powerful
strategic edge. It allows the company to keep its performance, costs,
and future plans confidential, which protects it from competitors and
reduces outside pressure. With fewer reporting obligations, the business
can operate more flexibly, make long‑term decisions, and negotiate from
a stronger position. Overall, financial privacy helps a business maintain
control, protect sensitive data, and strengthen its competitive advantage.
Limited companies:
-capital raised by selling shares and each shareholder owns a nr of
shares and is entitled to vote on important business decisions they are
also paid a dividend. More shares=more dividends from profits.
-owners have limited liability meaning if a business has debts or fails the
owners can only lose the original amount invested in the business they
cannot be forced to pay using their personal savings.
- need to pay corporation tax
