Types of For-profit (Commercial) Businesses (SL IB Business Management)

Sole Trader

• A business that has a single owner (although they may still hire employees)
• Sole traders often run their business alone and require a varied skillset

• Easy and inexpensive to set up
  
  
• The owner has complete control over the business
  
  
• All profits belong to the owner
  
  
• Simple tax arrangements
  
  
• Decisions can be made very quickly so the business can react swiftly to market change
  
  
• High levels of personal satisfaction

• Unlimited liability, meaning the owner is personally responsible for any debts the business incurs
  
  
• Limited access to finance and capital
  
  
• Limited skill sets
  
  
• Difficult to take time off from the business

Partnership

• Two or more people join together to form a business
• Good examples of this type of business include lawyers and accountants
  
  
• A partnership agreement sets out the rules of the partnership such as
  • dissolution of the partnership
  • how profits are to be distributed between partners
  • voting rights of partners

• Easy to set up and inexpensive
  
  
• Shared responsibilities and decision-making
  
  
• More skills and knowledge are available
  
  
• Increased access to finance and capital

• Unlimited liability
  
  
• Potential for disputes between partners as decisions need to be agreed
  
  
• Profits are often shared equally, regardless of the contribution
  
  
• Difficult to transfer ownership

• The ownership of the business is broken down into a specified number of shares
  
  
• These shares can be sold by the owner, usually to friends and family or to venture capitalists
  
  
• Decision-making often rests with the person appointed to run the company, often called the Managing Director or CEO
  
  
• The business is a separate legal entity to its shareholders and can own assets in its own rights and is responsible for its debts
  
  
• Private limited companies are often family-owned
  
  

• Limited liability, meaning the owners are not personally responsible for the company's debts
  
  
• Access to greater finance and capital as the company is considered to be more reputable
  
  
• Easier to transfer ownership by selling shares
  
  
• Can have a professional image and reputation

• More expensive and time-consuming to set up
  
  
• More complex legal requirements and regulations than sole traders
  
  
• Annual financial reporting and auditing are required
  
  
• Less privacy as external stakeholders can access some financial data
  
  
• Shareholders have little control over the company as the founder or CEO usually imposes their agenda

Shared Risks

• Significant amounts of capital can be raised very quickly 
  
  
• This is often a more cost effective way to raise capital than borrowing money from banks or other lenders

• The risks associated with ownership are spread among a larger group of shareholders
  
  
• This reduces the financial risk to any individual

• A company's shares become more liquid (they can be bought and sold more easily) on a public stock exchange
  
  
• This can increase the value of the company's shares and make it easier for shareholders to buy/sell shares

• The company will have a board of directors made up of independent directors and representatives from major shareholders
  
  
• This can bring in additional expertise/perspectives which can help the company grow and expand

• Becoming a PLC can raise a company's public profile and increase its visibility with customers, suppliers, and potential investors
  
  
• This increased visibility can help the company attract new business and grow its customer base

• Shareholders can sell their shares, transfer ownership or pass them on to heirs
  
  
• This makes it easier to plan for the long-term continuity of the company