Types Of Business Organisations

ECONOMY IN THE UK

• Mixed’ economy

 Public sector : Industries and services are owned and controlled by the state

(=Coal, steel, rail transport, health and education)

 Private sector : Industries and services are owned and controlled by private enterprise

(=Nearly all commercial and financial services)

THE SOLE TRADER (=Sole proprietor)

• Definition

 Person in business for himself

 Provides his own capital

• Who ?

 Retail : Electricians, florists, plumber

 Direct services : window-cleaning, babysitter, interior decorating

• Advantages

 The owner can be his own boss

 Receives all profits

 Capital : little to start the business

 Very few legal requirements to respect

 Sole trader’s accounts are not published  Financial information remains confidential

 Decisions can be taken rapidly

 Direct contact with the customers

• Disadvantages

 Assumes all debts (No one share the risk)

 Capital : Difficult to raise finance for expansion of the business

 Work takes a lot of time

 The business would be nothing without the sole trader

 The owner is expected to deal with all aspects of the business (marketing, finance …)

Partnerships are a type of business unit composed of 2 to 20 persons, which help smaller businesses to expand. One of the main reasons for entering into partnership is to provide more initial capital for the business than would be possible in the case of the sole trader. Another reason is that partners can also help in organising and managing the business, but the responsibility lies with all the partners and any decision taken by one partner must be honoured by all the others. Sometimes the partners bring special skills (such as an accountant in a partnership of architects) and they share the risks. They also share the profits, which are usually shared by agreement. A partner who contributes more capital will receive a bigger share of the profits. If there is no agreement the profits and losses must be shared equally by the partners under the conditions laid out in the Partnership Act 1890.

Most partnerships are set up using a partnership agreement which usually includes the following :

- the capital to be contributed

- the ratio in which the profits and losses are to be shared

- the salaries that are to be paid to the partners

There are two types of partnerships:

An “Ordinary Partnership” in which all the partners are actively involved in running the business and making decisions. Each partner faces unlimited liability in the event of the business making a loss. This type of partnership is common to the accounting and legal professions.

A “Limited Partnership” means that not all the partners are involved in making decisions. Sleeping partners are partners who do not participate in the organisation and management but cannot lose more than their original investment if the business is a failure. However, at least one partner must have unlimited personal liability for the losses of the partnership.

This is the main disadvantage of partnerships; that ordinary or general partners have unlimited personal liability for losses and debts.

Advantages:

1. It allows greater specialisation.

2. New capital can be raised by admitting new partners.

3. Holidays are possible because the work is shared.

4. Financial information is not published.

Disadvantages

1. All partners except sleeping partners

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