Transcript Ownership - teachmebusiness.co.uk

Ownership
UK business ownership
Most businesses in the UK are privately owned.
This means:
• They are owned by private individuals
• These individuals risk their own money
• The owners’ reward is the profit they make.
Private ownership options
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Sole trader – 1 owner
Partnership – 2 people or more
Private limited companies – often a family-run
business with the protection of limited liability
Public limited companies – large organisations
whose shares are traded on the Stock Exchange
Franchises – small business trading with
agreement of large firm
Cooperatives – collectively owned by
workers/customers
Key difference
• Sole traders and partnerships have
unlimited liability. Owners are
responsible for all debts and may have
to sell personal possessions.
• Companies have limited liability.
Owners can only lose their investment
even if the company has huge debts.
Sole traders
Benefits
Drawbacks
• Easy to set up and give
a personal service
• Owner independent –
can make quick
decisions
• Minimum of paperwork
• Knows customers –
helps to avoid bad debts
• Unlimited liability
• Long hours, no cover
for holidays/sickness
• Capital may come
from savings
• Needs business skills
• Business ends on
death
Partnerships
Benefits
• Easier to raise capital
• Problems/ideas can
be discussed
• Greater range of
skills/expertise
• Cover for
holidays/sickness
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Drawbacks
Unlimited liability
Profits are shared
May be disagreements
Decisions/actions legally
binding on all partners
Death of a partner means
share needs repaying
Key points about companies
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Each company has its own identity in law.
The company employs staff, not the
owner(s).
The company owns assets, not the
owner(s).
The company operates until it is formally
wound up or goes into liquidation.
The company pays corporation tax on its
profits.
Private limited companies
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Benefits
Limited liability
Minimum of 1 director
and 1 shareholder
Easy to set up/affairs still
private
Easier to raise
capital/borrow from bank
Share transfers need
agreement of all
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Drawbacks
Cannot sell shares to the
public
More regulations to
comply with
Accounting procedures
may be more costly
Death of shareholder has
no effect on company
Public limited companies
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Benefits
Limited liability
Increased capital as
public can buy shares
Minimum of 2 directors
and 2 shareholders
Shares increase in value
if company successful
Operating large scale can
lower costs per unit
Drawbacks
• Many regulations to
comply with
• Accounts (and
problems) are public
knowledge
• Shareholders may sell
shares if dividends poor
• Original owner may
lose overall control
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Review of main types of
private
ownership
Sole traders
– suitable
for one person running small
business with low risk/little investment required
Partnership – suitable for professional groups,
husband/wife businesses, small business needing
different skills
Private limited company – suitable for family
business, essential if risk considerable, eg through
expensive stock
Public limited company – suitable for large
national/international operations
Private ownership review
Most private businesses are owned by sole traders,
partners or are companies.
Other alternatives are:
• Cooperatives – societies which operate for
the benefit of their members (whether
customers or workers).
• Franchises – where a large company allows
a small operator to trade on name in return
for share of profits.
Cooperatives
Benefits
• Each owner has equal
share/one vote
• Profits are shared
equally
• Can have limited
liability status
• Workers can decide
whether to be owners
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Drawbacks
Obtaining finance may
be difficult
Decisions by consensus
take time
‘Hard’ decisions may be
difficult to make
‘Equality’ can be hard
for good
leaders/workers
Franchise
Benefits
• Less risky than
starting own business
• Selling a known name
• Advice and guidance
available
• Owner keeps most of
profit
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Drawbacks
Share of profit goes to
franchisor
Franchisee must abide
by legal agreement
Only franchisor products
can be sold
Success very dependent
on popularity of product
Public ownership
• Term used for enterprises owned and
controlled by the state.
• Aim is to provide services needed by
everyone, regardless of income or
wealth, eg health and education.
• Mainly financed through taxation.
Examples of public ownership
• Central government departments, eg
Department of Health
• Local authorities and councils
• Public corporations, eg BBC, Bank of
England, British Nuclear Fuels
Owner liabilities 1
All owners must:
• Produce annual accounts
• Pay tax on profits
• Operate the business within the law
• Abide by specific agreements (eg
Partnership or Franchise agreement) or
trade/professional regulations relating to
their activity
Owner liabilities 2
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Sole traders/partners are personally liable
for debts
Shareholders in companies can lose
investment if business fails
Company directors can be held personally
liable in law in certain circumstances
Franchise operators may have to meet
specific sales targets.
Factors which influence
changes of ownership
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More capital required to finance expansion
or extend operations
More skills/abilities required
Greater security/less risk required
Change of business activity
Changes in legal regulations and
requirements