4.
1 – Main features of forms of business organization
Unincorporated Business – A business that does not have a separate legal identity
from its owner(s) e.g. If the business is sued, the owner is responsible and may need to
cover the cost with their own personal money.
PS: Partnership and Sole traders are unincorporated Business
Incorporated Business – Business that has a separate legal identity from its owner(s)
e.g. If the business goes bankrupt, the owners won’t be held responsible and only lose
the money they invested.
Unlimited Liability – (Owners are held liable for the business. If the business goes into
debt, the owner needs to pay back with their own money.
Limited Liability – (Opposite of Unlimited liability, If a business fails, the owners only
lose what they invested)
Main forms of business organizations
Unincorporated Businesses
● Sole Trader – Owned and operated by one person.
Advantages
● Cheap and easy to startup
● Full control of your own business
Disadvantages
● Unlimited Liability
● If the owner dies, the business no longer exists
● Less money / difficult to expand business
● Partnership – Similar to a sole trader but there are 2 owners.
Advantages
● 2 Owners mean that more money can be invested
● Less work since tasks can be done by 2 owners.
● Losses can be distributed among the 2 owners
Disadvantages
● Unlimited Liability
● If one owner dies/quits, the business no longer legally exists.
● There can be disagreement between the 2 owners.
Incorporated Businesses
● Private limited company (LTD) – Owned by shareholders.
Advantages
● Limited Liability to all shareholders
● Capital can be invested by many shareholders
● Cheaper to set up than public limited companies
● Continuity of existence – If the business owner dies, the business still exists.
Disadvantages
● Slower to startup (many legal documents needs to be signed)
● Shares can only be sold to family and friends
● Other shareholders need to agree before shares can be sold
● Public limited company (PLC) – Similar to a private limited company but
shares can be sold to the public. Great for large companies.
Advantages
● Limited Liability
● Shares can be sold to the general public without permission (Capital (Money)
can be raised quickly)
● Continuity of existence
● Company can grow and expand quickly
Disadvantages
● Complicated legal documents (Wastes money and time)
● Expensive to start up
● Company can grow large very quickly which will be difficult to control
● Original owners of the business may lose control of the company
● Shareholders may vote who manages the business in AGM (loss of control)
Annual General Meeting (AGM) – Meeting that must be held every year for
shareholders to vote for the company’s next directors.
Shareholders – Owners of a limited company, they buy shares which represent the
percentage they own of the company.
Franchising
Franchisor – Company that owns the original business, Franchisors sell the franchise to
a franchisee
Advantages
● Make money from selling the business’ name to franchisee
● Quick growth of the brand
● Operation of the business is the franchisee’ responsibility
Disadvantages
● If one franchisee has a bad reputation, the entire franchise will be affected
e.g. If one Mcdonalds store serves bad food, all the other Macdonald stores
will have a bad reputation.
● Profit from franchised stores are kept by the franchisee
Franchisee – Someone who buys a franchise from the franchisor to use the brand name
Advantages
● Less chances of failure since the business is well known.
● Most of the advertisements are paid by the franchisor
● Less decision making is required from the franchisee e.g. food recipe is
already planned from franchisor
● Staff training may be provided from franchisor
Disadvantages
● Franchisee won’t be able to make own decisions e.g. come up with own menu
● Franchisee needs to pay the franchisor to use brand name
Joint Ventures – 2 or more businesses start a new project together.
Advantages
● Costs can be shared amongst the companies
● Knowledge and skills from more than one company
● Risks are shared (If the project fails)
Disadvantages
● Profit is shared
● Businesses may disagree with each other.
