03

Sole Traders, Partnerships, Social

Enterprises and Franchises
 Classification of Business (1)

 According to the industrial sector,

• Extractive • Manufacturing • Service Industries

• Exploits natural industries
resources • Uses raw materials to
• Provide raw material manufacture goods
to other businesses

Primary Secondary Tertiary

 Classification of Business (2)

 According to the size (number of workforce, sale turnover, market

capitalization, power usage etc.)

By Number of employees

Business Category EU USA

Large 250+ 500 +

Medium 50 - 249 100 - 499

Small 10 - 49 10 - 99

Micro < 10 <10

 Classification of Business (3)

 According to the ownership,

Social Enterprises (e.g.

Private Enterprises State-owned enterprises
INGO)
 Classification of Business (4.1)

 According to the legal structure/status,

Unincorporated Incorporated

Where there is no legal distinction between the That has a separate legal identity
owner and the business. (separate legal identity from that of its owners.
from that of its owners) The business can sue, be sued,
Everything is carried out in the name of the owner. taken over or liquidated.
These businesses tend to be small and owned by Often called limited companies and
one person, or a small group of people. the owners are shareholders.

Unlimited liability: Owner of a business is personally liable for all business debts
 Classification of Business (4.2)

 According to the legal structure/status,

Corporation
Sole trader Partnership (Company) Franchise

Owned by a Owned by two Private Provides

person or more Company products
people Public through

company franchisee
 Sole Traders (1)

 The simplest form of business organization, owned by a single person.

 It has one owner but can employ any number of people.

 Setting up as a sole trader is simple because there are no legal requirements.

 However, all sole traders have unlimited liability.

 This means that if the business fails a sole trader can lose more

money than was originally invested.

 This is because a sole trader can be forced to use personal wealth to

pay off business debts.

 Sole Traders (2)

 Sole traders may be involved in a wide range of business activity.

Primary sector • Farmers or fishermen

Secondary sector • Small builders or manufacturers

• Most sole traders are found in this sector.

Tertiary sector • Retailers running small shops, and others offering web
design, tutoring, hairdressing, taxi driving, garden
maintenance and so on.
 Sole Traders (3)

The owner keeps all the profit. Have unlimited liability.

They are independent - owner has May struggle to raise finance -
complete control. considered too risky by those that
It is simple to set up with no legal lend money.
requirements. Independence may be too much of
Flexibility - for example, can adapt a responsibility.
to change quickly. Long hours and very hard work.
Can offer a personal service Usually too small to exploit
because they are small. economies of scale.
May qualify for government help. No continuity - the business dies
with the owner.
 Entrepreneurs (1)

 People who take risks and set up a new business

Innovators

Risk Takers Organizers

Decision
Makers
 Entrepreneurs (2)

• Introduces changes and new ideas.

• Try to make money out of a business idea that come
Innovators • 1) from spotting a gap in the market, a new invention or
market research.
• 2) by copying or adapting what another business does.

• They buy or hire resources, such as materials, labour

(people employed in a business/used in the production) and
Organizers equipment to make their products.
• Involves giving instructions, making arrangements and
setting up systems.
 Entrepreneurs (3)

• They risk losing any money they put into the

business, and possibly more, if it fails.
Risk Takers
• However, if the business is successful, they will be
rewarded with profit.

• Since entrepreneurs are the owners, they have to

make all the key decisions: how to raise finance,
Decision Makers product design, choice of production method, prices,
recruitment and wages.
 Partnership (1)

 A partnership exists when between 2 and 20 people own a business together.

 The owners will share responsibility for running the business.

 They also share the profits.

 Professions such as accountants, doctors, estate agents and solicitors are

often partnerships.

 There are no legal formalities to complete when a partnership is formed.

 However, partners may produce a deed of partnership.

 Deed of Partnership

 This is a legal document that states partners' rights in the event of a dispute.

 It states:

1) how much capital each partner will contribute

2) how profits (and losses) will be shared among the partners

3) the procedure for ending the partnership

4) how much control each partner has

5) rules for taking on new partners.

 Advantages & Disadvantages of Partnership

Easy to set up and run - no legal Partners have unlimited liability.

formalities. Profit has to be shared.
Partners can specialise in their area Partners may disagree and fall out.
of expertise.
Any partners' decision is legally
The job of running a business is binding on all (agreement has been
shared. made, and certain actions are now either
required or prohibited by law).
More capital can be raised with
more owners. Partnerships still tend to be small.

Financial information is not

published.
 Limited Partnership

General Partners Limited/Sleeping Partners

• partner with • Provide capital but take no part in the management of the
unlimited liability business.
• Involves in the • Have limited liability and can only lose the original amount
operation of the of money invested.
business • This type of partner is called a sleeping/limited partner.
• However, even with a limited partnership there must always
be at least one
 Franchise

 A type of business where a company with a successful product/service (the

franchisor) sells another company (the franchisee) permission to sell that

product/service in a given area.

 This may suit someone who wants to run a business but does not have their

own business idea.

 Examples of some international franchises are McDonald's, , Subway and Avis,

the car rental business.

 What does the franchisor offer the franchisee?

1) A licence to trade under the recognised brand name of the franchisor.

2) A start-up package including help, advice and essential equipment, usually
including branding materials.
3) Training in how to run the business and operate the systems used by the
franchise.
4) Materials, equipment and support services that are needed to run the business.
5) Marketing support that is organised on behalf of all franchisees.
6) An exclusive geographical area in which to operate: the business will not face
competition from other franchisees in the same franchise group.
 Franchisee has to pay

1) A one-off start-up fee.

2) An ongoing fee (usually based on sales).

3) Contribution to marketing costs.

4) Franchisors may make a profit on some of the materials, equipment and

merchandise supplied to franchisees

 To the Franchisee

Less risk - a tried and tested Profit is shared with the

idea is used. franchisor.

Back-up support is given. Strict contracts have to be

Set-up costs are predictable. signed.

National marketing may be Lack of independence - strict

organised operating rules apply.

Can be an expensive way to

start a business.
 To the Franchisor

Fast method of growth. Potential profit is shared with

Cheaper method of growth. franchisee.

Franchisees take some of the Poor franchisees may damage

risk. brand's reputation.

Franchisees more motivated Franchisees may get

than employees. merchandise (goods that are being

sold) from elsewhere.

 Social Enterprises (1)

 Aim to improve human and environmental well-being rather than make a profit for
owners.
 They are sometimes referred to as not-for-profit or non-profit organisations.
 Generally, social enterprises:
1) have a clear social and/or environmental mission
2) generate most of their income through trade or donations
3) reinvest most of their profits
4) are majority controlled in the interests of the social mission
5) are accountable (responsible for the effects of your actions and willing to explain or be criticised

for them) and transparent (language or information that is clear and easy to understand)
 Social Enterprises (2)

Charities
Cooperative:
Company, factory or organisation Organisations that give money,
in which all the people working goods or help to people who are
there own an equal share of it poor, sick or in need

Members can buy shares which Rely on donations for their

entitle them to elect directors to revenue.
make key decisions. May organise fundraising events
Any profit made by the such as cake sales, sponsored
cooperative is given to members. activities etc.

Some run business ventures such

as charity shops.
 Cooperative

Consumer cooperative: owned by its customers

Retail Cooperative: cooperative of retail members, who often work

Cooperative: together to assert their purchasing power

Worker cooperative: owned by its employees

Examples might be a wine growing or milk producing cooperative.
Workers will contribute to production and be involved in decision
making, share in the profit and provide some capital when buying a
share in the business.
 Age UK - Charity

 Charities exist to raise money for 'good' causes and draw attention to the needs

of disadvantaged groups in society.

 A charity that raises money on behalf of senior citizens.

 It also raises awareness and comments on issues, such as cold weather

payments (payments made to elderly people in the UK for heating during

cold weather).
ANY QUESTION!