Types of business Essay
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A sole trader is one who is wholly responsible for his business and hence has complete control over it. He keeps all the profit generated from the business and runs the business according to his own will. He does not have access to substantial capital for expansion; he does not have anyone to manage his business affairs and therefore has to do all the work by his own. Sole proprietorship has unlimited limited which means he will have to sell his own assets apart from business in order to pay back the debts.
Partnership: the Business is run by partners who share the profit and loss according to the share of capital put into the business.
It is run by mutual ideas of the partners. They can overcome each other weakness which can be helpful in making the business more profitable. They loss form the business is shared among the partners. One of the disadvantages is that the profit generated from the business has to be shared among the partners .
The partners may get into conflict when making any decision. Corporation: There are two types of corporations. Private limited and Public limited. Private Limited corporations are those where the shareholders have limited liability and the shares of the corporate may not be offered to the general public.
One of the major advantages of private limited company is that the corporation is separated from management and its members (the shareholders). Another advantage is that all the shareholders have limited liability that means only there share in the business is at stake and they are not liable to pay back the debt from their own property. Disadvantages may be that all the decisions have to be consulted with every shareholder that takes time and effort. The other form of corporation is the public limited corporation where the ownership is held by the public .
The company has limited liability; a public limited corporation has a greater access to financial institutions for loans which is not the case with sole traders or partnership. With so many shareholders, they can all contribute their ideas for the benefit of the company. The disadvantages of a public limited company is the double taxation , at first the company has to pay the corporation tax on the profit earned and then the shareholders pay the tax on the dividends they get . Second advantage of a public limited company is that there are many legal formalities involved in setting up.
The third disadvantage may be that the public limited corporation is bound to disclose all the financial information to its shareholders that takes a lot of time, effort and money. (Cinnamon and Larsen, 2006) Franchising: It is a method by which a person uses a business name that already exists. The person who takes the name is know has franchisee and the person who owns that business is know as franchisors. The franchisee in order to get authorize to use the name of the business has to pay a fees and a percentage of gross monthly sales. Sherman , 2004)
Advantage to the franchisor may be that it can come near to the market by giving out the name to a franchisee. For a franchisee the advantage may be that he can earn from a business that already exists and is well renowned. Disadvantage for the franchisor is that the franchisor has to keep in eye on the quality of the products available in the franchise and also on the customer service given by the franchisee. For a franchisee the disadvantages may be that he has to give some profit to the franchisor. (Sherman , 2004)