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Forms of Business
types of businesses
| Term | Definition |
|---|---|
| Sole Trader | runs a business on his/her own. Businesses can be set up straight away if trading under the owner's name. |
| Private Limited Company | Owned by between two and fifty shareholders, who have a vote for every share they own. |
| Co-Operative | Owned and managed by their members, who each must own at least one share |
| State-owned Company | Set-up and run by the government. A Minister is responsible for each company. |
| Memorandum of Association | States the relationship between the company and the general public and contains Name of the company, including Ltd or Teo, Objectives of the company, Statement declaring the liability of the shareholders |
| Articles of Association | States the internal rules and regulations of the company and contains Voting rights of the shareholders, Procedures for calling meetings and electing directors, Details of share capital (nominal and authorised), Borrowing power of the company |
| Advantages of a Private Limited Company | Shared responsibility. Shareholders only lose what they have invested. Private assets cannot be sold to cover debts. Continuity even if a shareholder dies. |
| Disadvantages of a Private Limited Company | More costly to set up than a sole trader. Profits are shared between the shareholders (in the form of a dividend). Legal requirements with respect to formation are complex. Shares cannot be sold on the stock exchange. |
| Advantages of a Sole Trader | Easy to set up. Can keep all the profits and make all the decisions. May know customers personally. |
| Disadvantages of a Sole Trader | Unlimited liability. May have to sell personal assets to cover debts. Has to provide the capital and suffer all losses. Responsible for all areas of business. No continuity |
| Advantages of a Co-Operative | Members have only one vote no matter how many shares they own. Everyone has an equal say. Members have limited liability. |
| Disadvantages of a Co-Operative | No incentive to invest more money as a member has only one vote, regardless of the number of shares. May lack finance and business expertise. May be too small to compete successfully. |
| Advantages of a State-owned Company | Any profits go to the government or are re-invested. Provides employment and essential services. Can run essential services where otherwise there would be none due to high costs. |
| Disadvantages of a State-owned Company | May operate at a loss and require government funding. May be monopolies which, due to lack of competition, become inefficient. |
Created by:
pdsteconomics
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