Types of businesses, their objectives, and legal structures
Types of Businesses
- Sole Traders: These are businesses owned and managed by one person. They keep all business profits after tax but are also personally liable for all business losses and debts.
- Partnerships: Include two or more owners who share the profits, losses, and responsibility of running the business. Each partner is liable for the business's debts.
- Private Limited Companies (Ltd): These are separate legal entities from the owners. They're owned by shareholders who invest capital for a return, usually dividends. Shareholders have limited liability.
- Public Limited Companies (Plc): Similar to Ltd companies, but shares can be traded on the stock exchange. This allows for larger amounts of capital to be raised, but shareholder pressure can impact decision making.
- Cooperatives: Owned and run by their members who have equal voting rights. Profits are often shared amongst the members.
- Franchises: A type of business where a successful business model is duplicated by a franchisee who pays fees or a percentage of profits to the original business owner (franchisor).
Business Objectives
- Profit Maximisation: The goal of maximising the difference between total revenue and total costs.
- Sales Maximisation: The aim to sell as many units of a product or service as possible, without making a loss.
- Survival: A short-term objective for new businesses or those facing tough competition.
- Increasing Market Share: Achieving greater sales than competitors in the same market.
- Social and Ethical Objectives: Environmental sustainability, ethical sourcing, charitable giving, and social responsibility can all be business objectives.
Legal Structures
- Sole Trader: The owner and the business are legally the same entity. The owner is personally responsible for all business debts.
- Partnership: As with sole traders, partners are personally liable for business debts, but this liability is shared between them.
- Limited Liability Partnership (LLP): A hybrid structure offering limited liability to partners and flexibility in internal structure.
- Private Limited Company (Ltd): Owners have limited liability, and the business's finances are separated from personal finances. Shareholders can only sell shares privately.
- Public Limited Company (Plc): Shares can be sold to the public, allowing for larger capital raising, but at a greater regulatory scrutiny.
- Social Enterprises and NGOs: Legally structured in various ways. Income is used for a social or public purpose.