Notesale: Turn your study into money

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Sole traders, Partnerships, and Franchises
Entrepreneurs

Unlimited liability- If the business fails,the sole
trader will lose more money that was originally
invested
...
Innovators-They make business out of this idea
...
Risk takers-They risk losing money they put into the business if it fails and if it
succeeds they will be successful
3
...
Organisers-They are responsible for organising other factors of production
...
Everything is carried out in the name of the owner(s)

• These businesses are usually small and owned by one or a group of people
Incorporated businesses-Limited companies

•
•
•
•

These businesses have a separate legal identity from that of its owners
...

The owners are shareholders

Sole trader
• It is a business owned by one person
• Have unlimited liability
Advantages

Disadvantages

All profit made is kept by the owner

Unlimited liability

Independence-complete control

Long hours and hard work

Simple to set up with no legal requirements

Too small to exploit economies of scale

Can offer personal services since they are small

No continuity- Business dies with owner

Enjoys tax advantages as a small business

Access to a variety of financial sources are limited

Sleeping Partner- A type of partner in a limited
partnership that provides capital but does not
take part in the management of the business

Partnership

• A partnership exists when a business is jointly owned by 2-20 people
...

Deed of partnership includes:
1
...
How profits and losses will be shared amongst partners
3
...
How much control each partner has
5
...
These partners will have limited liability and can only lose the original amount
of money invested
...
However,with every
sleeping partner,there must be at least one partner whose liability is unlimited
Franchises
• This is where a business owner allows another operator to trade under the original
owners name
What does the franchisor offer the franchisee?
• A license to trade under the recognised brand name of the franchisor
• Training in how to run the business and operate the systems used by the franchise
• Marketing support
• Advice on location where the business is away from competitors
What the franchisee has to pay certain fees like:
• A start-up fee - a lump sum
• An ongoing fee- based on sales
• Contribution to marketing costs

Advantages to franchisor

Disadvantages to franchisor

Fast method of growth

Potential profit is shared with franchisee

Cheaper method of growth

Poor franchisees may damage brands reputation

Franchisees take some of the risk

Franchisees may get merchandise from elsewhere

Franchisees are more motivated than employees Cost of support for franchisees may be high

Advantages to franchisee

Disadvantages to franchisee

Less risk associated with the business

Profit is shared with the franchisor

Backup support is given

Strict contracts have to be signed

Setup costs are predictable

Lack of independence- strict operating rules

National marketing maybe organised

Can be an expensive way to start a business

Setting up a Limited Liability Companies
- Two documents are required and have to be submitted to the Registrar of Companies
- Memorandum of Association
- Articles of Association
Memorandum of Association
-Name of company
-Registered business address
-Amount of share capital
-Outlines the company’s operations
Articles of Association
- Shareholders’ voting rights
- Details and duties of the directors of the company
- Transferability of shares
- Details and procedures for the Annual General Meeting
- How profits are to be distributed
- Procedures for closing the company
Certificate of Incorporation- A document issued to the limited company so that it can start
trading

Limited Companies
Advantages

Disadvantages

Shareholders have limited liability

Financial accounts must be filed and audited and
other documents have to be sent to the Registrar of
Companies
...

- EG- Nike
Advantages

Disadvantages

Economies of scale can be exploited

Rules and regulations of different countries maybe
unfamiliar- hence problems arise

Creates jobs for people and improves living
standards in the countries that they operate in

Effective communication is difficult due to language
differences if workers are located in a different
country

By producing in another country, MNCs are able
to avoid any trade restrictions

Have been criticised so bad reputation— due to
harsh cost cutting techniques



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