A summary of some of the benefits and drawbacks of each of the more popular types of business ownership
Sole Trader
Advantages
- Quick Decision Making
- Keep all profits
- Total Control of all areas
Disadvantages
- Unlimited Liability (critically important!)
- Lack of fresh ideas
- Owner may need to know about all areas of the business
- Harder to raise finance
- May involve longer hours
- May be harder to take holidays
Partnerships
Advantages
- Specialisation / Expertise – do not need to know about all areas of business – each partner could focus on areas of strength
- Fresh ideas may mean better decisions
- Easier to raise finance than sole trader
- Leave others in charge
- Easier to take holidays
Disadvantages
- Unlimited Liability (critically important!)- responsible for other peoples debts too!! Joint and several liability!
- How to share the profits (although the profits may be larger than a sole trader!)
- Less control over company
- Slower decision making?
- Can they work together?
Private Limited Company (Ltd)
Advantages
- Limited Liability (important)
- Raising Finance is easier (due to reputation?)
- Enhanced reputation with suppliers and banks?
- Economies of scale
Disadvantages
- Loss of control for owners? 1 share = 1 vote (ordinary shares) so control may become diluted
- Decision making may be slower – Meetings to organise
- Sharing profits by paying shareholders dividends
- Legal obligations (increase in paperwork needed)
- Minimum share capital £50,000
- Not on the stock exchange so not as easy to raise finance as Plc.
- Harder to buy/sell shares as need to find buyer who the other shareholders are happy with
- Decision making slower – Annual General Meetings & Emergency General Meetings will/may need organising
- Need to appoint directors
Public Limited Company (PLC)
Advantages
- Raising large amounts of finance is easier
- Company reputation may give economies of scale
- Limited Liability
Disadvantages
- Decision making slower – Annual General Meetings & Emergency General Meetings will/may need organising
- Need to appoint directors
- Need to provide shareholder value (consider dividends and raising the share price) - divorce of ownership means a duty of care
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