There are different types of business, distinguished by characteristics, their relationship with the market, and the responsibilities that the partners have inside the companies.
This is the simplest type of business. The term sole trade means that the business is set up by one person who is entirely responsible for his own business debts, that is to say he has Unlimited liability. The advantages of sole trader are that the owner can monitor everything personally, the owner receives all the profits and finally the owner can make decision quickly.
Instead the disadvantages are: unlimited liability means that the owner can lose all his personal assets if the business fails, there are limited resource of finance because all capital must be provided by one person and there is no one to share the workload or ideas with
A partnership can be formed to overcome the problems that a sole trade may have in raising capital. A partnership is formed when two or more people set up a business together, and share the responsibility for managing that business. The initial capital investment in the business is provided by the partners together.
There are two types of partnership. The difference is that the partners have, respectively, limited and unlimited liability.
Unlimited partnership (= Snc )
In this type of partnership, all of the partner are liable for the debts of any of the other partners. This means that if the business goes bankrupt, they can lose all their personal assets.
Limited partnership (= Sas)
In this kind of partnership , some partners only contribute capital of business, and do not take an active role in management. They are liable only for the amount of money they initially invested in the business, and are known as limited partners. However, at last one partner must have unlimited liability. He is known as the general or unlimited partners.
Benefits are that more capital is available because there are more owners to contribute, the specialisation can take place since each partner can focus on a different business function, additional skills may be introduced by new partners and finally the expansion is easier.
The drawbacks are that the decision making make take longer since all partners have to be consulted, the profit and the control of the business must be shared between the partners and finally there may be disagreements between partners.
A limited company is formed by a minimum of two shareholders, that is to say investor who have shares in the company. Shares are the result of dividing the capital invested in a company into equal units. Any profits made by the company are divided among the shareholders in proportion to the amount they have invested, and these payments are called dividends.
If a limited company goes bankrupt, each shareholder is only liable for his original invested and not for his personal asset.
Private limited company (Srl - Ltd)
They must have “Ldt” after their name.
Private companies must have at least two shareholders, but there is no upper limit and companies can expand by selling more shares. The shares are not sold on the Stock Exchange and they cannot be advertised publicly for sale. The share capital must not exceed £ 50,000.
Public limited company (Spa – Plc)
They must have “Plc” after their name.
Plc must have a minimum £50,000 share capital, they can sell their shares to the public and may be quoted on the Stock Exchange. Only two people are needed to form Plc and there is no stated maximum number of shareholders. Their shares can be sold with no restrictions. Most multinationals companies in the UK operate as Plc.
The benefits are that they can operate on a large scale, easy to raise finance from banks and easy to raise capital (Plc). Instead the drawbacks are the formation is complicated and expensive, the employees and shareholders are distanced from one another and finally there can be problems related to being too large.
Franchising is a business system in which a company – the FRANCHISOR – offer someone – the FRANCHISEE the right to use its trade name and to sell its products.
The benefits of a FRANCHISE for a franchisor is that he has to invest relatively little capital in distribution outlets. He also receives an initial payment from the franchisee and a percentage of his annual profits.
The franchisee receives the shop furniture in the company style. Franchisee are their own bosses and have responsibility for running the company.
Franchising has become a popular means of expansion for small businesses, as it is often very difficult for a sole trader to obtain enough capital to expand.
The most successful, such as Benetton, Stefanel, Mc Donald’s, ecc., can be seen in the shopping centres of large towns and cities all over the world.
Franchising is a major growth area in the UK economy; by the end of 1999 there were nearly 600 business format franchisee who employed nearly a quarter of a million people.
A joint ventures is a business forming by two or more companies. Each company invests some capital in the venture. In this way, the cost and profits are shared in agreed proportion between the companies. There are three types of join ventures :
1) A vertical joint venture
This involves (include) two business forming a company. Each one specialises in a different stage in the production of specific good or service.
2) A horizontal/ later joint venture
This also involves two business forming a company but unlike a vertical joint ventures, these two companies are involved in the same stage of production/distribution of the goods or service.
3) A conglomerate joint venture
This involves two companies working together with completely different business activities, (es sweet manufacturing and life insurance). This joint venture could arise if the demand for a company’s original products decreased and the company decided to invest its capital elsewhere.
A multinational is a company which produces in more than one country but has its headquarters in just one. Bigger companies often invest in developing countries which need capital and expertise. This, however benefits the multinational more than developing company, as profits normally go back to the multinational’s country of origin. Examples of multinationals are Shell, Coca Cola and Mc Donald’s.