Chapter 3
Forms of business organisation
There are five main types of business
organisations in the private sector:
1. Sole Traders
2. Private Limited Companies
3. Public Limited Companies
4. Partnerships
5. Co-operative
6. Franchises
7. Joint Ventures
8. Close Corporations
Sole Trader
A sole trader is a very common form of
business organisation.
It is owned and operated by a single
person.
The sole proprietor can employ more
people if he wants.
One of the main reasons it is very common
is because it requires very few legal
formalities.
Only the following regulations must be
followed:
1. The name of the business is very
important. In some countries it must be
registered with the Registrar of Business
Names. In the UK it is sufficient enough
that all the business’s documents have
the firm’s name on them. It is also
required a notice with the name of the
owner be placed at the main office.
2. The sole trader must register with and
submit an annual record of accounts to
the Tax Office
3. In some industries it is necessary
that the sole trader follow certain
regulations like health and safety laws.
The sole trader may also have to obtain a
licence to operate a car or sell alcohol.
Advantages of a sole trader:
1. Few legal formalities
2. Complete control
3. Freedom of how to manage business
4. Personal contact with customers.
5. Profit motive provides incentive to
work harder.
6. Secrecy where concerned with business
matters.
4 Disadvantages of a Sole Trader:
1. There is no one to discuss business
matters with.
2. The owner does not benefit from
limited liability. The business is not a
separate legal unit. The business’s
accounts cannot be separated from the
owner’s accounts. This means the owner
is responsible for any of the debts the
business may run into. If the owner
can’t pay the money his creditors can
force him or her to sell their personal
property to pay their debts.
3. There is limited capital available to
expand the business. The business’s
financial sources are limited to the
owner’s profits, savings and small bank
loans. Banks usually hesitate to give
large sums of money to such small firms.
4. Due to the size of the business the
owner cannot afford to employ specialists
to perform certain tasks; like managing
the accounts of the business. As a result
the owner may be forced to do certain
things he is not skilled at.
5. The business is likely to stay small
without any capital. It will not benefit
from economies of scale. Due to the small
size of the business it is very hard to
find good recruits; no training or
opportunities can be provided for their
future careers.
6. After the death of the owner the
business will cease to exist; since after
the death of the owner there is no
business continuity
