There are quite a few different types of business and companies. From a single, self-employed sole-trader to a multi-national public limited company (plc) such as Shell.
Main Types of Business
- Sole Trader
- Limited Company
- Public Limited Company
As the name implies, a sole trader is a business owned by a single person. The single owner may hire people to work for them. But, sole traders remain responsible for the running and operation of the company. Many builders, plumbers and electricians may set themselves up as a sole-trader.
Advantages of Being Sole Trader
- You have full control over direction of business
- You have full share in firms profits.
- You can pursue other non-profit maximising objectives you may not be able to in an ordinary firm.
- Significant Motivation when you are sole-trader.
Disadvantages of Being Sole Trader
- Limits ability for firm to grow and raise funds for investment
- Will struggle if you become ill / sick.
- Can be stressful as you are always responsible and can’t delegate.
- Sole traders often end up working long hours, especially when firm is growing.
- Unlimited liability. It means you are fully responsible for all debts of business.
This is a business owned by a small number of people. These people are known as shareholders because they have a stake in the business. The shareholders will share the costs of setting firm up and will receive a share of the profits.
A limited company is listed as a separate legal entity. It means the owners have limited liability (they are not respsonsible for all debts of company directly)
In the UK, companies must register with company house and produce yearly accounts.
Advantages of Private companies
- They can raise money through selling shares to shareholders.
- unlike PLCs they can decide who buys shares meaning it is easier to keep control over the firm.
- More established than sole traders and has greater ability to raise funds.
- May be able to receive more government grants and subsidies.
- Has to pay for accounts and registering company.
- more tax returns than a single sole-trader
- Company accounts are made public.
- Subject to more regulations than a sole trader
Public Limited Companies (PLCs)
PLC’s are companies who list their shares on the stock market. They are owned by shareholders, but because they are publically listed anyone can buy shares in the company. If a company lists more than 50% of its shares, it can become vulnerable to a takeover (when another firm buys the existing owners out, leading to new owners.
Most large companies are PLCs, but some like Virgin (owned by Richard Branson ) for a long time remained a ltd company.
Advantages of PLCs
- Easier to raise funds for investment from a wider network of potential shareholders. PLCs can issue a rights issue on the stock market if it needs to raise funds at low interest rates (dividend to shareholders)
- Greater recognition from being listed on stock market.
- Threat of takeover may be boost to motivation.
Disadvantages of PLCs
- More regulation and detailed accounting needed than for a private company
- Can be subject to takeover if company under-performs and a rival firm buys over 50%
- Cannot control who buys and sells shares listed on the stock market.