Types of Ownership (1)

Sole traders and partnerships

Types of Ownership

• Businesses can be organised in many

different ways, depending on their size

and activities

• Most small businesses are organised as

either:

– A sole trader

– A partnership

What is a sole trader?

• A sole trader is a business

owned and run by just one

person

• The owner may employ other

people to work in the business

Why operate as a sole trader?

• The owner gets to keep all the profits

• He makes all the decisions

• The business is easy to set up – no

paperwork!

• Business affairs can be kept

private

What are the disadvantages?

• Nobody to ask for help or advice

• Difficult to take time off for holidays or illness

• Often have to charge higher prices than larger

businesses e.g. small grocer vs. supermarket

• The owner has unlimited liability for all

debts…..Find out more!

What does unlimited liability mean?

• This means that the owner has to pay for any losses the business makes

• If he does not have enough money he may have to sell his house or car to pay the debts!

What is a partnership?

• A partnership is a

business owned jointly

by 2 up to 20 people

• The partners own and

run the business

together

Why operate as a partnership?

• The partners can share the workload,

and it is easier to get time off

• There is more than one person

investing money in the business

• They can share the decision making

• Partners may have expertise in

different areas

• Have to share the profits!

• Partners may disagree on how to run

the business

• Partners have unlimited liability (except

for sleeping partners)

What are the disadvantages?

What is a sleeping partner?

• Invests money but takes no part in the

running of the business

• Can register for limited liability

• This means he is not liable for all the

debts of the business – only the amount

he originally invested

Setting up a partnership

• Partners should draw up a Deed of Partnership

• This is a document which sets out how the partnership will be run e.g.– How much money each partner is investing

– How profits are to be shared

– The duties of each partner in the business