Types of Business Ownership Explained | Sole Traders, Partnerships, LTD, PLC and Franchise

Summary

This video script explores various business ownership structures, including sole traders, partnerships, private and public limited companies, and franchises. It outlines their operational dynamics, financial implications, and legal responsibilities, highlighting benefits and drawbacks. Examples like McDonald's illustrate the franchise model, while companies like Mars Inc. and Dyson exemplify private limited companies. The script serves as an informative guide for entrepreneurs considering different business structures.

Takeaways

• 📚 The type of business ownership is a critical decision that affects the legal structure, financial liability, tax obligations, and management decisions of a business.
• 👤 Sole traders are self-employed individuals who own and control their business, with no legal distinction between personal and business assets, resulting in personal liability for business debts.
• 🔑 Benefits of being a sole trader include ease of setup, full decision-making freedom, low startup costs, and retention of all profits, but drawbacks include unlimited liability and potential for long working hours.
• 🤝 Partnerships involve two or more people sharing ownership and liabilities, with a partnership agreement outlining the business's legalities, including profit sharing and decision-making.
• 💼 Advantages of partnerships include shared expertise, teamwork, and greater borrowing power, but they can suffer from disagreements and unequal workloads among partners.
• 🏢 Private limited companies are incorporated businesses owned by shareholders, offering limited liability and tax efficiency, but with more administrative and legal requirements.
• 💼 Directors of private limited companies are not personally liable for business debts, but profit distribution can be more complex and administrative costs are higher.
• 🌐 Public limited companies (PLCs) are similar to private limited companies but can offer shares to the public, providing greater prestige and capital generation opportunities.
• 🎉 Franchising offers entrepreneurs a proven business model and brand, with the franchisee benefiting from the franchisor's training, materials, and advertising support.
• 💰 Franchisees must pay initial fees and ongoing royalties to the franchisor, and may face restrictions on business operations and innovations due to the franchisor's model.
• 📈 The choice of business ownership can significantly influence the financial and operational aspects of a business, with each type offering unique advantages and challenges.

Q & A

What is the significance of choosing the right type of business ownership?

Choosing the right type of business ownership is crucial as it influences various aspects of the business, including the owner's financial liability, tax obligations, and the decision-making process throughout the business's existence.

What is a sole trader and what percentage of the UK's private sector business population did they make up in 2019?

A sole trader is a self-employed individual who owns and controls a business. They made up approximately 59% of the total private sector business population in the UK in 2019, with 3.5 million registered sole traders.

What are the legal implications of being a sole trader?

As a sole trader, there is no separate business entity, meaning the business owner's personal and professional assets and liabilities are not distinguished. This makes the sole trader personally liable for the business's debts.

What are some benefits of registering as a sole trader?

Benefits of registering as a sole trader include ease of setup, complete freedom in decision-making, low startup costs, and the ability to keep 100% of the business's profits.

What are the potential drawbacks of being a sole trader?

Drawbacks of being a sole trader include unlimited liability, potential loneliness and pressure due to sole responsibility, long working hours, and the need to take on additional roles such as administration, bookkeeping, and marketing.

What is a partnership and how does it differ from a sole trader in terms of ownership?

A partnership is a business owned by two or more people, legally distinct from a sole trader. Partners share unlimited liability and the business's profits and assets, but they also share the workload and decision-making.

What is a private limited company and what does the term 'limited' signify?

A private limited company is an incorporated business owned by shareholders, typically the directors. The term 'limited' signifies that the business's debts are separate from the shareholders' personal assets, protecting them from personal liability.

What are some advantages of operating as a private limited company?

Advantages of operating as a private limited company include limited liability for shareholders, tax efficiency, and the ability to raise capital through the sale of shares to investors.

What is the difference between a private limited company and a public limited company (PLC)?

While both are owned by shareholders and have limited liability, a public limited company can offer shares to the public via the stock exchange, allowing for greater access to capital. However, this also comes with increased legal requirements and potential loss of control by the original owners.

What is franchising and how does it differ from starting an independent business?

Franchising is an alternative to starting an independent business where an entrepreneur acquires a proven business model and uses the franchisor's brand and products. This differs from an independent business as it provides the franchisee with established systems, training, and brand recognition.

What are some key advantages and disadvantages of running a franchise?

Advantages of running a franchise include a proven business system, training, economies of scale, and shared advertising. Disadvantages include the need to pay an initial fee and ongoing royalties, restrictions on business operations, and potential lack of freedom to make improvements to the business model.