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Business Ownership Types

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There are different types of ownership within the business sector. Sole tradership is when the business is fully owned and managed by one person, though others can be employed to help run the business. As the sole traders only financial income is from the business and/or bank loan, they do not have the resources to expand and cover regional or national areas. These types of businesses are located in the small business sector and usually cover local areas. Such businesses could be hairdressers, corner shops or market stalls etc.

Sole traderships have unlimited liability so if the business fails to pay its debts the financial responsibility falls on the owner/s to pay the debts in full even if they have to sell their business, personal possessions and assets.

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Another example of business ownership is a partnership. Examples of partnerships used in business are accounting firms and solicitors firms. A partnership has two or more owners. They work, manage and are responsible for the running of the business.

Individual partners may concentrate on a certain aspect of the business where they have expert knowledge. As there is more than one owner, larger amounts of capital can be fed into the business via personal funding or bank loans. Partnerships have an unlimited liability.

There are two types of limited companies: Private and public. Shareholders own private limited companies. Members of the public cannot buy the shares and the shareholders cannot buy or sell their shares without agreement from the other shareholders. Family owned businesses or larger businesses such as Virgin would fit into this category. Public limited companies have shares on the stock market and can be bought and sold by any member of the public, this way the company can raise further capital and expand their resources. Tesco and British Telecom are such examples. Both these types of limited companies have limited liability, which means the owners of the business are only liable for the amount they invested in the business (unless the debt is so large that the business has to be sold to repay the debt).

Co-operatives are companies that are owned by a group of people (members) who have shares in the company. Shares can start as little as 1 and each member has a share in the Co-operative. It is the members (shareholders) who finance the co-operative and they control on how the business and profits are run. They may have limited liability.

Central and local government also run organisations: this means that they are state owned and controlled. Some examples of central government ownership are the National Health Service and the police force. The local government control state-run hospitals, libraries, schools and colleges. Allocations of funds are paid through taxes to the government so these organisations run on a budget. To generate extra income for resources, some organisations charge a fee. For example the National Health Service charge prescription fees and colleges charge enrolment fees etc. However the aims of these organisations is not to make a profit but provide necessary services for society. Another type of organisation is the public corporation, which receives government funding; some examples are the Post Office and the BBC. These organisations provide essential services.

The role of the public sector is to provide essential and necessary services for the public. It consists of organisations owned and operated by central or local government. The Organisations which provide such services within the sector include: government departments, the National Health Service, Social Security, police, military, Post Office, BBC, Inland Revenue, housing departments etc. As this sector of business is fundamental for the basic running of the country, I believe the growth of this sector will be steady. However, political agendas have to be taken into consideration. For instance a change in government could allocate less funding to certain resources hence cutting budgets and leading to reductions in employment. New technology in administration could also see a decline in employment. The amount of money being offered to work in certain organisations within this sector may not be enticing enough (due to restrictive budgets) for potential employees. An illustration of this is shown in education and the National Health Service where shortage of staff and limited resources affect the services being offered. The private sector consists of various businesses owned and managed by one or more private individuals or organisations. These all range from the small business sector (i.e. local electrician), partnerships (i.e. accounting firm), limited companies (i.e. family owned business, Virgin), and public limited companies (i.e. ICI, the Abbey National group). The private sector has seen steady growth. Individuals can now get government grants and/or loans to set-up their own business. This encourages growth within the small business sector. Steady interest and expansion of the Internet, e-commerce and computer technology have also seen the growth of the private sector. However with the boom and bust of Internet companies, their future and financial stability is still unknown. Mergers of companies in the banking and finance world give the opportunity for the company to offer more products to its customers and still be competitive (i.e. the Abbey National group). However, with new up-and-coming technology and more efficient computers and software we have seen a reduction in employment and outlets. This is illustrated with Barclays bank.

The voluntary sector consists of charity organisations that raise funds and collect donations for a cause. The Red Cross, Help the Aged and Oxfam are but a few of many charity organisations. In this day and age they have learnt to adapt. Charities are starting to take a more professional approach to their fund raising. New marketing strategies and business consultants/managers are becoming part of the bigger picture within their organisations. The voluntary sector can be affected by economic factors. For instance, higher taxes could affect the donations they receive and depend on. Whereas a “feel good factor” concerning the economy could see a growth in donations.

<div class=”sub-title”>Sole trader: Shop keepers, hair salons, furniture shops, art and craft shops, plumbers, etc would be suitable for this type of ownership.

AdvantagesThe owner has full control of the business and its profitsAll profits go to the ownerCan make decisions independently without the need to consult anybody elseCan easily create a report with customersHas the ability to exploit niche marketNo set-up for proceduresDisadvantagesThe owner has unlimited liabilityThe profits get ploughed back into the businessTo expand the business, financing needs to be found<div class=”sub-title”>Partnership: accountancy firms, solicitors firms, architect firms, estate agents etc would be suitable for this type of ownership.

AdvantagesThe responsibility of running and managing the company is shared between the partnersAccess to a wider range of skillsMore ideas and strategiesCapital from the partners can bring in more money to the company and expansion is possibleGreater ability to gain bank loans/financial backingNo need to file accounts for the publicDisadvantagesPartnerships have unlimited liabilityIf a partner leaves or he/she is not fulfilling their position it could affect the businessIf a decision has to be made a partner can take it upon his or herself to make that decision and not consult the other partners<div class=”sub-title”>Co-operatives: agricultural farmers, housing Co-operatives, cash and carry stores etc would be suitable for this type of ownershipAdvantagesMay have limited liabilityThe members have control over the business and profitsDisadvantagesFinancing can only be provided like the members (shareholders)As all members have a say in the running of the company decision-making can be time-consuming <div class=”sub-title”>Private limited company: family owned businesses, small engineering and manufacturing firms and large companies that wish to keep the company private would be suitable for this part of ownershipAdvantagesShareholders who own the company have limited liabilityBusiness Finances and the owners Finances are separateCan take more risksUsually the shareholders are closely involved with the running of the businessCan raise capital more easilyMore professional appearance: more internal structureDisadvantagesShares can only be sold with the agreement of the other shareholdersShares cannot be sold to the publicDue to their internal structure more formalities ariseLarger overhead costs of running the company<div class=”sub-title”>Public limited company: supermarket chains, large companies to expand their resources for example pharmaceutical, gas, oil and telecommunication companies etc would be suitable for this type of ownership. AdvantagesShareholders who own the company have limited liabilityBusiness Finances and the owners Finances are separateShares can be bought and sold on the stock marketGreater ability to raise further capital and expand resourcesAdditional shares can be issued for more fundingMore professional appearanceGreater internal structure: ground staff, supervisors, heads of departments, managers, general manager’s etcExpanse of human resourcesDisadvantagesThere is a danger of being taken over by another company through the trade of sharesLess flexible in structureMore formalities when dealing with decision-making: red tapeLarger overhead costs of running the company;div class=”sub-title”;Public ownership: medical, housing, finance, education etc would be suitable for this type of ownershipAdvantagesEconomies of scaleFunding by the government via taxes or borrowingAllocation of resources spread evenlyContinuation of employmentEssential and necessary services provided continuallyDisadvantagesThe organisations run on a budgetChanging government policies may affect the funding and allocation of resourcesOrganisations may only get enough funding to get byMay not have enough money to expand resourcesThe mission statement explains (as a whole) the company’s function and the product and services they have to offer. However, certain departments within the company may have their own goals, targets and objectives. For example the main objective for a sole trader in the private sector first and foremost, is to make a profit as the business will not be able to survive. Whereas with a public limited company; British Telecom for instance, if they do not make enough profit the shareholders will not be happy (which could lead to a possible takeover if shareholders stampede out the door and decide to sell). The company will not have the Finances to invest in better technology to compete with their competitors and employees cannot get better wages. Central and local government set certain targets within the public sector. For example one of their targets is to cut hospital waiting lists for surgery. They believe that everyone is entitled to health care on the National Health Service. Their mission could be to deliver the best possible health care Service under the N.H.S for everybody. The voluntary sector has a mission, which is to help those who are needy, for example in third world countries. So their aims and objectives are to raise as much money as possible so they can send relief aid but also cover their overhead costs.

Cite this Business Ownership Types

Business Ownership Types. (2019, May 16). Retrieved from https://graduateway.com/business-ownership-types/

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