Download - Business Structure - Sole Traders and Local Companies

Understanding Business Structures

www.business.govt.nz

Types of Business Structure

• Sole Trader• Partnership• Limited Companies• Co-operatives• Franchises

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Benefits include:-Easy to set up and run-Only small amount of capital needed-Owner has total control and doesn’t have to share profits

Sole Trader Benefits



Drawbacks include:-Unlimited liability-Lack of economies of scale-The business relies on the owner 100%

Sole Trader Drawbacks



Partnership Benefits

Benefits include:-Shared responsibility-Allowing partners to specialise -Partners bring in more capital investment-Decisions, costs are shared



Drawbacks include:-Each partner has unlimited liability-Shared responsibility can lead to disagreements-Profits have to be shared according to Deed of Partnership

Partnerships Drawbacks



Limited Companies

There are two types:

1. Private Limited Company (Ltd)

2. Public Limited Company (Plc)



Private Limited Companies Benefits

Benefits include:-Company can raise more capital by selling more shares-Shareholders can keep control of the business



Private Limited Companies Drawbacks

Drawbacks include:-Accounts must be audited-Limited companies are more difficult to set up-Shares cannot be sold publicly on the stock market



Public Limited Companies Benefits

Benefits include:-Easy to raise capital for expansion by selling shares on the stock market-Economies of scale are better than a private Ltd company



Public Limited Companies Drawbacks

Drawbacks include:-Expensive to set up (a lot of capital is required)-Annual accounts must be made public-Anyone can buy shares – so it’s vulnerable to takeovers



Co-operatives

There are two types:

1. Worker Co-operatives

2. Consumer Co-operatives



Worker Co-operatives…

…Are owned by the whole workforce

…Everyone has a say in the business



Consumer Co-operatives…

…Are local Co-op shops owned by the customers

…The profit is paid out or used to keep prices down



Franchises

• An existing company (the franchisor) lets someone else (the franchisee) use its business idea and name

• The franchisee buys a licence to carry out the business of the franchisor



Franchises (Cont’d)

• The franchisee must also run the business in the same way as the franchisor

• In return, the franchisor helps the franchisee set up the business


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