Level 1 Business Studies

1.1 - AS90837

Demonstrate an understanding of internal factors of a small business

Types of Businesssole trader, partnership, registered company

Students will identify and describe different types of legal entities:

Define and recognise the legal entities of business ownership i.e. sole trader, partnership and registered companyExplain reasons for different forms of legal entitiesExplain advantages and disadvantages of each type of entity

Sole Trader

A business owned and operated by one person

Sole TraderReasons

Relatively easy to establish Few legal requirements or

restrictions to set up Can employ people with the

required skills

Sole TraderAdvantages

Can be your own boss Few legal requirements to set up Able to organise and run the

business as you wish Control over employees Can choose how long and when

to work Get to keep all profits

Sole TraderDisdvantages

Unlimited liability – sole traders are not a separate legal entity

Sources of finance are often limited which can make expansion difficult

Often need to take advice from outside the business

Unlimited liability

If the business cannot pay its debts as they fall due, the owners become personally responsible for them.

Partnership

Business owned and operated by 2 or more people

PartnershipReasons

Business run by the owners Partners contribute capital to set

up and run the business All partners are able to contribute

to the running and organisation of the business

Partners share the profits

PartnershipsAdvantages

Increased levels of capital compared to a sole trader

Shared responsibility Increased knowledge and

specialisation Partners motivated due to

sharing of profits

PartnershipDisdvantages

Unlimited Liability – not a separate legal entity Partners can disagree on important decisions. It

can be time consuming to reach a consensus.

Partners can suffer if one partner is inefficient or dishonest

Private Limited Company:

Companies are jointly owned by people with an interest in and have invested in the business

NB: for level 1 Business Studies companies will tend to be private

Private Limited CompanyReasons

Owned by numerous people - shareholdersCompanies are separate legal entities from

their ownersAbility to grow and expandA company can make contracts or legal

agreements in its own name

Private Limited CompanyAdvantages

All shareholders have limited liability

A large number of people can purchase the shares

Additional shares can be issued in order to raise capital and expand the company

Limited liability

The owners of the business will not be responsible for the debts of the business if the business cannot pay.

Private Limited CompanyDisdvantages

Legal issues when being establishing

Cannot sell shares to public Difficult to transfer shares, all

shareholders have to agree Directors make the decisions

on the running of the business – not all shareholders are directors