Types of Business Organisation

SOLE TRADERS

Sole traders are the most common form of business in the world. The business is owned, controlled and 
run by one person only. It is easy to set up and there is less legal formalities. Sole Trade has unlimited 
Liability.

Pros: Advantages
 There are so few legal formalities are required to operate the business.
 The owner is his own boss, and has total control over the business.
 The owner gets 100% of profits.
 Motivation because he gets all the profits.
 The owner has freedom to change working hours or whom to employ, etc.
 He has personal contact with customers.
 He does not have to share information with anyone but the tax office, thus he enjoys 
complete secrecy.

Cons: Disadvantages
 Nobody to discuss problems with.
 Unlimited liability.
 Limited finance/capital, business will remain small.
 The owner normally spends long hours working.
 Some parts of the business can be inefficient because of lack of specialists.
 Does not benefit from economies of scale.
 No continuity, no legal identity.
 PARTNERSHIP

A partnership business is owned, controlled & managed by 2 to 20 people together. Each
partners take part in business and contribute finance to the business. 
Pros: Advantages
 Easy to set up
 More capital can be brought into the business.
 Partners bring new skills and ideas to a business
 Decision making can be much easier with more brains to think about a problem.
 Partners share responsibilities and duties of the business.
 Division of labour is possible as partners may have different skills.

Cons: Disadvantages
 Unlimited liability – If business fails, owners have to repay all loan/ debt
by selling all his assets, property etc
 No continuity, no legal identity.
 Partners can disagree on decisions, slowing down decision making.
 If one partner is inefficient or dishonest, everybody loses.
 Limited capital, there is a limit of 20 people for any partnership.
 PRIVATE LIMITED COMPANIES

Private Limited Company is a Joint Stock Companies. Share holders are the owner of the
business. Not listed in the stock exchange. So it can not sell shares to the general public.
They can only sell shares to friends and family members. Shareholders have Limited liability.

Pros: Advantages
 The sale of shares make raising finance a lot easier.
 Shareholders have limited liability, therefore it is safer for people to invest
but creditors must be cautious because if the business fails they will not get
their money back.
 Original owners are still able to keep control of the business by restricting
share distribution.

Cons: Disadvantages
 Growth may be limited because maximum shareholders allowed are only 50.
 The shares in a private limited company cannot be sold or transferred to anyone else
without the agreement of other shareholders.
 Shares cannot be freely sold without the consent of all shareholders.
 The accounts of the company are less secret than that of sole traders and
partnerships. Public information must be provided to the Registrar of Companies.
 Capital is still limited as the company cannot sell shares to the public.
 PUBLIC LIMITED COMPANY

Public Limited Company is a Joint Stock Companies. Share holders are the owner of the
business. Listed in the stock exchange. So it can sell shares to the general public. There can
be unlimited shareholders. Shareholders have Limited liability.

Pros: Advantages
 There is limited liability for the shareholders.
 The business has separate legal entity. There is continuity even if any of the
shareholders die.
 These businesses can raise large capital sum as there is no limit to the number of
shareholders.
 The shares of the business are freely transferable providing more liquidity to its
shareholders .

Cons: Disadvantages
 There are lot of legal formalities required for forming a public limited company. It is
costly and time consuming.
 In order to protect the interest of the ordinary investor there are strict controls and
regulations to comply. These companies have to publish their accounts.
 The original owners may lose control.
 Public Limited companies are huge in size and may face management problems such
as slow decision making and industrial relations problems.
 MULTINATIONAL COMPANIES

What are Multinational Businesses?

Businesses which have their operations, factories and assembly plants in more than one country are
known as Multinational Business. They are also known as Transnational businesses.
Advantages of being a Multinational
 Multinational can set up their business operations in countries where the labour and raw material is
cheaper, which can give them cost advantage in the international market.
 Multinational have access to many markets which spreads the risk of failure. If any product may not be
successful in a particular market, it might be successful in another.
 MNCs produce in large quantities thus achieving greater economies of scales.
 A multinational business is less vulnerable to trade barriers. MNCs set up their local operations in
countries where there is potential market for them and get away with import duties and restrictions.
 MNCs can locate their operations near the potential market which results in lower transportation cost.
Advantages of Multinational to the host country
 Multinationals create employment.
 They bring new technology and techniques of production.
 MNCs usually provide training to their worker which results in better skills for the country’s workforce.
 Multinational businesses usually produce in large quantities and export to other countries which can result in
valuable foreign exchange for the host country.
 They pay huge taxes to the government which can be used for the development of the host country.

Disadvantages include:
 Move their factories from one country to another wherever it is profitable
 Can switch profits between countries
 Force domestic firms out of business
 Can exploit workers by paying low wages
 May interfere in government decisions
 Slow down in the growth of employment in home countries.
 Destroy competition and acquire monopoly.