Kinds of Business
Kinds of Business
SOLE PROPRIETORS
Most businesses in the private sector are run by a sole proprietor who owns and manages the business.
Most sole traders operate under their own name. Sole proprietors are the most common type of business in our country. They operate in all sectors of production, for example, farmers in the primary sector, builders in the secondary sector and hairdressers in the tertiary sector.
Advantages of being a sole proprietor
- The main advantage of being a sole proprietor is that you are in complete control of the business and can run it the way you Iike. It is also very easy to set up the business.
- Another big advantage is that with many kinds of self-employment, you need only a small amount of capital to start.
- Sole proprietors keep all the profits of a business. The business is also very flexible. If one product is not working well, it is much easier to switch to another product than it would be in a big firm.
- Most sole proprietors also obtain great job satisfaction. They really like what they are doing and gain pleasure when they succeed.
Disadvantages of being a sole proprietor
- The main one is unlimited liability. This means that sole proprietors are personally responsible for all the debts and losses of the business.
- It is often difficult to raise money to expand business.
- The business may collapse if the owner is ill or dies, and it cannot be passed on to another person.
- There is often no one to help if things go wrong.
- There is usually great competition, so the risks of failure are high.
Sole proprietors can reduce risks by obtaining relevant experience and knowledge of the business first.
Advantages of running your own business:
- Job satisfaction
- Independence
- The proprietor retains the profits
- Flexibility
Disadvantages of running your own business:
- Hard work
- Unlimited liability (proprietor is responsible for all debts)
- Risk of failure
- It can be difficult to take time off (holiday/ illness)
- Difficulty in obtaining loans
Personal qualities needed
You need certain qualities to succeed as a sole proprietor. Some of the most important are:
- Persistence
- Enthusiasm
- Ability to work hard
- Willingness to take risks
- Organizational skills
- Tolerance and patience
Even if you have all these qualities, they are still no guarantee of success!
What is a partnership?
- A partnership is a form of business which is owned and controlled by the partners. Professional persons, such as solicítors, accountants, doctors and architects, are most likely to form partnerships.
- It is important to draw up a partnership agreement which states the names of the partners, the amount of capital contributed by each partner, how the profits will be shared, each partner's responsibilities, and methods of setting any disputes.
- Sleeping partners take no active part in the business, but invest money or lend their name to the partnership. They share the profits and are also responsible for any debts.
Advantages of partnerships
- Each partner can specialize in a particular area so that the firm provides a better service. There is a greater range of experience and expertise.
- As more people are involved in a partnership, it should produce more profitable ideas than a single individual.
- The capital is contributed by several people, and the work is shared. It should also be easier to raise capital and get loans.
Disadvantages of partnerships
- Partners have unlimited liability.
- There is a greater risk of conflicts between the partners. Some of the most common disputes are caused by the sharing of profits, the control of the business, and the responsibilities of the partners. There may be personal clashes or one partner may not do a fair share of the work
LIMITED COMPANIES
What is a limited company?
- In a limited company the ownership and work are separated. The business is owned by shareholders, who have bought a number of ordinary shares in the company and receive a share of its profits. The business is run by the directors of the company and paid employees. Directors can be shareholders too.
- The shareholders or owners have limited liability. Their financial liability is limited to the amount of money they have invested.
- Limited liability encourages people to invest their money in businesses, in return for which they hope to receive high dividends (a share of the profits which are paid out to shareholders).
- The nominal value of a share is the original price at which it was issued. Its current price, or value, may be much more - or less - than the nominal value.
MULTINATIONALS
- Multinationals are large organisations which own many companies and operate in many parts of the world. Multinationals have a large share of world markets in oil, computers, food, tobacco and leisure activities. They are responsible for about one-third of total world production. They also have subsldiary companies in which they have more than 51% of the shares. This means that they keep control of those companies. Although based in one country, multinationals have a global view of the world economy. Interest rates, politlcs and societal events affect their profits, which may be advantageous to other countries. They can borrow money easily and at lower rates than smaller cornpanies. They also have greater economies of scale which reduce average costs as the size of the business increases. There can be disadvantages for the countries in which they are located:
- They may bring in expertise, rather than recruiting locally.
- Their way of working may not fit in with the country and cause industrial relations problems.
- They may send their profits out of the country to their 'horne' country.
- Because of their size and influence, the government rnay find it difficult to control their activities.
Tatiana Škodová