Understanding Business Structures

Types of Business Structure• Sole Trader• Partnership• Limited Companies• Co-operatives• Franchises

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

Private Limited Companies

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 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 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

• 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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Find out more with Business.govt.nz:

• Overview of business structures• Understanding business structures• Focus on sole traders• Focus on partnerships• Focus on companies