GCSE Business Summary Notes on the topic Making the Business Effective, specifically designed for the Edexcel Exam Board but applicable to any study of business.
This is the easiest form of business ownership.
One person is the sole owner of the business.
There are 4 million in the UK e.g. electricians, plumbers, shop owners and builders.
They own all of the business but can still employ people to work for them.
They have complete control of the business.
They make all of the decisions.
The owner keeps all the profit.
They can work when they choose.
They can go on holiday when they want.
The business stops when the owner is ill or on holiday.
It can be much harder to raise capital.
They tend to be much smaller in size.
The owner has unlimited liability.
Partnerships
They are two or more sole traders joining together.
Generally, between two and twenty.
They share the financial risk as they invest their own money.
They also share decision making and profits.
They are often doctors, accountants and lawyer businesses.
Partnerships are set up with a deed of partnership – a legal document outlining the
agreed rules.
The more partners the more capital invested.
This can allow the business to grow quicker.
A greater range of skills and expertise.
More people to share the work.
They have unlimited liability.
They are legally responsible for what each partner does.
More owners can mean more disagreements.
The partners all share the profits.
Private Limited Company (Ltd)
These types of businesses are called companies, they are incorporated.
A company is a separate entity.
So, all the money, bills, debts and property belong to the company and not the owners.
These owners are called shareholders.
Because they own a share of the company.
They can become much larger than a sole trader.
Are normally family owned businesses with the family as shareholders.
To set up as a private limited company an application form is filled in and sent to
Companies House, along with a payment.
, Easier to raise capital.
You can sell shares in the company to raise money.
The shareholders have limited liability.
It is much harder to set up (lots of paperwork).
You must complete financial accounts every year.
These accounts must be sent to the government (Companies House).
You don’t have complete control – all the shareholders do.
You have to share the profits with all the shareholders, with dividend payments.
Unlimited Liability
Where the owner of the business is personally responsible for the debts of the business.
They may lose their personal possessions to pay off debts of the business. In law there is no
difference between the business and the owner.
Limited Liability
When the shareholders (owners) of the business are not responsible for the debts of the
business. The most the shareholders can lose is their shares in the business. In law the
company and the owner are separate entities.
Franchises
A franchise exists where one business (franchisor) gives another business (franchisee) the
right to sell products and services using its name. The franchisee buys the right from the
franchisor. The franchisee pays the franchisor an ongoing fee – royalty.
Franchisor: the business
Franchisee: the
that sells the right to use LEGAL
AGREEMENT business that agrees to
its name to sell its
pay for the franchise.
products or services.
KFC (£500,000 for a drive thru)
Thornton’s
The Body Shop
Dominoes (£280,000 - £300,000 with a minimum £150,000 personal investment)
McDonald’s (£150,000 - £400,000 with a £30,000 one off fee)
Subway (£100,000)
However, Tesco, Boots, Asda, Topshop and Greggs are chain stores not franchises.
A franchise is the right, given by an established business, to another, to sell goods or
services using its name.
A franchisee is a business that agrees to manufacture, distribute or provide a branded
product under license by a franchisor.
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