A business can be described as an organisation or enterprising entity that engages in professional, commercial or industrial activities. There are many different types of business and they offer a wide range of goods and services.

Most businesses are created to make a profit but there are many businesses which have been created as not-for-profit businesses. These exist for a wide range of different purposes but many have the common theme of helping those in need.

All businesses start when someone has an idea for a good or service they might be able to provide in a location that they feel meets a real world need. This will usually be in an area they have a real interest in or passion for.

They believe people will be willing to pay money to own or use the good/service and they feel they can manage it in a way that they can make a profit. That person might decide to put together a business plan and go to see the bank for a loan to fund the start of their business. If an individual has their own savings they might invest this in the business to help get it started to avoid having to pay interest to the bank on loans.

Why was Nike started?

In 1958, Phil Knight, a business major at the University of Oregon and a miler on the track team, shared with his coach, Bill Bowerman, a dissatisfaction with the clumsiness of American running shoes. They formed a company in 1964 to market a lighter and more comfortable shoe designed by Bowerman 

Why was Amazon started?

Early in his career, Bezos realised that the Internet was likely to transform the world in the coming years, and he decided to quit his safe job working on Wall Street and set up Amazon, which started life as an online bookstore. This was a bold move; almost no one had done anything like this at the time. 

Why was Facebook started?

On February 4, 2004, a Harvard sophomore named Mark Zuckerberg launches The Facebook, a social media website he had built in order to connect Harvard students with one another. By the next day, over a thousand people had registered, and that was only the beginning. Now known simply as Facebook, the site quickly ballooned into one of the most significant social media companies in history. Today, Facebook is one of the most valuable companies in the world, with over 2 billion monthly active users. 

All of the businesses above started as they had identified a real world need and took action.

This is a great website to look at the history of many different businesses. What ownership type did the businesses start with? what ownership type do they use now? Why do businesses change?

https://historytimelines.co/timeline/nike

A private business is a business which is owned exclusively by one or a small group of individuals. Shares for this business cannot be bought on the stock market. All of the decisions are made by the owners and they also keep all profits. The following are all different types of private businesses.

Sole Trader

A sole trader is one person who is solely responsible for the running of the business. They keep all profits after tax but are also responsible for any loses. Running the business and making important decisions about the business is often their full time job or they might employ someone to do this. These have unlimited liability, meaning the owners personal assets are at risk if the business gets into financial difficulty.

Advantages

Decisions can be made quickly

Easy to set up business without legal procedures

Owner keeps all profit

Close links with employees, customer and owner

Financial affairs do not have to be published.

Disadvantages

Less available capital

Business fully depends on one individual

Less skills

Less opinions when making decision

Unlimited Liability

Partnership

A partnership is when two or more individuals join together to run a business. They share the profits but are also jointly responsible for the losses. Depending on the business in question the partners may share the roles/responsibilities of managing the business or one of the partners may just be a silent partner. They may have to discuss ideas with each other before making decisions which can be time consuming. On occasion they may have disagreements which can cause conflict. 

When forming a partnership it is important that the owners draw up a Deeds of Partnership (Partnership Agreement) and a Disolution of Partnership Deed, these are legal documents.

Deeds of Partnership

1. The partnership agreement clearly outlines the partners and their percentage of ownership.

2. Some partnerships are general partnerships, with partners sharing responsibilities and liabilities. Other agreements are limited partnerships, with one or more partners acting as an investor with limited or no activity in the business and little or no liability.

3. An effective partnership agreement describes how the business can be dissolved or a partnership transferred.

4. Partnership agreements can lay out who owns assets, such as the business name, customer list, and more the business is dissolved

Disolution of Partnership Deed

1. A dissolution of partnership agreement contains the terms under which the partnership will terminate.

2. A written dissolution of partnership agreement allows partners to address any debts that might survive the partnership, agree on the distribution of remaining assets and address any other remaining issues.

3. The agreement can also later serve as evidence that a partner agreed to retire a particular partnership obligation and award a partner the right to claim a specific asset, including the right to continue to do business under the auspices of the former partnership.

4. A clearly worded dissolution agreement can help avoid misunderstandings.

Advantages

More Capital

Business not reliant on one person

Partners can bring different skills

No need to publish financial affairs

Responsibility shared for decison making and problem solving

Easy to setup few legal requirements.

Disadvantages 

Less capital than large businesses

Can be difficult to get loans from banks

Conflict between partners

Death or bankruptcy of one partner may cause the dissolution of business

If there is no deed of partnership debts are shared qually between partners regardless of investment made.

Profits split between partners

All partners can be affected by the actions of one partner

Unlimited Liability

Private limited company

A private limited company is when the company becomes it's own entity and you and selected others can buy shares in the company. You are only responsible for the company's debts up to the amount you have invested. The profits of the company will be shared out. These are identifiable by the LTD in their name. These require the following legal documents to be completed...

• Memorandum of Association

• Articles of Association

Advantages

Limited Liability

Large availability of capital

Company controlled by small group of shareholders

Workload shared between directors/managers

Not effected by individual circumstances of shareholder

Company has a separate identity and can take legal actions without involving owners

Economies of scale benefits

Opportunities for specialisation  and division of labour

Disadvantages

Legal procedures to follow before trading

Must be registered with Companies House

Profits shared between shareholders

Public limited company

This is when anyone can buy shares in the company and own a part of it. Again, you are only responsible for the company's debts up to the value of your investment. If  a business has plc in it's title it is a public limited company. We know a company called Young Brothers plc is a public limited company. 

A public limited company must be registered with Companies House and have the following two legal documents completed before they can start trading

• Memorandum of Association

• Articles of Association Articles of Association 

Advantages: 

•  Separate legal identity from that of its owners; it can take legal action without involving the shareholders. 

• Continuity and shareholders may buy and sell their shares freely. 

• Shareholders have limited liability. 

• Public limited companies are very powerful organisations, with great influence in the market. 

• The capital available is large which gives the business all the benefits of easier borrowing and economies of scale. 

• A public limited company has the resources necessary for growth and expansion. 

• Each director and manager has his/her own area of responsibility giving the benefits of specialisation and division of labour. 

Disadvantages: 

• Decision making is frequently slow because a series of meetings have to be held and numerous people consulted. 

• The financial information must be published and can be viewed by anyone. 

• In some public companies top management and employees feel out of touch with one another. 

• The shareholders are the owners but the directors and managers make all the decisions. Therefore, the owners have no real say in its running. 

• The formation of a public limited company involves a lengthy legal procedure. 

Both limited companies (Public and Private) require the same legal documents. 

What is the "Memorandum of Association" ?

It defines the company's relationship with shareholders and specifies the objectives for which the company has been formed. The company can undertake only those activities mentioned in the Memorandum of Association. 

What is the Articles of Association?

Articles of Association are written rules about running a company agreed by the shareholders or guarantors, directors and the company secretary. They are required under the Companies Act 2006 and become a public document when a company is registered with Companies House. 

Public limited company (PLC)V Private limited company(LTD)

A PLC is a public company in the U.K. Meanwhile, there are private limited companies (LTDs), which are private companies in the U.K. Shares of a private limited company are not offered to the general public. 

Private companies are still incorporated, generally with the Companies House. These companies are still required to have legal documents to form the business. Private companies must have at least one director. 

To raise capital via a public investment in the U.K. the company must be a PLC. PLCs are like LTDs, except they are publicly traded, with shares that can be freely sold and traded on a stock exchange. Meanwhile, PLCs must have at least two directors and hold annual shareholder meetings.

Unlimited Liability vs Limited Liability

Some companies are created with unlimited liability. This means that if they do not have enough money in the business to pay debts, they may have to use their private funds to meet them. This could have serious consequences because, in extreme circumstances, the owner's cars, houses and other private possessions might have to be sold to pay off the business debt .

When creating a business it is vital that the owner considers the advantages and disadvantages of each ownership type above in relation to the current needs of the business. It is important you can compare the ownership types above and are aware of the advantages and disadvantages of each in the exam.