Sole Traders, Partnerships, Social Enterprises and Franchises 

Entrepreneurs 

The main roles of entrepreneurs include the following (which makes up the acronym DIOR) 

Decision makers – They will make key marketing, recruiting, and employment decisions, as well as financial decisions. 

Innovators – To keep customers happy, the entrepreneur will need to keep coming up with new ideas, and they may develop new products and services after analysing the market gap. 

Organisers – To produce goods and services, they organise the four factors of production (land, labour, enterprise, and capital). The entrepreneur will need to stay on top of both day-to-day tasks and long-term planning. It also involves giving orders, making arrangements, and putting systems in place. 

Risk takers – Starting a new business carries a lot of risk; an entrepreneur must be willing to put their money, time, and possibly their old job on the line, as well as make calculated decisions, in order for the business to succeed. 

Limited and Unlimited Liability 

• Limited liability – means that the business owner or owners are only responsible for business debts up to the value of their financial investment in the business. This means that a creditor can only take assets or finances belonging to the company. Limited liability only applies to certain types of business, such as private limited companies. 
• Unlimited liability – means that the business owner or owners are personally responsible for all of the debts of the business, no matter what the value. 

The main difference between unlimited and limited liability is the level of risk that a business is willing to take. Having unlimited liability is a bigger risk for any business than having limited liability. 

Unincorporated vs Incorporated Businesses 

• Unincorporated – businesses where there is no legal difference between the business and the owner. 
• Incorporated – businesses that have a separate legal identity from its owners. 

Sole Trader 

Sole traders or sole proprietors are businesses owned by one single person. 

● They are usually small in size. (E.g Hairdressers, gardeners) 

Advantages 

➔ Sole trader makes all the decisions (flexibility) 

➔ Starting up as a sole trader is legally the easiest of all types of ownership 

➔ Can keep all the profits 

➔ Independent 

Disadvantage 

➔ Can be difficult to raise finance 

➔ Unlimited Liability 

➔ Sole traders tend to work long hours. This is because they have to shoulder the full burden of responsibility for their business. 

➔ No continunity

Features of a Partnership 

• Partnership – business owned by between 2-20 people. 
• Deed of partnership – binding legal document that states the formal rights of partners.
  • A partnership is a business set up by the deed of partnership document. This includes:
    • ➔ How much control each partner has 
    • ➔ How profit and losses will be shared among the partner 
    • ➔ Rules for taking up on new partners 
    • ➔ How much capital each partner contributes to the business 

Advantages and Disadvantages of Partnership 

Advantages 

• ➔ Partnerships can raise more finance than sole traders. Banks are more likely to lend money to an organisation that has many partners than to a sole trader. 
• ➔ Different partners can bring different skills to the business. 
• ➔ Partners can share the workload and responsibility of the business between them. In comparison a sole trader has no-one with whom to share their workload and responsibilities. 

Disadvantages

• ➔ Partners may disagree and argue about the future direction of their business 
• ➔ Any profit made is shared between two to twenty people. 
• ➔ Like sole traders, partnerships have unlimited liability. All partners have the worry of being liable for any business debt the partnership has. 

Limited Partnership 

Limited partnerships are partnerships where some partners contribute capital and enjoy a share of the profits but do not take part in running the business. 

Limited liability – is when business owners are only liable for what the original amount of money invested in the business. 

Audits – officials examine a company’s financial records in order to check that they are correct. 

Features of Franchises 

Franchise structure in which a business(the franchiser) allows another operator (the franchisee) to trade under their name. E.g McDonald’s, Subway 

Franchise – the right given by one business to another to sell goods using its name Franchisee – a business that agrees to manufacture, distribute or sell branded products under the licence of a franchisor 

Franchisor – a business that gives franchisees the right to manufacture, distribute or sell its branded products in return for a fixed sum of money or royalty payment 

What does the franchisor offer to the franchisee?

➔ Licence for the brand name 

➔ Advice, essential equipment and brand material 

➔ Training on running the business 

➔ Materials,equipment and support 

➔ Marketing support 

➔ A geographical area enough without the pressure of competition from once own brand 

In return for these services the franchisee has to pay certain fees such as: 

➔ an one-off start-up fee 

➔ an ongoing fee 

➔ contribution to marketing costs 

➔ franchisors may make a profit on material,equipment and merchandise supplied to franchisees. ( Merchandise – goods that are being sold) 

Features of Social Enterprises 

Some companies are classified as social enterprises. Rather than making a profit for the owners, these aim to improve human and environmental well-being. They are sometimes referred to as not-for-profit organisations. Generally, social enterprise: 

• Have a clear social and/or environment mission 
• Generate most of their income through trade or donation 
• Accountable and transparent 

Social enterprises may take a variety of forms. 

• Cooperatives usually operate as consumer cooperatives or retail cooperatives. They are owned and controlled by their members.
  • Cooperative – company, factory, or organisation in which all the people working there own an equal share of it. 
  • Consumer Cooperative – cooperative that is owned by its consumer. 
  • Retail Cooperative – members of a retail cooperative who frequently join together to express their purchasing power. 
• Worker Cooperative – cooperative that is owned by its employees 
• Charities – exists to raise more money for good causes.