Business Activity and

Influences on Businesses
Chapter 3
Sole traders, Partnerships, Social Enterprises,
and Franchises
 Private Sector Business Public Sector Business

Primary By ownership
Sector Small Business
By Activity

By Size
Secondary Medium
Sector Types of Business
Business

Tertiary Large Business

By legal form
Sector

Unincorporated Incorporated
Business Business
 Business Sector in terms of ownership

Private Sector Businesses Public Sector Businesses

• Businesses owned by private individuals,
• Businesses owned and controlled by government.
not by government. • The government makes decisions about
• The businesses can make their own decisions
what to produce, how to produce, and what
about what to produce, how to produce, what
price should be charged.
price should be charged. • Most businesses are run for public services.
• Most businesses are run for profit making.
• Some goods and services are provided free of charge
• No political interference
to customers.
 Sole tradership • moneys for these come from tax payers
 Partnership • Subject to political interference
 Joint venture
 Private limited company  Public corporation
 Public limited company
 Franchise
 Cooperatives (Social Enterprise)
 Legal Form of Business

Unincorporated Incorporated
Businesses Businesses

• Sole Tradership • Private Limited Company

• Partnership • Public Limited Company
• Public Corporation (Government)
• Franchise
• Social Enterprise
Legal Form of Business
• Unincorporated (setting up without meeting legal requirement)
• Businesses which has no separate legal identity from its owner; Everything is to be carried out in the
name of the owner (contract, sue and be sued)
• The owners have unlimited liability (take full responsibility of the debts of the business; in case of
business failing to pay its debts, the owners can be forced to pay the debts with their own money)
• The business would cease as the owner dies
• Tend to be small businesses and owned by one person or small group of people (sole traders and
Partnerships)
• Incorporated (Setting up by meeting legal requirement)
• Business that has a separate legal identity from that of its owner; The business can sue, be sued,
take over or liquidated in its own business name
• The owners have limited liability (they are not personally liable for the debts of the business; in case
of business failing to pay its debts, the owners cannot be forced to pay the debt with their own
money)
• The business would continue to exist if one of the owners die.
• Tend to be Limited companies and they are owned by shareholders
 Features of Sole Traders/Sole Proprietor
• Business owned by one person but can employ any number of people
• The simplest form of business organization
• Setting up sole trader is simple because there are no legal requirement
• Owners have unlimited liability; they have to take full responsibility of the
business debts, if the business fails to pay its debts, the owners can be forced
to pay the business debts by selling his own personal properties.
• Sole traders may be farmers or fishermen, small builders or manufactures
• Most sole traders are found in the service sector; retailers running small
shops, web design, tutoring, hairdressing, taxi driving, garden maintenance,
etc.
 Advantages and Disadvantages of Sole Traders
Advantages Disadvantages
• The owner keeps all the profits. This would be • Owners have unlimited liability: The owners are
incentive to work hard since they don’t have to fully responsible for any debts that the business
share the profits with others. may have.
• The owners are their own-boss. They are
• May struggle to raise finance since they only rely
independent and complete control over the
business. There is no need to consult with other on their personal saving, profit made by the
before decision making. business and small bank loan. They may have
• It is simple to set up with no legal requirement. difficulty to expand the business.
• Flexibility; the owners has the freedom to choose • Too much responsibility since they have no any
his own holidays, hours of work, price to be partners to discuss and share the business
charged, and who to employ. matters.
• Can offer a personal service because they are small • Long hours and very hard work
and have close contact with their own customers
and ability to respond quickly the customers needs
• Too small to exploit economies of scales; capital
and wants. for expansion is restricted.
• complete secrecy in business matter; They don’t • No continuity – the business dies with the owners
have to give financial information to public; (no separate legal identity from the owners)
• May qualify for government help
 Features of Partnership

• Business owned and managed by two or more people (20 partners are maximum).
• h is form of business organization is popular with professions such as accountancy, law and
dentistry.
• Partners contributed capital to the business and share responsibility for running business.
• They also share profit/loss made by the business.
• No legal formalities to set up the partnership
• Deed of partnership is required
• Legal document stated the formal rights of partners in the event of disputes. Without it, there may be
some disagreement on who put most capital and who is entitled to more of profit.
• It includes
• How much capital each partner will contribute
• How profit/loss will be shared
• The procedure for ending the partnership
• How much control each partner has
• Rules for taking on new partners and retirement of partner
 Advantages and Disadvantages of Partnerships
Advantages Disadvantages

• Easy to set up and run because of no legal • Partners have unlimited liability. If the business
formalities fails to meet its debts, partners are forced to
• The job of running a business is shared. sell their own properties to pay business debts.
Partners can specialize in their area of • Partners may disagree and fall out. Consulting
expertise. This would give the benefits of take many times.
effectiveness and efficiency. • Any partner’s decision is legally binding on all. If
• More capital can be raised with more one partner is inefficient or dishonest, the other
owners. It is more easier to expand the partners could suffer by losing money in the
business. business.
• Financial information is not published. (cost • If one partner died, the partnership would end.
effective, prevent from competitors’ (no separate legal identity from the owner)
exploitation) • Profits has to be shared.
• Any losses can be shared between partners. • Partnerships still tend to be small.
 Three Types of Partnership
• General Partnership: Partnership where all partners involve in the day-to-
day operation of the business and all have unlimited liability for the debts of
the business
• Limited Partnership: Partnership where some partners have limited liability
status; they are sleeping partners who contribute capital but do not take part
in running the business. However, at least there must be one partner with
unlimited liability.
• Limited Liability Partnership: Partnership where all partners have limited
liability. In 2000, the law changed in the UK so that limited liability
partnership can be formed.
Features of Franchises

• A franchise is a form of business organization in which a firm which already has a successful
product or service – called the franchisor – agrees to allow another business – called the
franchisee – to use the franchisor’s trade name, logo and products in exchange for a fee.
• Th is a popular way for multinational businesses to expand across many countries. For example,
there are very few countries in the world that do not have a McDonald’s! Most of these are
franchised outlets.
• The franchisee makes the decision about whether to operate as a sole trader, partnership or
incorporated business organization.
• Franchises suit someone who wants to run a business but does not have their own business ideas.
• Franchisors are owner of the franchise who developed successful business ideas and allowed
other business its brand name and ideas.
• Franchisee is business which pays fees to the franchisor (business who receive the right to
operate).
• Examples are McDonald’s, Subway and Avis.
Features of Franchises Cont’d
• What does the franchisor offer the franchisee?
• A license to trade under the recognized brand name of the franchisor
• A start-up package (help, advise, essentially equipment, branding materials)
• Training in how to run a business and operate the system
• Materials, equipment and support services
• Marketing support
• An exclusive geographical area
• In return for these services the franchisee has to pay certain fees.
• A one-off start-up fee
• An ongoing fee (usually based on sales)
• Contribution to marketing costs
• Franchisors may make a profit on some of the materials, equipment and
merchandise supplied to franchisee
 Advantages and Disadvantages of Franchises to Franchisee
Advantages Disadvantages
• Less risk- a tried and tested idea is used, the chance • Can be an expensive way to start up a business;
of failure is reduced because a well-known product license fees must be paid to the franchisor and
is being sold. possibly a percentage of the annual turnover.
• Back-up support for start-up business, necessary • Profit is shared with the franchisor who take a
materials, equipment and merchandise, advise and
operation manual. Training for employees and
percentage of the revenue or profits made by the
managers is provided by the franchisor. franchisee each year.
• fewer decisions are to be made prices, store layout • Lack of independence since strict contracts have to
and product range are decided by franchisor. be signed and strict operating rules are to be
• National marketing may be organized by franchisor. applied; For example, if you go to different
McDonald’s restaurants you will see that they all look
• The franchisor will already have checked the quality very similar and sell identical products.
of suppliers, so the franchisee is guaranteed quality
supplies. • The franchisee will still have to pay for any local
• Set-up costs are predictable promotions they decide to do.
• May be unable to make decisions that would suit
local area.
Advantages and Disadvantages of Franchises to Franchisor

Advantages Disadvantages
• Fast and cheaper method of • Poor franchisees may damage the
growth since franchisor do not brand’s reputation of the whole
need to finance all the outlets. business
• Franchisees take some of the • Potential profit is shared with
risk. franchisee
• Franchisees may get merchandise
• Franchisees are more motivated
from elsewhere
than employees.
• Cost of support for franchisees may
be high
Features of Social Enterprises
• Business that aims to improve human or environmental well-being rather than profit making
for the owners.
• SEs exist to meet social and environmental needs and make a positive impact in their
community. (create positive social change)
• Not-for-profit or not-profit organizations.
• Their features are;
• Clear social/environmental mission (create jobs for disabled, reduce inequalities, recycle everywhere
possible, eliminate waste and pollution)
• Generate income through trade/donations/funding/grants/ sponsorship/ membership/ crowdfunding
campaign
• Most of the profits are reinvested in the business/social mission or in the local community
• Majority controlled in the interest of the social mission
• Accountable and transparent for their actions
• Take a variety forms; consumer cooperatives, retail cooperatives, workers cooperatives,
charities, community-based organizations.
 Co-operatives and Charities
• A cooperative is a legal entity owned by a group of people who have common
economic, social or cultural needs.
• Consumers/retail cooperatives are owned and controlled by their members who
provide capital in the form of shares. Members are entitled to elect directors to
make key decisions. Profits are given to members.
• Workers cooperatives are businesses in which its employees share ownership.
Workers contribute to production and be involved in decision making, share in the
profit, and provide some capital when buying a share in the business.
• Charities such as UNICEF, Oxfan, Save the children exist to raise money for good
causes and draw attention to the needs of disadvantaged groups in society, for
example, children, elder people, disable people, etc. Charities rely mainly on
donations for their revenue, however they may organize fundraising events such as
cake sales, sponsored activities, selling greeting cards, and running charity shops.
 Social Enterprise Examples in Myanmar
• Hla Day handmade products (works with local artisans, disadvantaged groups and small local
business)
• Yangon Bakehouse training café (provide disadvantaged local women with job skills and
experience, life skills training and opportunities for future employment)
• Shwe Sa Bwe training restaurant (provides underprivileged Myanmar youths with culinary and
services courses training)
• Pomelo handmade products (local artisans using locally-sourced materials)
• LinkAge restaurant and art gallery (cooking and service vocational training to Yangon street
children)
• FXB Myanmar handicrafts (provides young people who are at risk from HIV/AIDS and human
trafficking with tailoring, weaving, furniture making, interior decoration, and metal and wood
work)
• Microfinance businesses
• Cooperatives
• Community-based tourisms
 Test your understanding
Which of the following is an advantage of sole trader?
A. Limited liability C. Unlimited liability
B. More capital can be raised than a partnership D. Independence for owners

Having a clear social and/or environmental mission is a feature of

which business structure?
A. Franchise C. Social Enterprise
B. Sole trader D. Partnership
 Test your understanding
A fast method of growth is a key advantage for which business structure?
A. Franchisor C. Franchisee
B. Partnership D. Social enterprise

Taking risk in business is a key role of which the following?

A. Accountant C. Company Director
B. Entrepreneur D. Marketing Manager
Large Vs Small
 Past Questions Extract (Edexcel)
(1) Explain one disadvantage of being in a partnership. (3/20/paper1/Edexcel)
(2) Explain one benefit to a business of being a partnership. (3/21/paper1/Edexcel)
(3) What is meant by the term ‘partnership’?
(4) How would a deed of partnership benefit Azeem?
(5) State one reason why Tom Baker set up his business as a social enterprise.
(1/20/paper1/Edexcel)
(6) Do you think DGC should open shops in country Z as a franchise? Justify your answer.
(7) Explain one advantage of being a franchisee. (3/19/paper1/Edexcel)
(8) Define the term social enterprise. (1/20/paper2/Edexcel)