Types of Private Sector Businesses

TYPES OF PRIVATE SECTOR BUSINESSES*

By Mike McLoughlin,
Youth With A Mission, Marketplace Mission
Visit the Scruples Small Business Forum at www.scruples.net for more information.

Type

Advantages

Disadvantages

Solutions

A. Sole Proprietor: Owned and operated by one person (Sole Trader).

Liability

Ownership

Capital

Control

Objectives

Personal 100%

All of it.

Owner

Profit

Easy to start.

Simple to operate.

Owner has full rights to the profits of the business.

Personal Contact with Customers

You are the Boss!

Personal Liability for your debts. Creditors can seize your bed!

Not much legal protectn.

Must find all the capital.

Too small to prosper.

Ends when Owner dies.

Manage the risk. Place ownership of personal items in the name of another person.(Spouse.)

Get a Will registered.

Look for a Partner to compliment you.

B. Partnership: A group of business professionals combine resources into one business.

Liability

Ownership

Capital

Control

Objectives

Personal 2 to 20

Split

Owners

Profit

More capital, skills, resources, expertise.

Shared decision making.

Spread the load.

The whole is greater than the sum of the parts.

Greater efficiency.

Personally liable for debts of other partners.

Must share the profits and also the losses.

Takes longer to decide.

Ends when Partner dies.

Partners disagree.

Make sure you have a written partnership agreement. (No handshakes!)

Decide before how you will split the pie (eg Abraham & Lot.)

C. Private Limited Co.: A business organized as a legal entity separate from the owners.

Liability

Ownership

Capital

Control

Objectives

Limited

2 to 50

Manager

Dividend

More Capital available.

Liability is limited to the assets of the company. The Creditor cannot take your bed!

Continues when a shareholder dies.

There is a limit to the amount of capital.

Potential loss of control to management.

Much legal paperwork.

Directors can be liable!

Higher Tax Burden.

Start with enough capital

Organize regular mgmt. reports to the Board.

Hire professionals to do your legal paperwork.

Pay your fair share of taxes.

D. Public Limited Co: A business organized as a public legal entity separate from the owners.

Liability

Ownership

Capital

Control

Objectives

Limited

7 plus

Manager

Dividend

Much more Capital available (Unlimited.)

Liability is limited.

Has room to grow

Provides jobs.

Potential for foreign investment.

Stock Market is a risky business. (eg Chilanga Cement.)

Share price can decline.

Lose control over management.

Hostile Take Over.

Be knowledgeable about the stock market and the risks.

Spread your risk over several companies.

Watch the market and be informed.

E. Cooperatives: A group of business people in a similar industry agree to pool their resources.

Liability

Ownership

Capital

Control

Objectives

Limited

10 plus

Manager

Dividend

More Capital available.

Liability is limited.

Resources can be pooled.

Able to borrow from Coop reserves.

More Democratic.

Low return on investments. (There is no upper limit on members.)

Loss of Control.

Takes longer to decide.

Disputes between members.

Get into it first!

Organize it properly and efficiently.

Have By-Laws & proper procedures for mgmt.

Cooperate with each other!

*PLEASE NOTE: "In whatever way a business is made up, a person owning and running the business should regard himself as having two responsibilities: --He must regard himself as a manager responsible to the owner for the proper conduct of the business and entitled to a fair living for doing so; he may also be the owner or investor who looks for a fair return on his investment, or the return of borrowed money. This means that the owner/manager is responsible to the business as though it were owned by someone else. HE MUST NOT TAKE CASH OR STOCK OUT OF THE BUSINESS EXCEPT AS A PROPER ARRANGEMENT. The owner/manager must regard himself as accountable to his business. Only by doing so and by keeping proper records will a business be able to measure its success and to grow and flourish. *(A Guide for Small Business Management. Standard Chartered Bank. page 9.)

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