For Profit (commercial) Organisations

Types of for-profit organisations

Unincorporated businesses businesses where there is no legal distinction between the owner of the business and the business itself–everything is carried out in the name of the owners.

E.g., sole traders and partnerships.

Incorporated businesses businesses that have a separate legal entity from their owners.

E.g., private limited companies and public limited companies.

Unincorporated.
Individual who owns a personal business.
Responsible for success or failure.
May work alone or employ others.
Startup capital usually includes personal savings and borrowing.

Sole trader an individual who runs and owns his own business.

Advantages

Fewer legal formalities.
Profit goes directly to one owner(direct).
Autonomy.
Personalised service.
Privacy of financial accounts.
Setup costs are inexpensive and time-saving.

Disadvantages

Unlimited liability (unincorporated).
Limited sources of finance (hard to obtain bank loans).
High risk.
Workload and stress.
Limited economies of scale.
Lack of continuity.

Partnerships a profit-seeking business owned by multiple people (at least two).

Unincorporated.
Ordinary partnerships have a maximum of 2–20 people.
Money can be pooled from partners’ personal funds which have financial stake but don’t actually make decisions (silent partners).
At least one partner must have unlimited liability.

Advantages

Set up costs are inexpensive and quick.
Financial strength (more partners means more personal funds).
Specialisation and division of labour due to multiple partners.
Financial privacy (no need to publish accounts).

Disadvantages

Unlimited Liability (unincorporated).
Prolonged decision making.
Lack of harmony.
Profits must be shared among multiple partners.

Private Limited Company (Ltd.) a company that cannot raise share capital from the general public. The shares are sold to private family members and friends.
E.g., IKEA, Lego, Rolex, Chanel, etc.

Advantages

Limited liability.
No limit on the number of owners.
Shares can only be sold privately.
Better decision making.
Easier to raise additional funds.

Disadvantages

Profits have to be shared among much larger number of members.
Setting up business takes time and it’s costly.
Company’s financial accounts are public.
No member has full control of the company.
Firms are not allowed to sell their shares to the public.

Public Limited Company (PLC) Often big, multinational companies boasting large numbers of employees that are able to advertise and sell its shares to the general public via the stock exchange.
E.g., China mobile, HSBC, Samsung, Nike, etc.

Flotation occurs when a business first sells all or part of its business to external investors (shareholders). This process is known as an initial public offering (IPO).

Advantages