Explanations Of Types Of Business And Their Advantages Commerce Essay

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The knowledge of types of business is just basics. To become a successful business man you need to know everything about business and also must have abilities like withstanding pressure, active decision making, customer service and dealing with financial issues.

A sole trader business is owned by one person and can be started up by a small capital. Let's move to the second type of business which is Partnership. It is owned by two or more people and is a fast growing business but the trouble with this business is that everybody wants to be in control and therefore more conflicts. The third type of business is Limited Companies. It is run by the directors of the company and owned by the shareholders but the shareholders most of the times do not involve in running of the company and therefore if there's a loss the company has to recover it instead of the individual members/employees. The last type of business is franchises; franchises are set up on a licensed agreement by one person or a group of people. The franchises have the right to sell goods using the name of a famous brand with the license of the brand. The main disadvantage of a franchise is that you cannot introduce any product of your own and also the profit has to be divided between franchises and franchisor (just for their brand).

In conclusion to the research carried out, Sole trader is the most reliable type of business for starting up a new business.


This report is being written to Mr Joe Gillis by the financial director of the TRS Company Mr Awais Bin Khalid. Mr Joe wants to start a small publishing business and needs advice on type of business he should start with. This report covers the pros and cons of different types of business and which type of business Mr Joe should adapt for starting his business. Besides acknowledging the types of business every entrepreneur (the owner of business) has to formulate a plan depending on time period of business such as long term business and short term business. Another important thing that should be accounted while starting up a business is the location of the business. As Mr Joe is starting a publishing business he should chose a location that has a business environment and it would be even better if he set up his business in an area that has other publishing press that would provide him with more customers as the area is already centre of publishing business but that would also give him more competition. While keeping all these things in mind an entrepreneur must also possess the passion for the field he/she wants to start business in, and in case of Mr Joe he should have passion for books and magazines. A successful business man must also possess skills like business and industry knowledge, self-motivation, management capabilities, customer service and lateral thinking.

Different Types of Business

Mr Joe following are all four types of business:

Sole Trader


Limited Company


Explanations of types of business and their advantages

Every type of business is different from other type of business and has its own advantages and disadvantages below are the explanation and advantages of all four types of the business:

4.1 Sole trader business and its advantages

Whenever opening a small business most of the experts recommend sole trader business, another name for sole trader business is sole proprietor. In sole trader business only one person owns and manages the business. The owner also owns all the assets and profits made from the business. It is the cheapest type of business to start with.

Sole traders have a benefit from the following advantages:

Control - self traders are the only owners of their business therefore they run the business as they like to and the business can't be brought down by interference of others.

Profit Retention - All the profit made in business is owned by the sole trader.

Privacy - The data of a sole trader business is never in public and therefore.

Speciality - The sole trader is expert in his business and can offer more services from their business which attracts potential customers.

Less Capital - As sole trader is often a small business so it is cheap to start with and requires less investment.

4.2 Partnership business and its advantages

Partnership business is often formed when two or more people invest money in same business, they do this because they might have common business point of view or they might believe that their business skills and talent complement each other in such a way that they might rise as a successful business team. The owners of a partnership business are the partners that invest into the money. The business owners share the profit and the assets that belong to the business. Advantages of a partnership business are as follows:

Capital - More partners means more amount of capital for the business which results in rapid and potential growth of the business and also more profit which is shared equally among the partners.

Flexibility - Partnership business are easy to organize and run and have less strict rules as long as the partners agree.

Shared responsibilities - Every partner has his own responsibility, that allows making the most out of their talent and there is no stress on any partner this results in a successful business.

Decision Making - More partners' means more brains hence more better ideas for the growth of their business.

4.3 Limited Company

This is the type of business which when started allows the owners of the business to keep their personal wealth and assets separate from the business, therefore it is a fine way to run a business without risking their personal wealth. It is run by the directors of the company and owned by the shareholders but the shareholders most of the times do not involve in running of the company.The Limited Company possess the advantages listed below:

Separate entity - The limited company is treated as a separate entity from its owners meaning that if members die or retire the company doesn't shut down.

Limited Liability - As mentioned earlier the shareholders invest in the company keeping their personal assets and money separate and these are not involved in case of debt or loss, this gives a feeling of security.

Revenue advantages - The limited company only has to pay tax for their profits which is a huge benefit

Using personal car - Unlike in other business types in Limited company you have to use your own car for business purpose which allows you to use tax free fuel.

4.4 Franchises

People often use the name of brand to blend in a successful business quickly; this is called as franchising business. Franchises are set up on a licensed agreement by one person or a group of people. The franchises have the right to sell goods using the name of a famous brand with the license of the brand.

Less failure - The security and publicity provided by the franchisor provides an impression to the franchises that they have very less chance of failure.

More profit - As you are using the name of a known brand you will attract more customers thus more profit.

Well established business - Working under a famous brand no need to work hard on establishing business as it is already established

Simpler financing - Investor are more interested in investing in an established business so they invest with confidence and sometimes franchisors would invest money too which would make the life of a business man easier.

5.0 Disadvantages of different types of business

Mr Joe Gillis Along with advantages each business also has a negative side which are listed below for each type of business:

5.1 Disadvantages of sole trader business

Liability - If a sole trader business gets into debt the owner is liable, in worse cases

the owner has to risk his house, wealth, and assets in or outside of the business.

Finance - It is always difficult for sole traders to find finance to raise funds for the development of their business.

Decision making - All responsibility of decision making is on the shoulders of sole trader and no good ideas from others.

5.2 Disadvantages of partnership business

Disagreements - This is a major problem in partnership business; all the partners might not agree on the same idea.

Control - Every partner wants to be in control of the company and tends to be wiser than others trying to apply their own ideas.

Profit sharing - Profit is shared equally between all partners whether they have invested equally or not this could lead to inconsistency.

5.3 Disadvantages of Limited company

Complex accounts - Limited company has a lot of strict and complex rules and regulations applied to their bookkeeping and accounts.

Cost - A limited company is expensive to setup.

Dilutions - It is difficult to tell that who are in charge of the company; the directors or the shareholders therefore disputes arise that who will decide what is best for the company.

5.4 Disadvantage of Franchises

Profit is shared - A cut from the profit of franchise business is given to the franchisor just for their brand name.

No ownership - The main disadvantage of a franchise is that you cannot introduce any product of your own and have no control of the business.

Risk from other franchises - If any of the other franchises would do something wrong that would damage the reputation of the brand name it will affect your business as well.

Recommendation of one business over another

When opening a small business it is recommended to start it as a sole trader as it requires less capital and you are the only owner of the business unlike other business types so there are less chances of bigger loss. If one likes to work in a team and does not have all the skills to manage an expanding business; one should go for the partnership business as it will grow the business more quickly and more responsibilities will be on all partners and more better ideas will arise, where in sole trader business only one person has to be responsible for all the work and decisions. If a business man wants to gain quick success and does not wants to work on establishment of business like in partnership and sole trader business he should start his business as a franchise of a well-known brand. If a person wants to invest a limited amount of money in a business then his choice should be the Limited company business as it gives him the feeling of security for his personal wealth and assets outside of the business, this benefit is not possessed by other types of business.

7.0 Conclusion

Mr Joe Gillis it is concluded that each type of business has some advantages over another, as you are starting a small publishing business it is my job to recommend you that you should start as a sole trader because it will allow you flexibility to make decisions on your own and you will learn more quickly and also it will not require a big amount of capital. However be aware that book publishing business requires a lot of attention therefore you have to quit your day job and also it is a very hard job so you should utilize your stamina to full extent. Keep in mind that you will start making good profit not before 3 years so be patient. Best of luck for your publishing business.