The organisations listed below operate in the private sector as they are owned and controlled by private individuals or groups of individuals.

• Sole Traders
• Partnerships
• Private Limited Companies

Sole Traders

• Sole traders are owned by one person.
• The owner has control over all decisions made in the business.
• Start-up finance can come from
  • the owner’s own savings which they invest in the business.
  • Receive grants from the government
  • loans from the banks.
  • Once the business is established the owner may reinvest profit

Advantages

• No legal documents are required to setup.
• The owner has control over all decision
• As the owner makes all decisions, they can respond quickly to changing circumstances.
• The owner gets to keep all the profits.

Disadvantages

• Can be hard for the owner to take time off.
• Can be hard to raise finance
• Unlimited liability – if the business goes into debt the owner is personally liable for all the debt and may have to sell personal possessions and use savings to pay off debt.

Partnerships

• Partnerships are owned by 2-20 people
• Partners share control of the business – details of how much control each partner has may be outlined in a Deed of Partnership.
• Finance to start up a partnership may come from
  • partners’ own investment
  •  grants
  •  loans
  • reinvested profits.

Advantages

• Partners may specialise in areas of the business
• Partners can raise more start-up finance between them.
• Partners can share ideas and responsibilities
• Cover for each other if someone is unwell or on holiday.
• Partnerships are still relatively simple to set up in terms of legal documents.

Disadvantages

• Profits will be shared out between partners.
• They have unlimited liability for debts of the business so risk losing everything they own.
• Partners may disagree on how the run the business so there may be conflict in the direction.
• If a partner dies or wants to leave, the partnership cannot continue trading and must be dissolved and re-formed with new partners.

Private Limited Companies

• Limited liability companies are owned by shareholders
• In a private limited company shares can only be sold to people whom existing shareholders agree upon.
• ‘The business has limited liability. Each shareholder can only lose the finance they invested
• Day to day control is in the hands of the Board of Directors
• To set up a private limited company Articles of Association and a Memorandum of Association must be prepared.
• Finance to start a private limited company comes from
  • sale of shares
  • grants
  • loans
  • reinvested profits

Advantages

• Shareholders have limited liability and so cannot lose more than their original investment.
• Private limited companies can control who buys their shares, so they are not vulnerable to be taken over against their will.
• The business can sell shares to up to 50 people to raise finance for major projects.

Disadvantages

• Companies must be registered with the Registrar of Companies and submit financial statements.
• It is costly to establish a limited company – lawyers and accountants need to get involved.
• It may be difficult to get existing shareholders to agree who to sell share to.
• The greater the number of shareholders, a smaller the share of profit a shareholder receives.