Research Task 2

 

L4 Creative Enterprise

Unit 1: The Creative Entrepreneur

Research Tasks

Task 2: Types of Business in the UK

Investigate and identify the various types of business in the UK, this should include:

•sole traders

Sole traders are typically the smallest and easiest legal structure for a business. For a sole trader, there is minimum paperwork to get set up and can be founded quickly. Sole traders really can be as easy as offering services such as painting, landscaping or electrical work and getting paid cash in hand that very day. This is a particularly effective method for entrepreneurs who may be bootstrapping or at least have little funding who want to get their business rolling as soon as possible. As a sole trader, the entire business works around you which is mainly beneficial. For example, you get to be your own boss, control your working week and if successful, get paid much more than your typical 9-5 salary. However, this does result in little opportunity for time-off, can require money on start-up fees and the sole trader’s organisation needs to be on point in order to survive, the most vital aim and objective for all businesses. One of the core disadvantages to a sole trader however is unlimited liability. This means that if the business finds itself in debt, the sole trader’s personal funds and assets will be required to pay the outstanding balance. This is particularly dangerous for sole traders who take out small business loans from banks. For example, if the business finds itself in debt for £100,000 the trader may even need to sell their house to avoid bankruptcy. However, the freedom and control of being a sole trader can be very appealing to aspiring entrepreneurs.

•limited companies

Limited companies make up the majority of well-known successful businesses. Limited companies are typically organised and managed by a team of people to break up expertise and broaden the number of tasks which can be completed, rather than one person controlling everything. However, unlike sole traders, the business is owned by the shareholders who invest in the firm. This is defined by two categories of limited companies, Ltd and PLC. An LTD (limited companies) can only be invested in via invited investors or accepted requests. Unless you are granted access or invited, there is no way of buying shares in the business. On the other hand, a PLC is part of the big-league businesses. A PLC (public limited company) is open to invest from anyone on the London Stock Exchange such as Nike, EasyJet and Tesla for example. The core difference between sole traders and limited companies are limited liability. This means the business has its own government identity. This means that if in debt, the business can only pay as much as it invested in. For example if the business invested £60,000 to start, and are £100k in debt, they will only lose the £60,000. A limited company requires much more paperwork and start up fees yet in the long term is the safest option.

•partnerships

A partnership is relatively similar to a sole trader. The main difference is simply the number of owners in the business. A partnership can range between 2-20 different owners which has many advantages and disadvantages depending on the number of owners. With two or three owners, it is much simpler to make decisions quickly as there is fewer people to please and share the same motivation for the business. Yet with a board of 10-20 owners, there is likely to be too many debates, discussion and disagreements which can reflect badly on the business as organisation will become unclear. On the other hand, more hands make lighter work, which results in a much wider horizon of expertise, experience and new ideas to the table. Great teamwork, communication and joint motive is essential to run a partnership successfully. Likewise to sole traders, partnerships run with unlimited liability.

•social enterprises

Social enterprises are an unusual yet highly effective way of profiting capital – whilst infusing a good cause. A social enterprise consists of a product or service where 50% of profits are refunded into the business for a charitable course. The most local example of a social enterprise would be the prison café in Norwich, where inmates are allowed to work in the kitchen and front of house in order to gain employability skills and feel a glimpse of success. This is still a full functioning café with relatable aims and objectives as any other catering facility to profit, but with a much stronger Corporate Social Responsibility which is to help bring reality back to the prison inmates. The only criteria for a social enterprise is to ensure that at least 50% of profits is reinvested into the business for a good cause. This is particularly desirable as a USP for the customers and puts faith back into humanity.

•charities

Social enterprises must not be confused with charities which is an easy yet critical mistake. Whereas a social enterprise will have the primary mission to profit and secondary mission to achieve charitable objectives, a charity has one core aim which is to help the cause they are supporting, regardless of the profit. For example, all of Oxfam’s profits go to their mission statement they support such as ending poverty and world hungover in under-developed countries. Another example is The Salvation Army which uses all of the profits to help prevent domestic abuse and homelessness. With a charity, the legal work and start-up teething issues are very challenging in comparison to other legal structures.

•unincorporated associations

Unincorporated businesses relate very similarly to sole traders, where the business has no legal identity, meaning the personnel is hold solely accountable for any financial and legal issues. A risky plan to skip some costs, time and paperwork. If a sole trader plans on having the business simply as a side-hustle or as a hobby, there may be no need to full incorporate the business.