Business Fundamentals: Structures, Stakeholders, and Liability

Core Business Definitions and Stakeholders

Key Business Products

• Goods: Physical products.
• Services: Non-physical products.
• Consumer Goods: Goods and services sold directly to ordinary people (consumers).
• Producer Goods: Goods and services sold to other businesses.

Types of Enterprise Ownership

Ownership determines who controls and benefits from the enterprise:

• Private Enterprise: Owned by individuals.
• Social Enterprise: A resource focused on objectives other than profit maximization.
• Public Enterprise: Owned and controlled by the government.

Understanding Stakeholders

Stakeholders are individuals or groups with an interest in the business's operations and success. Key stakeholders include:

• Local community
• Owners
• Suppliers
• Customers
• Government
• Employees
• Managers
• Shareholders

Roles of Key Stakeholders

• Owners: They are responsible for setting up and running the business.
• Shareholders: They invest money in a business and receive a share of the profit, known as a dividend.
• Employees: They work for the business; their salary often depends on the company's performance.
• Managers: They are tasked with leading teams, solving problems, and making critical decisions.
• Financiers: They lend money to businesses (e.g., banks or investors).
• Local Community: They are impacted by the business, which often provides jobs and affects the local environment.

SMART Objectives Framework

The SMART framework is used for setting effective goals:

• Specific
• Measurable
• Achievable
• Realistic
• Time-bound

Legal Structures of Business Entities

Sole Trader

The Sole Trader is the simplest form of business ownership. It has one owner and can employ others. Generally, there are no complex legal requirements for setup. However, all sole traders face unlimited liability.

Advantages of a Sole Trader

• Simple to set up.
• Independent decision-making.
• The owner keeps all the profit.

Disadvantages of a Sole Trader

• Unlimited liability (personal assets are at risk).
• High level of responsibility.
• Often involves long hours of hard work.

Partnership

A Partnership is a business owned by between 2 and 20 people. The owners share the responsibility and the profits.

Partnership Legal Requirements

A formal agreement should state the partners' rights and responsibilities, covering:

• How much capital each partner will contribute.
• How profits will be shared among partners.
• The procedure for ending the partnership.
• The amount of work commitment required from each partner.
• Rules for admitting new partners.

Advantages of a Partnership

• Easy to set up with few legal formalities.
• Partners can specialize in their area of expertise.

Disadvantages of a Partnership

• Unlimited liability (unless structured as an LLP).
• Profit must be shared among partners.

Limited Liability Partnership (LLP)

In an LLP, some partners may provide capital but take no part in the management of the business—these are often called sleeping partners. A sleeping partner will have limited liability and can only lose the original amount of money they invested. Crucially, at least one partner must retain unlimited liability for the business debts.

Limited Companies

Limited Companies are incorporated, meaning they have a separate legal identity from their owners. This separation allows the company to:

• Own resources.
• Enter into contracts.
• Employ people.
• Sue and be sued.

The business raises money by selling shares. Shareholders are joint owners of the company; they vote on important matters and receive dividends.

Taxation Difference: Whereas sole traders and partnerships pay income tax on profits, limited companies pay corporation tax on their profits.