Unit 1 Task 2

Types of Business in the UK

When starting up your own business, especially as an entrepreneur, there are multiple different business structures that you can decide to run your business under, each having several different advantages and disadvantages that could sway you depending on what kind of business you're aiming to run and what your goals are in the long run for your business. I'll be going through each of the main different structures, what they mean and how they operate.

Sole Trader

To start off with, the first business structure to talk about is the Sole Trader business. A business run by a Sole Trader is a business that is run by a single person as an individual who happens to be self-employed. By running a business in this method, you're able to keep any profits you make entirely for yourself (once you've paid the necessary taxes on them, mentioned in the PESTEL analysis from the last task). Whilst you're responsible for obtaining the primary income for the business yourself, this also means that you're fiscally responsible for any losses that the business makes and how you'll recover from that. Additionally, running a business as a sole trader will mean a lot of the responsibility will fall onto you as an individual, potentially putting a lot of pressure and stress on a first-time entrepreneur. In my opinion, whilst this business feels very individual and separate from most boring corporate structures, I feel that having that much responsibility on myself as an individual would greatly overwhelm me as a business owner, making this model less of a desirable one.

An example of a creative business run by a Sole Trader would be one of my case study businesses; Jon Gibbs Photography. Jon Gibbs Photography is run entirely by Gibbs himself, with no employees and all the profits going to him as an individual, clearly making his business fall under the Sole Trader structure.

Limited Company

The next business structure to mention would be the Limited Company structure. As the name may suggest, the Limited Company differs from a Sole Trader business in the sense that a lot of the liability on the owner is limited depending on the shares and investments made directly by the owner themselves. In simpler terms, the assets and income of the owner are entirely separate from the assets and income of the company as a whole. Most companies that operate as a Limited Company will have an abbreviation following their name, commonly Ltd., PLC or LLC. The benefits of a company operating under this structure are obvious - if the company were to fall under due to any number of reasons, then the owner would be far less responsible for the debts and lost assets of the company, still maintaining all of their personal earned income and their assets. Of course, the limited company does have downsides as well - you'll have far less privacy and independence running a limited company and will have to face far more rigid taxation rules than a sole trader would. In my opinion, this business feels like a slightly better option than the Sole Trader for a first-time business owner like myself, as less of the responsibility is on me, reducing the potential of getting overwhelmed.

An example of a creative limited company would be the local Trett Films Limited. Whilst the company is run by only two people, making it seem suitable for the sole trader business structure, the company is named as 'Trett Films Limited' on their website, leading me to believe that they fall under the limited company structure instead.

Partnership

Another business structure that can be used to run a business is the Partnership model. A partnership is, as the name obviously suggests, a business that's owned by two or more people. When the business begins, a deed of partnership will be written up to state several guidelines for the business: the type of partnership, how much money has been contributed by both owners and how profits/losses will be shared between them. This splits the responsibility between the two owners of the business, meaning that they'll only lose as much as they were willing to lose between the two in their agreement. Whilst this is a nice boon, each individual member of the partnership will also earn less overall as they'll be effectively sharing the profits of the business together which could breed resentment if the two only started the partnership to make money. In my opinion, this feels slightly better than both a limited company and a sole trader, as it's more independent than a Ltd but splits more of the responsibility than running a business as a sole trader (and as someone who isn't interested in becoming extremely rich and famous, the smaller amount of pay isn't an issue).

Whilst I'm not entirely sure, I believe a good example of a partnership business would actually be the huge company Warner Bros Studios. According to Wikipedia, the company was founded by four brothers who travelled around showing off their films to people as they travelled. Whilst I doubt that the company could still be classified a partnership, I feel very comfortable in saying that it definitely started off as a partnership - founded by more than two people with everyone sharing the responsibility.

Social Enterprise

Unlike the previous business structure examples, a Social Enterprise is a slightly wider business model than examples like a Ltd or a Partnership. Any business can be a Social Enterprise as long as the main goal of the company is a goal to give back to the community, whether this be through an environmental method (e.g. planting trees) or through encouraging social change. As long as your business aims to have a community-oriented goal rather than a profit-oriented goal, your business can be classified as a Social Enterprise. Considering this, a great number of other business structures can fall under a Social Enterprise, including some of the following business structures. The benefits of a social enterprise are the ability to enact positive social change throughout the world, although this comes at the cost of potential profits made at the price of some moral leeway (whether or not this is right is not something I'm willing to debate in the middle of this essay). Quite obviously, I'd like for my business to not be primarily for making money and would instead want to strive for a genuinely progressive goal such as helping people. However, I do have to be realistic when considering my business and whether operating as a Social Enterprise would allow me to survive with high enough profits.

An example of a business that falls under the umbrella of Social Enterprises would be the National Centre of Writing in Norwich. The NCW is a company that doesn't focus on making profits at all; rather, they aim to "support writers at all stages of their career", implying they have a goal to create social change by spreading the joy of writing to others. This obviously makes them fall under the description of a Social Enterprise. However, the NCW also fits another business structure due to the nature of social enterprises.

Charity

Unsurprisingly, the next business structure is a charitable organization.  Quite a lot of charities fall under the earlier title of a Social Enterprise due to their very nature as charities. In order for a business to be a charity, the goals of the company have to be for the benefit of the public with a charitable purpose rather than for financial gain. Any charity "cannot use assets for any purpose other than the pursuit of charitable objectives", meaning they can't use the assets gained for personal use or luxuries - rather, any money the company makes must be spent furthering their charitable goal. The upsides and downsides for a Charity are almost identical to that of a Social Enterprise: the ability to enact social change or do better in the world at the price of potential income that can be used for your own well-being. Whilst I love everything that charities do, I don't feel that I could operate my own business as a charity due to needing a way to make money. I'd definitely donate some of my profits to charities, but don't feel that a proofreading business could operate very well as a Charity.

As mentioned earlier, the National Centre of Writing is a charity as well as a Social Enterprise. They're officially listed on the government's charity commission, with the charity number 1110725. None of their profits are used for the personal financial gain of the owners, and is instead used to further their goal of spreading literature throughout England.

Unincorporated Association

The final business structure that I'll be mentioning is the Unincorporated Association, which has quite a few similarities to charities and social enterprises due to the nature in which they're formed. For a business to be an unincorporated association, it simply has to be agreed upon by a group people for any non-profit related reasons, whether that be to make social change or just to give people a good time. There's no registration or costs needed to set up an unincorporated association - just the agreement and non-profit oriented goal makes it operate as such. Naturally, due to this, all the members of the association are independently responsible for debts and contractual obligations that may occur due to the formation of the association. Similarly, if the association begins to make a profit, they'll have to begin paying corporation tax and file tax returns just like a limited company. This definitely doesn't feel like the sort of business structure I'd want for my own personal business, as I don't intend to set up this business with a group of people and don't intend to have a goal that isn't primarily for profit (although this doesn't mean I'll be focused entirely on just making money).

A good example of an unincorporated association would actually be the majority of the clubs going on around the college - the D&D club, debate club, etc. These clubs were formed by a group of people with goals that didn't revolve around making profit. Due to this, the college clubs fall under the bracket of an unincorporated association.

Conclusion

To conclude, there are quite a number of different business structures that one could use to operate their business under. For myself personally, I feel that the best options for my company would be either a Limited company or a partnership, as these take off a lot of the pressure on myself as an individual whilst still allowing me to make a decent profit. I'm leaning more towards the partnership due to the added independence given to me compared to a Limited company, although would need to find a partner to run the business with in order to take advantage of this.