Forms of business organisations and arrangements - Part 1
Yvonne Harvey, Contributor

Students study under the trees at the Seaforth High School, in St.Thomas, on Friday, September 21. - Peta-Gaye Clachar/Staff Photographer

THE SPECIFIC objective for this topic shows that students should be able to describe the various forms of business organisations and arrangements. We will begin by classifying the different types of businesses that you are required to know under two different headings: private sector businesses and public sector businesses.

At a later date, we will look at and compare the two sectors, which appear in a mixed economic system.

The Sole Trader

The sole trader is the simplest, most common and oldest form of business where there exists only one owner. This type of business is also known as the sole proprietor business. Examples: retailers, restaurant owners, barbers, taxi drivers, dressmakers, etc., all of whom are the sole or single owners of their businesses.

Characteristics of the Sole Trader

1. The owner and the business are one and the same, that is, they are not separate entities.

2. They are mostly small businesses that require very little capital to set up.

3. Sole trader businesses are easy to establish, as there are very few legal requirements.

4. This type of business is usually financed by the owner from personal savings, inheritances or by borrowing from friends and relatives. The Small Businesses Association of Jamaica also lends money to sole traders to set up business.

5. The owner makes all the decisions and manages the business himself.

6. The owner bears all the risks and has unlimited liability. Unlimited liability means that his obligation in the business is not limited to his investment in the business, but it may involve his having to sell his personal belongings to help out the business.

7. All profits belong to him as the sole owner.

8. Many sole traders are assisted by family members and paid employees.

9. Sole traders often have to work long hours, rarely taking a break or vacations.

10. Lack of continuity, that is, if he dies, the business comes to its end.

11. The sole trader may do business under his own name. If he uses any other name, it must be registered with the Registrar of Business Names.

Legal Aspects

There are virtually no legal formalities for this type of business. However, depending on the type of business, a permit or license may be required.

The business and its owner are inseparable, that is, they are one entity not two entities.

Advantages

1. The business is simple and easy to start.

2. Decision-making is quick and easy.

3. There is close personal contact with employees and customers.

4. The business is flexible.

5. Profits do not have to be shared.

6. Longer opening hours.

7. Businesses of this type are fairly easy to manage.

Now for the disadvantages.

Disadvantages

1. Nobody to consult in making decisions.

2. Lack of continuity.

3. Unlimited liability.

4. Limited expansion of the business because of a lack of capital and low profits.

5. The sole trader is responsible for finding all the capital.

6. Long working hours with little or no vacation.

7. He has to bear all the risks and losses on his own shoulders.

8. Owners often lack managerial skills, technology and specialised staff.

Of course, you know that you will not get off 'scotch free', so here is your homework question.

Read over the lesson and try to answer the question without looking at the lesson or any other source relating to the topic.

(a) Define the term 'sole trader'. (2 marks)

(b) Give two facts regarding the legal aspects of the sole trader business. (2 marks)

(c) Suggest two sources of funding for the sole trader business. (2 marks)

(d) Discuss three features or characteristics of the sole trader business. (6 marks)

(e) (i) Discuss two advantages of the sole trader. (4 marks)

(ii) Discuss two disadvantages of the sole trader. (4 marks)

Total marks: 20

In our next lesson, we will consider partnerships and private limited companies. Have a good week. Bye for now.

Yvonne Harvey teaches at Glenmuir High School.