1.2 Types of organizations Question 1.2.2 Flowers by Cam Cam Tran is a sole trader who operates a small florist shop in Forest Hill, London (UK). Cam arranges and delivers flowers to local hospitals, hotels and schools mainly in south-east London. From time to time, she also receives large orders for weddings. She has three school-aged children. [2 marks]
(b) Examine the costs and benefits to Cam Tran in operating as a sole trader. [6 marks] Source: photo courtesy of Cam Tran, owner of Flowers by Cam
Partnerships
• conditions for introducing new partners
A partnership is a profit-seeking business owned by two or more persons. For ordinary partnerships, the maximum number of owners is 20 (although this can vary from one country to another). The few exceptions to this rule include professions such as solicitors and accountants where issuing shares is prohibited.
• clauses for the withdrawal of a partner • procedures for ending the partnership. Some advantages and disadvantages of sole proprietorship are shown in Table 1.2.b on page 18.
Like sole traders, partnerships are financed mainly from the personal funds of each owner. However, partners can pool their funds together to raise more finance than sole traders. They can also raise money from owners who do not actively take part in the running of the partnership but have a financial stake in it. These investors are called silent partners (or sleeping partners) and are eligible for a portion of the profits. At least one owner must have unlimited liability, as partnerships are unincorporated businesses, but typically all partners share the liability. Although it is not a legal requirement, most partnerships formulate a legal agreement between each of the partners. Without a contract, profits or losses must be shared equally amongst the partners and all partners have the same rights in the running of the business. If a legal contract is drawn up, known as a deed of partnership (or partnership deed), then it is likely to include: • the amount of finance contributed by each partner • the roles, obligations and responsibilities of each partner
Exam tip ! Unlimited liability exists to prevent sole traders and partners from making careless decisions in managing their businesses. It makes private individuals accountable for their actions and decisions. However, the risk of loss of private property can influence some entrepreneurs, causing them to make safe decisions instead of taking risks.
• how profits or losses will be shared among the partners
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Business Organization and Environment
(a) Define the term sole trader.