TYPES OF COMMERCIAL ENTERPRISES: SOLE

TRADERS, COOPERATIVES AND PARTNERSHIPS

Private and public enterprises
In any economy, goods and services may be provided by the public sector or the private sector.
In the private sector, provision of goods and services is done by businesses that are owned by
individuals or groups of individuals.
In the public sector, government organisations that provide goods and services in the economy.
Unincorporated: These are businesses where there is no legal difference between the owner and
the business. These businesses tend to be small and owned by one person or small group of
people.
Incorporated: These are businesses that have a separate legal identity from their owners. They
are often called limited companies and the owners are shareholders.

Sole traders
It is the simplest form of commercial enterprise. It has one owner but can employ any number of
people.
Implications
✓ The formation is simple because there are no legal requirements.
✓ There are no special documents required to operate it.
✓ It raise capital using their own resources.
✓ A sole trader has complete ownership and control of the enterprise.
✓ Any profit made by a sole trader will belong to the owner.
✓ All sole traders have unlimited liability.
Advantages of being a sole trader
▪ The owner keeps all the profit.
▪ They are independent.
▪ It is simple to set up with no legal requirement.
▪ It is flexible.
▪ They offer a personal service because they are small.
▪ They may qualify for government help.
Disadvantages of being a sole trader
▪ They have unlimited liability.
▪ They may struggle to raise finance.
▪ Independence may be of too much of a responsibility.
▪ They work for long hours and it is very hard work.
▪ They are usually small to exploit economies of scale.
▪ There is no continuity, the business dies with the owner.
Partnerships
Partnerships exists when between two and twenty jointly on a business.
Implications of partnerships
 ▪ There are no legal requirements to meet when a partnership is formed.
▪ The business is likely to employ other staff as assistants.
▪ Some partners may draw up a document called a deed of partnership. This is a legal
document that states partners’ rights in the event of disagreement.
▪ Capital is raised from each of the partners.
▪ It is possible to have a limited partnership. Some partners (sleeping partners) provide
capital but take no part in management of the business.
▪ Both the ownership and control of a partnership are the responsibility of the partners.
▪ The profit from partnerships will be distributed according to the wishes of the partners.
▪ Partners have unlimited liability
Advantages of partnerships
➢ They are easy to set up and run- no legal formalities.
➢ Partners can specialize in their area of expertise.
➢ The job of running the business is shared.
➢ More capital can be raised with more owners.
➢ Financial information is not published.
Disadvantages
➢ Partners have unlimited liability.
➢ Profit has to be shared.
➢ Partners may disagree and fall out.
➢ Any partner’s decision is legally binding on all.
➢ Partnership still tend to be small.

Cooperatives
It is a private business that is owned and controlled by the people who use its products, suppliers
or services.
Documentation used to form a cooperative is the same as those used to form a limited company.
Types of cooperatives
Consumer or retail cooperatives
They operate as consumer or retail cooperatives.
They are owned and controlled by its members.
Members can buy share that allow them to vote at annual general meeting (AGMs).
Members elect a board of directors.
Cooperatives are run with the interest of their members.
Any profit made is distributed to the members as dividend.
Workers cooperative
These enterprises are jointly owned by employees. In workers’ cooperative, employees are likely
to;
▪ Contribute to production and involved in decision making.
▪ Share in the profit.
▪ Provide some capital when buying a share in the business.