Forms of business ownership - The legal organization of business

There are many types of business units in operation. The main ones are:

Sole trade

The sole trade [ditta individuale] is the cheapest and easier type of business to set up. A sole trade is a person who owns and runs his own business. He is responsible for his own business debt, so if the business goes bankrupt he may lose personal assets such as his house, car, and other possession. Typical sole traders are shop owners, taxi drivers and there are several advantages and disadvantages to being a sole trader:

Ø  Advantages: The owner is his or her own boss

Profits are not shared with others

Ø  Disadvantages: There are limited financial resources because all capital must be provided by one person

Partnership

A partnership [società commerciale] is a legal agreement between two or more people (up to a maximum of twenty), to set up a business together and share the responsibility for managing it. The initial capital investment is made by all the partners. If a partners leaves the firm or a new partner joins it , the existing partnership is officially dissolved and a new one start. Partnerships are common among doctors, accountants, solicitors and architects. There are two types of partnership:

1. Unlimited partnership: [società in nome collettivo]. All the partners are responsible for the debts of the firm. If the business goes bankrupt they may lose their personal assets.
2. Limited partnership. Some partners contribute only capital to business. They do not have an active role in the running of the business. They are responsible for the amount of money they initially invested in the business and are known as limited partners.

Limited companies

A limited company [società a responsabilità limitata] is owned by shareholders [azionisti], investors who have bought shares [azioni] in the company. Any profit made by the company is divided among the shareholders in proportion to the amount they have invested. These payments are called dividends [dividendi]. If the company goes bankrupt, the shareholder's private possession will not be touched.

Cooperatives

A cooperative is a business owned and run by its members. All members have a vote, this means that no one can dominate and they have limited liability.

There are three types of cooperatives:

1. Worker cooperatives: They are created by employees buying out their company, which may have had financial difficulties.

2. Retail cooperatives: they are set up when small shop keepers join together to buy in bulk from manufactures in order to get better discounts and lower prices.

3. Producer cooperatives: a group of people (e.g. farmers) invest money in the setting up of a factory which will buy raw material (e.g. milk) they produce and use it to make a financial product (e.g. cheese)

Franchising

A franchise is an agreement between two parties:

the franchiser a well known company with an established market for its products(e.g. McDonalds, Benetton)

the franchisee, a person or a group of people who buy the right to use the business name of the franchiser  and make or sell its good or services in a certain geographical area.

The franchisee pays the franchiser a fee plus a percentage of  its profits.

A franchise package usually includes for example:

1. use of the company's brand name and image;
2. advertising campaigns to promote the brand;
3. ready made goods or services to sell;
4. an exclusive area in which to sell the products;

Franchising reduces the risk of business failure because the franchisee is supported by the successful business record of the franchiser.