Partnership

The problems of inadequate specialist knowledge and insufficient finance can be (partially) overcome by the formation of a partnership. Generally a partnership consists of between two and twenty partners who are "engaged in carrying on a business in common with a view to profit" (1890 Partnership Act). Thus there is access to increased capital resources and more people are available to contribute specialist knowledge to the various aspects of the business as well as introducing new ideas. Contact within and outside the firm may still be personal. In a so-called ordinary partnership there is still the problem of unlimited personal liability for the firm's debts and this may be more acute because of the fact that any one of the partners can bind the rest by his decisions. Partners can lose all through another's mistakes. The Limited Partnership Act 1970 introduced the limited partnership in which all but one of the partners may enjoy limited liability in return for which they waive the right to take part in the management of the firm. The retention of unlimited liability for at least one partner is seen as a form of protection for those dealing with the firm. The Act also makes it possible to inject extra funds into the business from people who have money to invest but who have no desire to be actively involved in day-to-day management; such people are sometimes referred to as "sleeping partners". Partnerships are frequently found in the professions, for example, solicitors, doctors and estate agents. They are less common nowadays in manufacturing than previously.

Joint stock company

To avert the risks of unlimited liability, present to a greater or lesser extent in the case of the sole-trader and partnership, it is possible to form a company with limited liability available to all its members. Joint-stock companies first appeared in the sixteenth century but it was not until 1855-62 that a series of Acts of Parliament extended the principle of unlimited liability to all who wished to invest in joint-stock companies.

There are two types of limited company, private and public. A private limited company comprises between two and fifty shareholders along with any number of past and present employees; a public company must have at least seven shareholders, there is no maximum. Whereas the shares of private companies cannot be transferred without the agreement of the other shareholders and cannot be offered to members of the general public, shares already issued by a public company are freely transferable and are available to the general public through the Stock Exchange. Indeed it is this feature of public companies that constitutes one of their major advantages. The ability to collect together relatively large amounts of capital from many small investors makes it possible to organise production on a scale far greater than that attainable by other forms of business organisation. Limited liability encourages investment directly by the purchase of shares and indirectly via institutional investors such as insurance companies and unit trusts. If the worst happens the investor stands to lose no more than the sum of his investment.

Once a company is formed it has a continuous existence apart from its members - it is a separate legal entity. This advantage again encourages investors and also allows the formation of long-term plans for the business. Other advantages are the greater specialisation between functions possible in the larger organisation and the many legal safeguards besides limited liability contained in the various Companies Acts.

Co-operative

Whereas a joint-stock company is owned by shareholders who may have no other connection with the business, a co-operative retail organisation is owned by its customers.

The co-operative movement in the United Kingdom dates from 1844 when under the leadership of Robert Owen, a group of eight Rochdale weavers, the "Rochdale 'Pioneers", collectively provided the capital to open a shop to supply their needs. The purpose of the venture was to overcome the diverse interests of consumers and suppliers, the former wanting to buy as cheaply as possible the latter wanting to sell as dearly as possible. Profits from the Rochdale shop were distributed to the members in proportion to their purchases in the form of a dividend, a practice which continued as the co-operative movement gained ground.

Unlike the shareholders of a company whose voting power is generally in proportion to the number of shares held, the members of a co-operative society have one vote each irrespective of their investment in the society. The members’ meeting elects a board of directors, or a committee of management who in turn employ officials to manage the day-to-day running of the business and who are responsible for general policy.

Claimed advantages are stability of trade through members’ loyalty to the movement’s ideas and through the rebate system of dividend payments (and more recently dividend stamps), and the supposedly democratic management system. However the movement has suffered from the lack of business acumen of the part of committee members and from the political connections with the socialist movement.