1 - Type Of Business Organisations Flashcards
Define: partnership
A minimum and a max of 20 partners own the business
A deed of partnership states how profit will be shared and how the business will be run
Define: sole trader
One person owns the business
Define: private limited company
Private = ltd
- shares are sold to private investors, ( managers, friends, family, wealth backers)
Define: public limited company
Public = plc
-These companies sell their shares on the stock exchange to the public.
-They must have a issued share capital >50,000 and are usually the largest companies
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Define: unincorporated
The business and owners are the same ‘thing’ or equal. If the business runs up lots of debts, then the owners do too
Define: unlimited liability
The owners are personally responsible for all business debts, so personal possessions may be lost to pay for debt
Define: incorporated
The business and the owners are different ‘things’ or not equal. If the business runs up lots of debts, the owners are not responsible for it all
( only all the amount they have have invested )
Define: limited liability
The responsibility of debt for the owners ( shareholders ) is limited to the amount of money they have have invested in the business
What are the common features of unlimited liability
- the owners pay income tax is paid on profit.
- financial information is private - stays with the owners
What are the common features of limited liability
- companies are owned by shareholders
- the business has a separate legal entity from owners - incorporated
- corporation tax is paid on profit
- financial info is available to public
- board of directors run the company. Directors are elected by shareholders at the annual general meeting
What are the advantages of a sole trader
- easy to set up
- owner has 100% control
- owner can keep 100% of profit
- the company’s financial info stays private
What are the advantages of partnerships
- more capital available from new partners
- more specialist skills and ideas available from partners
- easy to set up
- financial info is kept private
- illness not a problem
- sleeping partners (take no part in running the business) can contribute capital
What are the advantages of a private limited company
- limited liability
- company has separate legal identity from owners - incorporated
- continuity - company continues to trade in the event of death of one of the owners ( shareholder )
What are the advantages of public limited company
- Limited liability
- company has separate legal identity from owners - incorporated
- continuity - company continues to trade in the event of death of one of the owners (shareholders)
- can raise large sums of finance through sales of shares, more that ltd
What are the disadvantages of sole traders
- unlimited liability
- possible shortage of capital, can’t always borrow money
- illness ( days off = no profit )
- hard work needed
- owner might not be able to sell/pass business on
- shortage of skills
What are the disadvantages of partnerships
- Unlimited liability
- profit has to be shared among partners
- disagreements between partners
- can still be short of capital
What are the disadvantages of private limited company
- financial info has to be made available to public - competitors can see it
- corporation costs money and takes time
- shares cannot be sold to general public, so capital might be short
- shareholders will expect a share of the profits in the form of dividends
What are the disadvantages of public limited company
- Financial info has to be made available to public in the form of an annual report so competitions can see it
- corporation costs time and money
- takeover - it is possible for companies to buy up large amount of shares and take over the ownership of the company and can then make important decisions.
What are co-operatives
Some independent producers (dairy farmers) work together and trade as though they are a single larger business (and get a better price). Power in numbers
What is a social enterprise
A business that is run for the benefit of the community. Not all the profits are kept by the owners - some are put back into the community projects.
What ere multinational companies
- They operate in more than one country. Usually large PLCs that have a head office in one country with offices/factories in other countries e.g Sony
- the advantage of these is that production can be located in countries where labour costs are lower
- Disadvantage is communication problems caused by location in different countries
What is a franchise
- It is not a type business arrangement but is a marketing arrangement.
- an existing business (franchisor) sells the right to uses the business name, products and logo to another business (franchisee)
- the franchisee pays a royalty (share of the profits) to the franchisor
What ere the advantages of franchises
- Reduces risk of failure
- training advice on how to run the business
- national advertising and promotion campaigns may be paid for by franchisor
What are the disadvantages of franchises
- a large amount of initial capital may be required
- losses have to be paid for by the franchisee
- annual royalty payment based on profit or sales revenue required
- all supplies must be purchased from the franchisor a the price they determine
What is a charitable organisation
They exist in order to provide a service to other people and are run on a not for profit basis
