1.2 Business Forms Flashcards
What is the private sector made up of
Unincorporated and incorporated businesses
What is the public sector made up of
Government owned organisations , non-profitable (eg. NHS, schools , emergency services)
Two unincorporated businesses
Sole trader , partnership
Two incorporated businesses
Private limited company (ltd) , public limited company (plc)
Define privatisation
When the government sells a business in the private sector (sells shares)
Define Nationalisation
The government takes over a business in the private sector (buys the shares)
What is limited liability and its benefits
When the business and the business owner are two separate entities , meaning that if the business goes into debt, the business owners personal assets are not at risk.
It also means that investors are more likely to buy shares in a business as their personal assets won’t be at risk.
Which 2 business types have limited liability
Public and private limited company
Two business types with unlimited liability
Sole trader and partnership
5 benefits of being a sole trader
-flexible working hours
-own boss
-not sharing profit
-no conflict
-quicker decision making
7 drawbacks of being a sole trader
-unlimited liability
-heavy workload
-pressure of management
-pay income tax
- responsible for own investment
-limited growth
-unlikely to use economies of scale
7 benefits of a partnership
-help making decisions
-varied skill set
-shared workload
-shared management
-more capital invested
-all account record private
-instant to set up
7 drawbacks of a partnership
-reputation risk
-unlimited liability
-share profit
-disagreements
-pay income tax
-longer decision making
-responsible for partners debt
4 benefits of an ltd
-likely to be accepted for funding because public records online
-control over shareholders
-limited liability
-corporation tax rather than income tax
5 drawbacks of an ltd
-has to publicise records so competition can see data
-less capital invested from shares (than plc)
-dividends need to be paid
-conflict of shareholders
-slower decision making
What is a share
Part of the issued share capital in a company . To raise capital in order to grow
What is an IPO (initial public offering)
When a business issues new shares to the public for the first time
7 benefits of a plc
-limited liability
-quick growth opportunities
-corporate tax , not income tax
-more capital
-investors can easily sell shares back into stock market
-publicity gained on stock market
-likely to get funding
7 drawbacks of a plc
-loss of control of share ownership
-dividend payouts
-conflict of shareholders
-share records online to competitors
-hostile takeover
-time-consuming
-obey strict rules
What is an annual general meeting (AGM)
PLCs require the directors to hold an AGM to inform the shareholders on their objectives and strategy for the business
What are the two different not-for-profit organisations
- Social enterprises (a business that aims to fix a problem)
- Charities (takes donations)
Define share capital
The long term source of finance that is raised by selling shares
What is equity
The percentage of a business that shareholders own
What are angel investors
Anybody that wants a reasonable equity for a reasonable amount of money. They can have expertise or may not and they tend to invest in low risk innovative businesses. They want to make their money back in dividends
Define Venture capital
Organisations that find high risk businesses to invest a million or more into businesses with high reward.they have industry expertise and are profit driven
Factors that affect share prices
- demand
- decisions made by business leader
-financial performance
-state of economy
-changes in customer interests
What is market capitalisation and the formula
The value of a business determined by the price of its shares
Share price x number of shares issued
What is divorce of ownership and control
Happens when the owners (shareholders) do not control the day to day decisions made in the business, instead decisions are made by the board of directors, through voting rights.
Insolvency
When a business cannot meet its debt
Liquidation
Turning assets into cash
