1.2 - Business Ownership Flashcards
What is a Sole Trader?
A form of business that is owned and managed by one person. Setting up this type of business, as one does not need to register with the government. Can still have employees.
Advantages of being a sole trader
- Quick and easy to set up
- Fast, independent decision making, you do not have to consult others
- Keep profits to yourself
Disadvantages of being a sole trader?
- Stressful, business reliant on you
- Must handle all parts of business: finances, marketing and operations. Could not be good at all
- Unlimited liability. If something goes wrong, you could lose everything you own
- Difficult to finance business, hard to represent themselves professionaly in front on investors and banks
The 1890 Partneship Act
States that a partnership is created when two or more people set up a business to pursue a common purpose, such as profit. Partnerships are allowed to have up to 20 partners, though there can be exceptions for solicitors and accountants.
What is a Deed of Partnership?
A document that many advise should be written, it discusses: division of profits, voting rights (for decisions), valuation of business if a partner wants to leave, and how to let a new partner join.
Why should someone create/sign a Deed of Partnership?
So that there is a clear set of rules/boundaries of what a partner can/should do, an agreement as to what someone can do as a partner as to avoid disputes later on.
Advantages of Partnership
- Each partner can contribute money, more financially stable and more investment
- More people can weigh in on how to solve a problem, everyone benefits from eachother’s experience
- A partner can take on a designated part of the business
- Can cover in eachothers’ absence
Disadvantages of Partnership?
- Different opinions may mean arguments over certain decisions
- Slower decisions, consultation is necessary
- Rewards divided between partners
- Still unlimited liability
What is a company?
Owned by investors, who are also called shareholders. There are different types of shares, most common are called ‘ordinary shares’. One vote per share. A company is it’s own entity, shareholders distinguish what they own and what THE COMPANY owns. This means that they have limited liability.
Who makes the day-to-day decisions of a company?
The managers, can be decisional divisions between shareholders and managers
What is the 1980 Companies Act?
A document that declares there are two types of companies in the UK: Private Limited Companies (ltd), and Public Limited Companies (plc). Both have shareholders, and both have limited liability, but there are still differences between them.
How do shares work in a Private Limited Company?
Cannot be publicly sold, it is possible to place restrictions on who the shares are sold to
How do shares work in Public Limited Companies?
Can advertise shares and can be listed on the Stock Exchange. Most have to have a share capital of at least £50,000. No limits on who shares are sold to.
Advantages of Private Limited Companies?
- Liability is limited, can help attract investors
- Company has higher status to customer
- Managers can be employed for day-to-day business
Disadvantages for Private Limited Companies
- Many legal procedures
- A summary of finances must be publicly published
- Must pay corporation tax
- Investors become important stakeholders
