1.2 Business Ownership Flashcards
What is Gross Domestic Product (GDP)
Measure of all income earned in a country’s economy in a year
What are different types of legal structure
- Sole traders
- Partnerships
- Private limited companies (ltd)
- Public limited companies (plc)
- Not-for-profit organisations
What is a sole trader and give an example
A business owned and managed by one person e.g. plumbers, electricians, gardeners
Advantages of being a sole trader
- Own boss
- Can decide things quickly
- Keep all profits
- Make your own decisions
Disadvantages of being a sole trader
- Unlimited liability
- May lack finance
- Heavy workload
- May not have all required skills
- Difficult to take days off
What is unlimited liability
Where personal possessions of owners are at risk of being used to settle debts. There is no limit of the amount of money the owners have to pay out
What is a partnership and give an example
A business owned by two or more people(up to twenty people) e.g. law firms, real estate investment firms, accounting groups
What is meant by deed of partnership
An agreement between partners that sets out the rules of the partnership, such as how the profits will be divided and how the partnership will be valued if someone wants to leave
What are the advantages of a partnership
- Shared workload
- More sources of finance than a sole trader
- Shared skills
What are the disadvantages of a partnership
- May disagree with each other
- Unlimited liability
- Liable for the actions of other partners shared profits
What is a company
A business that has its own legal identity. It can own items, owe money, sue, and be sued. It is owned by its investors, called shareholders.
What are the advantages of a company
- Limited liability
- Better status in the eyes of some customers
- Continues after death of founders
- Can bring in investors
What are the disadvantages of a company
- Have to register
- Have to disclose information on sales and profits
- Have to have accounts independently checked
- If there are other investors the original founder is not in full control of the business
What is a private limited company
a business owned by its shareholders whose shares cannot be freely traded on the stock exchange
Advantages of a private limited company
- Limited liability
- Attracts customers
- Company continues after founders death
- Managers can be employed
Disadvantages of a private limited company
- Legal procedures
- Information is available for other people
- Accounts must be checked by independent accountant
- Difficult to work with investors - shareholders have a direct influence
What is a public limited company
A large business owned by its shareholders and its shares can be sold freely on the stock exchange
Advantages of a public limited company
Sell shares to raise finance
Attract customers
Attracts investors
Disadvantages of a public limited company
Mistakes are more public - media recognition
Cannot control who buys shares - competitors can buy control
More regulated - has to do more things according to law
New owners and old owners may clash when converting from ltd to PLC
What is a not for profit organisation and give an example
A business set up for an objective other than profit, and to benefit society. e.g. charity
What is limited liability
Limited liability means that the business owner or owners are only responsible for business debts up to the value of their financial investment in the business. This means that a creditor can only take assets or finances belonging to the company.
What is a social objective
goals intended to help society
What is the best type of legal structure for a new business
Sole trader
What is an asset
Anything owned by a business
When would a business want limited liability
When it has more assets which could be possibly lost
When would a business want to become a PLC
When it wants to sell shares
