1.2: Business Ownership Flashcards
What are the legal structures of a Business?
Sole Trader
Partnership
Company
What is a Sole Trader?
Owns and manages business on their own - may employ some staff
Most common form of business e.g. plumbers, hairdressers etc
Easy to set up - little form filling or government regulation
What are advantages and disadvantages of Sole Trader?
Advantages - simple and cheap to set up - person keeps all profits and has total control of business
Disadvantages - need to work hard - stressful as less flexibility to e.g. take holiday - need to make all decisions - wide range of skills need to run business e.g. finance, marketing - UNLIMITED LIABILITY i.e. can lose everything to pay debts
Business ends when owner dies
What is a Partnership?
Formed when 2 or more people set up a business - usually 20 max - common for e.g. dentists, vets
Established with a Deed of Parnership
What does a Deed of Parnership include?
Money to invest by each partner
Roles of each partner
How profit split
How decision will be made re: new partners
How decisions made
What are advantages and disadvantages of Partnership?
Advantages: Wider range of skills making more efficient, access to more finance, partners can cover holidays so less stressful
Disadvantages: Disagreements about ideas / decisions, Profit to be shared, Unlimited liability (some partnerships can be limited)
What is a Company?
Business that has own legal identity. Owns assets e.g. land and vehicles, incurs debts, can be sued
Legally separated from the people that own it
Who are the owners of a Company?
Shareholders
What are Shareholders?
Person / organisation that owns part of a company - each shareholder owns a ‘share’ in the business
Legally separate from the business
Liability is limited to the amount they have invested in shares - LIMITED LIABILITY
What are Company Shares?
Ordinary Shares most common
Include Voting rights to input on how company is run
If have more than 50% of shares - take control of the company
What are the 2 types of Company?
Private Limited Company
Public Limited Company
What are Private Limited Companies?
Small,
sometimes owned by families,
have LTD after company name
Shareholders control to is able to buy a stake in the company
What are Advantages and Disadvantages of Private Limited Companies?
Advantages: Limited liability, separate legal entity that continues after owner dies, hire experts / managers to run the business, customers like dealing with a company
Disadvantages: More complex to set up, more rules and laws, more expensive to operate, financial information available to rivals, selling more shares reduces control original owners have over the business
What is a Public Limited Company?
Larger
Established after a Floatation on the stock exchange i.e. has its shares listed for sale
Have PLC after company name
What are the advantages and disadvantages of a Public Limited Company?
Advantages: Sell shares at Stock Exchange to raise money, Get a lot of media coverage helping it to advertise goods and boost sales, banks more willing to lend money
Disadvantages: Listed on Stock Exchange means pressure to increase profit in short term which not always the best thing for long term; large companies may supper bad PR affecting reputation and sales
