1.2 Understanding different business forms Flashcards
What is a soletrader
- 1 exclusive owner
- have employees
- entitled to all the profits (after tax)
Advantages of soletrader
- easiest set up
- own boss
- decides what to do with profit
- easy to change legal structure if circumstances change
Disadvantages of soletrader
- unlimited liability = no legal distinction between the sole trader’s assets and business’ assets
- hard to raise finance = banks see them as riskier
- own responsibility = sharing decision making can improve performance
- harder to keep good employees = not given a share of profits
What does Ltd mean
Private Limited Company
What is an Ltd
Companies where ownership of shares is restricted. For the company to sell shares, all the current shareholders must agree to sell them.
Advantages of Ltd
- limited liability
- restricted ownership = shareholders must agree to sell shares, owners retain (keep) a lot of control over how the business is managed
- easier for an Ltd to get a loan as it’s seen less risky. This (should) increase a company’s access to finance
Disadvantages of Ltd
- Finance need to incorporate a business = upfront fee as well as costs associated with paperwork = may not be possible for smaller firms (or brand new firms)
- Legally obliged to publish their accounts each year and competitors may use these to become more competitive
What does PLC mean
Public Limited Company
What is a PLC
A company that sells shares on stock exchange ( anybody 18+ can buy shares - often through brokers )
When a firms likely to become a PLC and an example
The desire to expand because selling shares on the stock exchange allows them to raise finance for investment.
- e.g = 2017, Snapchat went through this process (flotation)
Advantages of PLC
- selling shares on stock exchange = raise money for investment so company can grow faster or bigger
- easier to raise capital from banks if they are PLCs due to presenting less of a risk (number and size of investors)
- Limited liability because the company is incorporated
Disadvantages of PLC
- owners have little say over running of business - hard to agree on how it runs
- anyone can take over the company if they buy 51+% share, then they have control
- account public = competitors can see the success / failure
What is a Not-For-Profit organisation?
Any profit made by these organisations is reinvested (put back) in the business. Any profit cannot be kept by the owners.
Types of Not-For-Profit organisations
- Unincorporated association
- Charities
- Social enterprise
Features of an Unincorporated association and example
- unlimited liability = no profit and are legally responsible for all the debt
- e.g Oxfam
Features of a Charity and example(s)
Getting charitable status lets a business to get tax relief and lets it apply for certain grants. For a business to get a charitable status, they must follow rules and regulations.
- e.g Save the Children
Features of a social enterprise and examples
- Similar to for-profit business
- they make a surplus through selling goods or services. This profit is reinvested to support the social enterprise’s aim
- e.g Big Issue or TOMs
What is franchising
Where a business gives someone the right to sell its products and use its trademarks. The ‘franchisee’ usually pays the business an upfront fee and a % of the profits.
Example of franchising
KFC, part of the TacoBell Group.
Many KFC’s all over the world are not owned by KFC but instead owned by individuals who pay a fee and % of the profits to KFC. This lets them use the KFC brand name and the “original recipe”
