1.3 Business Ownership Flashcards
What are the 4 main types of business ownership?
Sole trader.
Partnership.
Private limited company (Ltd).
Public limited company (Plc)
Define ‘sole trader’
A business owned by one person.
What are the main advantages of operating as a sole trader?
Easy to set up.
Little capital (finance) required to set up.
Owner has full control.
Owner keeps all profits (after income tax).
Financial information is private.
What are the main disadvantages of being a sole trader?
Unlimited liability. Lack of continuity. Illness/holidays can be a problem. Shortage of capital. Long hours. Skills shortage.
What is unlimited liability?
This is where the responsibility for all the debts of the business rests with the owners of the business.
If the business cannot pay its debts, the owners could lose their personal possessions.
Can a sole trader employ people?
Yes.
Define ‘partnership’.
A business owned by two or more people.
What are the main advantages of being a partnership?
More capital. Easy to set up. More skills. Workload is shared. Financial information is private.
What is the difference between a normal partner and a sleeping partner?
A normal partner has unlimited liability, whereas a sleeping partner has limited liability.
Why does a sleeping partner have limited liability?
Because they are not involved in the day to day decisions and running of the business, so they may not have accrued the debt.
What are the disadvantages of a partnership?
Profit is shared. Unlimited liability. Shortage of capital. Slower decision-making. Continuity.
Why might decision-making be slower in a partnership than in a sole trader business?
There are more people to discuss ideas with before turning them in to actions. This means decisions may take longer before they have been passed by everyone. There may even be disagreements which cause delays.
What is a Deed of Partnership?
A document setting out the operations of the partnership, including the amount of capital to be invested and how the profits will be shared.
Why is it a good idea to complete a Deed of Partnership?
In case there are arguments or disagreements in the future.
The Deed will have identified what will happen in this scenario.
Without a Deed of Partnership all partners are seen as being equal.
What is capital?
The money raised to start or develop a business.
List two businesses that commonly operate as a partnership.
Solicitors, accountants, dentists.
What is a private limited company (Ltd)?
Usually a smaller business that is owned by at least 2 shareholders. Shares cannot be sold to the general public.
What are the main advantages of being a private limited company (Ltd)?
Limited liability.
Continuity.
Raise finance more easily.
Control over share sale.
What are the main disadvantages of being a private limited company?
Financial information is available to the public.
Administration - more complex and expensive to set up and operate.
Sale of shares is restricted.
Dividends expected by shareholders.
What is limited liability?
The responsibility for the debts of a business is limited to the amount invested by a shareholder. The most they can lose is the amount they invested. Personal Possessions are not at risk.
What is a shareholder?
A person who has bought a share in a business. They are the owners of public and private limited companies.
Is a private limited company at risk of a hostile takeover?
No - as shares cannot be sold on without consent from the original shareholders.
What is a public limited company (Plc)?
A public limited company is a large business where shares have been sold to the general public on the stock exchange.. Vast amounts of capital can be raised.
What are the main advantages of being a public limited company?
Ability to raise large amounts of capital.
Easier to borrow money.
Limited liability.
Why is it easier for a public limited company to borrow money?
Banks will often see them as lower risk and so are more willing to lend them money.
What are the main disadvantages of being a public limited company (Ltd)?
Possibility of takeover.
Cost to set up and operate (complex and expensive).
Problems of size (may be more complex leading to inefficiencies).
Financial information available to the public.
What is an LTD?
A private limited company?
What is a Plc?
A public limited company?
What is the minimum amount of share capital a Plc must raise?
£50,000
Which forms of ownership are suitable for a small start-up business?
Sole trader, partnership or private limited company.
Why might an established business look to change its ownership?
To gain the protection given by limited liability if the business has more debt.
To raise capital to grow.
What is the only type of ownership not suitable for a new business?
Public limited company.
What is a company?
A business that has sold shares and is registered with Companies House.
What is a dividend?
A share of the profits given to shareholders.
