1.4 Types of Business Flashcards
Unit 1: Understanding Business Activity
Public Limited Company
Business owned by shareholders, that can sell shares to the public on the stock exchange
Sole Trader
The single owner of an unincorporated business. Can employ workers, but only they invest and own the business.
Public Sector
The part of the economy owned and controlled by the government
Objectives are to improve country and provide services
Limited Companies/Incorporated Business
Have separate legal identity to its owner(s) / limited liability (public/private limited company)
Sale of shares
Continuity
Unincorporated Business
Often a small firm where owners and the business have the same legal identity and they are responsible for debts with unlimited liability (sole trader, partnership)
No shares to sell
No continuity
The single owner of an unincorporated business
Sole trader Advantages
Easy to set up
Full control
Owner receives all profit
Minimal paperwork to set up
The single owner of an unincorporated business
Sole trader disadvantages
Unlimited liability
Full responsibility
Lack of capital
Lack of continuity
Partnership
Legal agreement between two to around twenty people to own and run a business and share all profits
two to around twenty people own and run a business and share all profits
Partnership Advantages
Easy to set up
Shared skills and ideas
More capital investments
Shared costs
two to around twenty people own and run a business and share all profits
Partnership Disadvantages
Conflicts
Unlimited liability
Share profits equally no matter contribution
No continuity
Franchises
The owner of a business (franchisor) grants a licence to another person or business (franchisee) to use their business idea
The franchisor grants a licence to franchisee to use their business idea
Franchises advantages
Fast to expand
Receives a fee
Receives a share of profits
Franchisees have access to local knowledge
The franchisor grants a licence to franchisee to use their business idea
Franchises disadvantages
Wrong descicion damages franchisor reputation
Need to provide training
Need to buy a license
Joint ventures
Two or more businesses start a single new project together, sharing capital, risk, and profits
Two or more businesses start a single new project together
Joint ventures adv
Reduced risk and cuts cost
Different expertise
Shared knowledge
Two or more businesses start a single new project together
Joint ventures disadv
Mistakes will reflect on all parties
Decisions may be slow if there are disagreements
Private Limited Company
Owned by shareholders but it cannot sell shares to the public
Owned by shareholders but it cannot sell shares to the public
Private Limited Company adv
Access to more capital
Control over who buys shares
Continuity
Separate legal identity (limited liability)
Owned by shareholders but it cannot sell shares to the public
Private Limited Company disadv
Limited sale of shares
Legal formalities to set up
Dividends expected
Business owned by shareholders, that can sell shares to the public
Public limited company adv
Limited liability
Sell shares to public on stock market
Business owned by shareholders, that can sell shares to the public
Public limited company disadv
Accounts must be disclosed
Risk of loss of control
Many legal requirements
