1.4 Types of business organisation Flashcards
What is a ‘sole trader’?
A business that is owned and controlled by just one person who takes all of the risks and receives all of the profits.
Name the advantages and disadvantages of a sole trader.
Ads:
- Quick and easy to set up
- Makes all the decisions
- Has complete control
- Keeps the profit
Disads:
- Unlimited liability
- Lack of capital
- May not have the business skills to run a business
What is a ‘partnership’?
A business formed by two or more people who will usually share responsibility for the day-to-day running of the business
Name the advantages and disadvantages of a partnership.
Ads:
- Easy to set up a deed of partnership
- Partners invest in the business so greater access to funds
- Shared decision making
- Shared management and workload
Disads:
- Unlimited liability
- Share the profits
- Business ceases to exist if one partner leaves
What are private limited companies?
owned by shareholders who have limited liability. The company cannot sell its shares to the general public
What are the features of private limited companies?
+Limited liability
+Continues even if one or more shareholders die
- Profit shared with shareholders
- Legal documents must be completed when setting up the business
- Vote on major decisions
What are public limited companies?
Often a large company; owned by shareholders who have limited liability. They can sell its shares to the general public.
What are the features of public limited companies?
- Usually a large number of shareholders
- Most common form of organisation for very large companies
- Shares can be offered to the public and other organisations
- Ownership and control are separated
- Setting up is very costly
- At risk of takeovers
- Legal requirements are stricter than for private limited companies
- Often successful in rising capital
What is a franchise?
A business system where entrepreneurs buy the right to use to the name, logo and product of an existing business
Name the advantages and disadvantages of franchises.
Ads:
- Less chance of failure
- Franchises often provides advice and training to the franchisee
- Franchisors finance the promotion of the brand through national advertising
- The franchisor would have already checked the quality of suppliers
Disads:
- Initial cost of buying into a franchise can be very expensive
- The franchisor will take a percentage of the revenue of profits made by the franchisee each year
- There are very strict controls over what the franchisee is allowed to do with the product pricing and store layout
- The franchisee doesn’t gain any personal recognition, they only gain recognition because of the existing brand
What is a joint venture?
Two or more businesses agree to work together on a project and set up a separate business for this purpose
Name the advantages and disadvantages of joint ventures
Ads:
- Reduces risks for each business and cuts costs
- Each business brings different expertise to the joint venture
- Market and product knowledge can be shared
Disads:
- Any mistakes made may damage the reputation of all firms in the joint venture
- The businesses may have different business cultures of styles of leadership, making decision-making difficult
What is the difference between unincorporated businesses and limited companies?
An incorporated business does not have a separate legal identity from its owners, whereas an incorporated business does.
What is the difference in risks, and ownership between types of business organisations?
Unincorporated business have a greater legal and financial risk than incorporated business because:
- Owners and the business have the same legal identity
- Owners have unlimited liability for business debts
What is limited liability?
When the owner is not personally responsible for the business’ debts
