1.4 Types Of Business Organisation Flashcards
Define sole trader
A business owned by one person
Advantages of sole trader
- freedom, full control
- able to keep secrecy
- more profit, not shared
- fewer legal regulations
- no conflict
Disadvantages of sole trader
- unlimited liability
- less money to expand the business with
- business likely to remain small
- unincorporated business
Define partnership
A form of business in which two or more people agree to jointly own a business
Advantages of partnership
- more capital can be invested for expansion
- shared responsibility
- better decision making since it’s shared
Disadvantages of partnership
- unlimited liability
- unincorporated business
- possible conflicts/ disagreements
Define private limited company (LTD)
Businesses owned by shareholders but they cannot sell shares to the public
Advantages of private limited company (LTD)
- limited liability
- in control of who buys shares
- easier to raise capital
Disadvantages of private limited company (LTD)
- shared profits
- shares not sold to general public
- if shareholder sells shares it takes time to find a new shareholder
Define public limited company (PLC)
Businesses owned by shareholders but they can sell shares to the public
Advantages of public limited company (PLC)
- limited liability
- incorporated business
- able to sell shares to public
- no restriction on buying, selling or transfer of shares
Disadvantages of public limited company (PLC)
- complicated legal formalities
- more regulations and controls
- expensive to sell shares to public
- owners may lose control of business
Define joint venture
Where two or more businesses start a new project together, sharing capital, risks and profits
Advantages of joint venture
- shared costs
- shared risks
- shared knowledge
Disadvantages of joint venture
- shared profits
- possible conflicts/ disagreements
- possible different cultures
Define franchise
A business based upon the use of the brand names, promotional logos and trading methods of an existing successful business
Advantages of a franchise to the franchisor
- licence bought by franchisee
- fast expansion
- all products sold must be obtained from the franchisor
Disadvantages of a franchise to the franchisor
- poor management can lead to bad reputation of the business
- franchisee keeps profits from the outlet
Advantages of a franchise to the franchisee
- Less likely to fail, as is well known
- advertising paid for by franchisor
- fewer decisions to make
- worker training is paid for by franchisor
- relatively low risk so banks more willing to loan money
Disadvantages of a franchise to the franchisee
- Less independence
- License fee to be paid to franchisor
- Unable to make decisions to suit local area
Define unincorporated business
A business that does not have a separate legal identity from its owners
Define limited company
Companies that have separate legal status from their owners
Explain difference between an unincorporated business and a limited company
Incorporated (limited) has separate legal status whereas unincorporated does not
Risk, ownership + liability of sole trader
R: carried by sole owner
O: one person
L: unlimited liability
Risk, ownership + liability of partnership
R: carried by all partners
O: several partners
L: unlimited liability
Risk, ownership + liability of private limited company
R: shareholders up to their original investment
O: shareholders
L: limited liability
Risk, ownership + liability of public limited company
R: shareholders up to their original investment
O: shareholders
L: limited liability
Define public corporations
A business in the public sector, owned and controlled by the government
Advantages of public corporations
- important services available to the public
- less likely for business failure
- less competition
- thought to be essential for some industries
Disadvantages of public corporations
- no private shareholders so less profit motive
- can lead to inefficiency if feel too safe
- lack of incentive to increase consumer choice
