1.4 Types of business organisation Flashcards
What are the main forms of business organization in the private sector?
Sole traders, partnerships, private limited companies, public limited companies, franchises, and joint ventures.
What is a sole trader?
A sole trader is a business owned and operated by one person, also called a sole proprietor.
Why is the sole trader the most common form of business organization?
Because it has very few legal requirements to set up.
What legal requirements must sole traders follow?
Register with the Government Tax Office and send annual accounts.
Register the business name (depending on the country).
Follow industry-specific laws, such as health and safety regulations or licensing.
Give an example of an industry where sole traders need a license.
Selling alcohol or operating a taxi.
What is one benefit of being a sole trader?
Complete control over the business.
What is one disadvantage of being a sole trader?
The owner is personally responsible for all debts (unlimited liability).
What are the advantages of being a sole trader for Mike?
Few legal regulations to follow.
Complete control over the business.
Freedom to choose holidays, work hours, prices, and employees.
Close contact with customers and quick response to their needs.
Keeps all profits after paying taxes.
Maintains business secrecy.
Why does Mike enjoy working as a sole trader?
He has personal satisfaction from knowing regular customers and has an incentive to work hard since he keeps all the profits.
What are the disadvantages of being a sole trader for Mike?
No one to discuss business matters with.
Unlimited liability – personal assets at risk for business debts.
Limited finance sources – savings, profits, small bank loans.
Restricted capital, limiting business expansion and economies of scale.
No continuity – the business ends with the owner’s death.
Lack of support if he falls ill.
What is unlimited liability?
Unlimited liability means the owner is personally responsible for all debts, and creditors can claim personal possessions if debts are unpaid.
Why does Mike face difficulty expanding his business?
Limited capital sources and reluctance of banks to provide large loans.
Why can’t Mike pass the business to his sons?
Sole trader businesses lack continuity and cease to exist after the owner’s death.
How does limited access to capital affect Mike’s business?
It prevents expansion, restricts economies of scale, and limits training opportunities for employees.
