1.4 Types of business organisation Flashcards
What is a Sole Trader?
A Sole Trader is a business owned and controlled by one person.
What are the advantages of a Sole Trader?
Easy to set up
Full control over the business
Flexible working hours
All profits go to the owner
What are the disadvantages of a Sole Trader?
Hard to make decisions alone
Unlimited liability (personal assets are at risk)
Hard to raise funds
Difficult to compete with larger businesses
What is a Partnership?
A Partnership is a business owned by two or more people who share responsibilities and profits.
What are the advantages of a Partnership?
Easy to raise funds
Shared decision-making and workload
Easier to manage and expand
What are the disadvantages of a Partnership?
Unlimited liability
Profits are shared
Business ends if a partner leaves
Difficult to raise finance
What is a Private Limited Company (Ltd)?
A Private Limited Company is a business owned by shareholders, and shares are only sold to family or friends, not the public.
What are the advantages of a Private Limited Company?
Limited liability (personal assets are safe)
Can raise capital by selling shares
Separate legal identity
Continuity (business doesn’t stop if an owner leaves)
What are the disadvantages of a Private Limited Company?
Legal formalities involved
Cannot sell shares to the public
Accounts are public
Hard to transfer shares
What is a Public Limited Company (PLC)?
A Public Limited Company is a business owned by shareholders, and shares can be bought and sold by the public on the stock exchange.
What are the advantages of a Public Limited Company?
Can raise capital by selling shares to the public
Limited liability
Business continuity
Can expand rapidly
What are the disadvantages of a Public Limited Company?
Expensive to go public
Legal formalities and disclosures
Publicly available accounts
Risk of a gap between ownership and control
What is a Franchise?
A Franchise is when a business (franchisee) gets permission to use the name, brand, and business model of another company (franchisor).
What are the advantages for a Franchisee?
Lower risk of failure
Franchisor provides advertising and training
Banks lend to franchisees more easily
What are the disadvantages for a Franchisee?
Less independence
Limited decision-making ability
Risk of franchisor withdrawing the agreement
What are the advantages for a Franchisor?
Quick expansion
Franchisee handles day-to-day operations
Gets a percentage of sales
What are the disadvantages for a Franchisor?
Bad reputation if one franchise has poor management
Franchisee keeps part of the profits
What is a Joint Venture?
A Joint Venture is when two or more businesses join together to create a new business for a specific project.
What are the advantages of a Joint Venture?
Shared costs and risks
Knowledge and experience can be shared
What are the disadvantages of a Joint Venture?
Profits must be shared
Potential conflicts in decision-making
Different business practices can create problems
What is a Public Corporation?
A Public Corporation is a business owned and controlled by the government, providing essential public services (e.g., water, electricity).
What are the advantages of a Public Corporation?
Essential industries under government control
Protects consumers from exploitation
Can help stabilize failing businesses and create jobs
What are the disadvantages of a Public Corporation?
Less focus on profit
Can be inefficient
May be unfair to private businesses
Lack of competition can lead to inefficiency
What is an Unincorporated Business?
An Unincorporated Business has no separate legal identity from its owners.
What is a Limited Company?
A Limited Company is a business that has a separate legal identity from its owners, offering limited liability to shareholders.
What are the advantages of a Limited Company?
Limited liability (personal assets protected)
Separate legal identity
Easier to raise funds
What are the disadvantages of a Limited Company?
More legal formalities
Can’t sell shares to the public in private companies
Public companies must disclose financial information
What is Risk in Business?
Risk refers to the chance of losing money or assets in a business.
What is Ownership in Business?
Ownership refers to who controls and owns the business (e.g., shareholders, partners, etc.).
What is Limited Liability?
Limited Liability means that the owners’ personal assets are protected, and they are only responsible for business debts up to the amount invested.
What is the difference in Risk between businesses?
Sole traders and partnerships have unlimited liability (personal assets at risk).
Limited companies have limited liability (only lose what they invest).
When should you choose a Sole Trader business?
If you want full control
If you want a simple setup
If you’re starting small
When should you choose a Partnership?
If you want shared responsibility
If you need more capital than a sole trader
If you want to share decision-making
When should you choose a Private or Public Ltd Company?
If you want limited liability
If you plan to raise capital by selling shares
If you need business continuity
