1.4 - types of business organisations Flashcards
types of business organisations
what is a sole trader?
a business owned and operated by one person. they have Unlimited Liability.
3 benefits and 2 drawbacks of a sole trader
- get to keep all the profits
- owner is in complete control - can make all the decisions
- few legal requirements - cheaper and easier
- unlimited liability
- limited source of finance - must use their own savings - limited money for resources
what is a partnership?
when two or more people jointly own and run a business together. they have unlimited liability
3 benefits and 3 drawbacks of a partnership
- more finance can be invested in the business from all partners
- less stress as responsibilities are shared
- more ideas from partners leads to better customer services
- profits must be shared
- disagreements can occur - decrease focus in customer service
- unlimited liability
what is a private limited company (LTD)?
a business owned by shareholders. they cannot sell shares to the public, they sell them to family and friends
3 benefits and 2 drawbacks of an LTD?
- can raise more capital from selling shares
- all owners have limited liability - less risk
- can maintain control of business as they approve who they sell shares to
- cannot sell shares to public - limited capital
- expensive - lots of legalities and paperwork to be completed.
what is a public limited company (PLC)?
a company owned by shareholders. shares can be sold to the public on the stock exchange
2 benefits and 3 drawbacks of a PLC?
- can raise more capital from selling shares to public
- all owners have limited liability - less risk
- risk that original owners may lose control of business when it goes public
- need to pay shareholders dividends - less profit for original owners
- expensive - lots of legalities and paperwork to be completed
what is a franchise?
a business with a strong brand name. the franchisor (owner) sells the rights to use the brand name to a franchisee e.g. McDonalds
2 benefits and 2 drawbacks of a franchise
- franchisor receives a portion of the profits of each branch, known as royalties
- less stress for franchisor - responsibility passed on to franchisee
- poor management + reputation of one branch can ruin the entire brand image
- cannot keep 100% of the profit from each branch
what is a joint venture?
where two or more businesses start a new project together, sharing risks and profits
what is a public corporation?
a business in the public sector that’s owned and controlled by the government. usually were initially owned by the private sector and now owned by the public sector.
3 benefits and 2 drawbacks of a joint venture
- both businesses share costs of new project
- risk is shared
- each business may benefit from other businesses knowledge
- profits must be shared
- disagreements may occur - distraction from improving quality/service
2 benefits and 1 drawbacks of a public corporation
- ensures consumers are not taken advantage of by privately owned monopolies
- important for providing non profitable but important services
- no huge profit motive as they care more about providing service - may not be as efficient as a private company
