1.4 – Types of Business Organizations Flashcards
Define Sole Trader/Sole Proprietorship
A business owned and controlled by one person
Pros/Cons of Sole Trader/Sole Proprietorship
Pros:
1. Easy to set up
2. Full control
3. Sole trader receives all profit
4. Personal
Cons:
1. Unlimited liability
2. Full responsibility
3. Lack of capital
4. No continuity
Define Partnership
A partnership is a legal agreement between 2+ people to own, finance and run a business jointly to share all profits
Pros/Cons of Partnership
Pros:
1. Easy to set up
2. Partners provide skill/idea
3. More capital investments
Cons;
1. Conflicts
2. Unlimited liability
3. Lack of capital
4. No continuity
Define Joint-stock companies
Companies which can sell shares
Types of Joint-stock companies
- Private Limited Companies
- Public Limited Companies
Define Private Limited Companies
1+ owners who can sell shares to only people known by existing shareholders (family and friends)
Define Public Limited Companies
2+ owners who can sell shares to any individual/organization in general public through stock exchanges
Pros/Cons of Joint-stock companies
Pros:
1. Limited Liability
2. Raise huge amounts of capital
3. Public Ltd. Co. advertise shares
Cons:
1. Required to disclose financial information
2. Private Ltd. Co. can’t sell shares to public
3. Public Ltd. Co. require lots of legal documents
4. Annual General Meeting (AGM)
5. Public Ltd. Co. have managerial problems
Define Franchise
Owner of business (the franchisor) grants licence to another person/business (the franchisee) to use their business idea
Pros/Cons of Franchisor
Pros:
1. Fast/low cost for expansion
2. Income of franchisee to franchisor
3. Franchisee runs business
Cons:
1. Profits shared with franchisee
2. Loss of control
3. Risk of reputation loss
4. Franchisee may not be skilled
5. Need to supply training/product
Pros/Cons of Franchisee
Pros:
1. Low chance failure
2. Established brand
3. Supplied technical/managerial support
4. Supplied products
Cons:
1. Cost of set-up
2. Not fully in control
3. Profits shared with franchisor
4. Need to promote
Define Joint venture
An agreement between 2+ businesses to work together on a project
Pros/Cons of Joint Venture
Pros:
1. Reduce risk
2. Less cost
3. Other businesses bring skills
4. Market potential increased
Cons:
1. Risk of reputation loss
2. Slow decisions made
Define Public Sector Corporations
Businesses owned by the government
