1.4.1 - The options for start-up and small businesses Flashcards
Limited Liability
- The company will lose no more than they invested in the business
- Meaning that personal assets will not be seized.
Unlimited liability
- The debts of the business are the owner’s responsibility.
- Meaning personal assets will be seized in an event of bankruptcy to pay off the owner’s debts.
List advantages of a sole trader
- Can set up a business easily
- Have autonomy(independence)
- Keep all profits made by the business
- Enjoy tax advantages, because of the small business
List disadvantages of a sole trader
- Owner bears all risks
- Limited specialisation
- Restricted ability to exploit economies of scale
- The lack of continuity. - eg the owner going sick, no one will be working.
- LIMITED LIABILITY
Sole trader
- A business owned by a single person.
Partnership
- Is a business organisation owned by more than one person. 2 and 20 owners.
- One person in the partnership will have unlimited liabili ty.
List advantages of a PARTNERSHIP
- Is able to raise more capital.
- More expertise.
- Busines affair of partnerships are kept confidential.
- Small business - Good communication within colleagues.
- More continuity than in a sole trader
List disadvantages of a PARTNERSHIP
- More people - More disagreements.
- Profits must be shared from the business.
- The partners have unlimited liability. However, sleeping partners have limited liability.
How do you set up a PRIVATE LIMITED COMPANY
You need:
- The Memorandum of Association.
- The Articles of Association
- Then a “Certificate of Incorporation” is issued to the company.
List advantages of limited companies
- Shareholders have limited liability
- Additional finance can be raised through selling shares.
List disadvantages of limited companies
- Companies have to file their financial accounts and have them checked by an accountant.
- They are harder to set up, are more time consuming and expensive to set up compared to sole proprietorships and partnerships.
List advantages of Franchisor
- Franchisee will be determined to succeed.
- The Franchisee has to pay to licence the product. Meaning that Franchisor can expand at a very fast rate.
- Franchisor does not have to involved in hiring store managers.
List advantages for the Franchisee
- Business model has already been tested, and there is already a demand for the product.
- Costs can be significantly lowers that starting a new business. - no market research
- You get given support by the Franchisor - such as sales promotion.
List Disadvantages to the franchisor
- The selection process is very long.
- Some Franchisees run their business quite poorly - a bad reputation.
- The reputation is no longer in the direct control of the franchisor
List Disadvantages to the Franchisee
- The franchisee has to purchase the right to the license of the business.
- You are not fully flexible. - Franchisor requires the business to be operated in a certain way.
- The business can not be sold without the prior agreement of the franchisor.
Assets:
Assets:
Incorporated:
A business that is registered as a company, so the business and the owner are separate in the eyes of the law
Unincorporated:
A business that is not registered as a company so the owners and the business are the same body in the eyes of the law
Deed of Partnership:
A legal document that defines the terms of the partnership
Private Limited Company:
An incorporated business that is owned by shareholders
Franchise:
When one business gives another business permission to trade using its name and products in return for a fee and a share of its profits
