1.5.4 - Forms Of Business Flashcards
What is unlimited liability?
A legal status which means that the owner of a business is personally liable for all business debts.
What are the advantages and disadvantages of sole traders?
Advantage - The owners keep all the profit. The business is independent and the owner has complete control. The business is simple to set up, with no legal requirements. The business can be flexible and can adapt to change quickly. The business can offer a personal service because it is small. The business may qualify for government help. Disadvantage - The owner has unlimited liability. The owner may struggle to raise finance, as lenders may consider them too risky to offer credit. Independence may be a burden, for example if the owner is ill. The owner and any employees
What are the advantages of being a sole trader?
The owners keep all the profit. The business is independent and the owner has complete control. The business is simple to set up, with no legal requirements. The business can be flexible and can adapt to change quickly. The business can offer a personal service because it is small. The business may qualify for government help.
What are the disadvantages of being a sole trader?
The owner has unlimited liability. The owner may struggle to raise finance, as lenders may consider them too risky to offer credit. Independence may be a burden, for example if the owner is ill. The owner and any employees are likely to work very hard, with long hours. The business is usually too small to expoit economies of scale. The business will have no continuity if the owner passes away.
What is a partnership?
Where a business is started and owned by more than one person. The legal partnership agreement sets out how the partnership is run, covering areas such as: how profits are to be shared, what the partners have to invest into the business, how decisions are taken, what happens if a partner wants to leave or dies. The partners between them own all the business assets and all business liabilites, so therefore have unlimited liability.
What are the advantages of being a partnership?
The partnership is easy to set up and run, with no legal formalities. Partners can specialise in their area of expertise. Paterners share the burden of running the business. More owners can raise more capital. The partenership does not have to publish financial information.
What are the disadvantages of being a sole trader?
Partners have unlimited liability. Partners have to share the profit. Parteners may disagree and fall out with one another. One partner’s decision is legally binding on all other partners. Patnerships have limited growth potential.
What is limited liability?
A legal status which means that a business owner is only liable for the orignial amount of money invested in the business.
What is a limited company?
Limited companies are separate legal entities to the founders. A legal entity can own things itself (assets), can sue and be sued. Companies are owned by their shareholders and run by directors. The shareholders appoint the directors (often the same people) who run the company in the interests of the shareholders. Shareholders own a share in the company, but they do not own the assets of the company and they are not liable for the debts of the company. The company owns the assets and pays the debts, and it is closed if it cannot pay its debts. The most common form is a private limited company where shares are not traded publicaly on a stock exchange, where as a public limited company tends to have a larger value of share capital invested and its shares may be traded publicaly.
What are the advantages of being a limited company?
Limited liability protects the shareholders. Easier to raise fianance, both through the sale of shares and also easier to raise debt. Stable form of structure as business continues to exist even when shareholders change.
What are the disadvantages of being a sole trader?
Greater admin costs, public disclosure of company information, directors’ legal duties.
What is a franchise?
The franchisor is a company which owns a franchise. It allows another business, the franchisee, to use its business ideas and methods in return for a variety of fees. The franchisor provides the franchisees: a licence to make a product, a recognised brand name, a start-up package, materials to make the product, marketing support, and training. The franchisee then has to pay an initial start-up fee, a percentage of sales, one-off fees for management services such as training.
What are the advantages to franchisees of franchising?
Franchises are lower risk, as they use an idea that has already been tried and tested. Franchisees get support from the franchisor. The set-up costs of a franchise are predictable. Franchisees can benefit from national marketing campaigns organised by the franchisor.
What are the disadvantages to franchisees of franchising?
A franchisee’s profit is shared with the franchisor. Franchisees have to sign contracts with franchisors, which can reduce independence. Setting up a franchise can be an expensive way to start a business. Franchisees lack independence and must abide by strict operating rules.
What are the advantages to franchisors of franchising?
Franchising is a fast method of growth. Franchising is a cheaper method of growth because franchisees take some financial risk. Franchisees take some of the risk on behalf of the franchisor. Franchisees are more motivated than employees.
