1.5.4 Forms Of Business Flashcards
What are the 4 legal forms of business covered in this topic?
Sole-Trader
Partnerships
Private Limited Company (Ltd)
Public Limited Company (Plc)
What are the 4 other forms of business covered- not specifically relating to legal status?
Franchising
Social Enterprise
Lifestyle Businesses
Online Businesses
What does liability mean?
Refers to the extent to which the owner(s) of the business must replay debts incurred in the running of the business.
What form of business has unlimited liability?
A Sole-Trader.
What is a Sole-Trader?
A person who starts and runs a business without turning it into a company. This is why the law sees the business and the owner of the business as the same.
What are the benefits and drawbacks of being a Sole-Trader?
B- Owner has full control over decisions
B- Owner keeps all profits made
B- Minimal paperwork needed to start up
D- Owner has unlimited liability for debts
D- Hard to raise finance
What does unlimited liability mean?
Means that the owners of the business must take personal responsibility for covering debts run up by their business. If the business goes bust, the owner/s can be forced to sell their own personal assets to repay lenders, suppliers or employees whom money is owed.
What is a Partnership?
Best thought of as a sole-trader where several owners are allowed. This helps to raise finance as each partner can bring capital into the business. The burden of responsibility for running the business can be shared potentially among people with varied skills and experience. Share unlimited liability.
What are the benefits and drawbacks of being a Partnership?
B- More owners can allow more finance to be raised
B- Partners may bring varied skills and experience
B- Shared burden of responsibility among partners
D- Partners have unlimited liability
D- Potential for disagreement among partners
Which 2 types of businesses have limited liability?
Private Limited Company (Ltd)
Public Limited Company (Plc)
What is a Private Limited Company?
A simpler form of limited company. Has no minimum share capital. Increased legal formalities.
What is a Public Limited Company?
The only type of business that can sell shares via the stock market to the general public. Allows to raise vast sums each year.
To be a Public Limited Company the business much have how much as a minimum in share capital?
Minimum of £50,000 in share capital.
What is a Franchise?
An opportunity to start a business using a tried and tested formula. For the franchisor, franchising can be a relatively cheap and quick way of expanding their business rapidly. For the franchisee, there are both benefits and drawbacks relative to starting independently.
What are the benefits and drawbacks of buying a Franchise?
B- Access to a tried and tested formula for success
B- Support from franchisor with materials, fixtures and fittings
B- Advice and training on all business functions
B- Possibility of a national advertising campaign from franchisor
B- Guaranteed local monopoly for that brand
B- Easier access to loans (recognised lower risk)
D- Franchisee frustration as not able to make decisions dictated by franchisor
D- Likely to be initial franchisee fee to buy license
D- Franchisor will expect royalties, a % of revenue.
