1.5.4 Forms of Business Flashcards
unincorporated business
the owner is the business, there is no legal difference
-unlimited liability for business actions
-operate as sole traders
incorporated business
there is a legal difference between the business and the owners
-has a separate legal identity
-owners have limited liability
-most operate as private limited companies
unlimited liability
the owners of the business are personally responsible for all debts run up by the business
-their home and all of their assets might be used to pay off any debts that they may incur and are unable to pay.
sole trader
an individual who owns and runs their own business
-registered as self-employed with HMRC
-legally required to keep a record of all income and expenses at the end of the tax year
-profits are classed as income and are taxed
-unlimited liability
advantages of being a sole trader
-no need to rely on other people
-you can choose your own working hours
-in control of all business decisions
-easy to set up and close down
disadvantages of being a sole trader
-unlimited liability
-income is taxable as it is profit
-can be difficult to manage it all, no backup
-may lack skills to run the business
-harder to raise finance
partnership
two or people share the costs, risks and responsibilities of being in business together
-there is equal responsibility
-share profits made by company
benefits of being in a partnership
-risks, costs and responsibilities are shared
-more scope for specialist skills
-financial records remain private
-minimal paperwork once partnership agreement is set up
disadvantages of being in a partnership
-unlimited liability
-arguments may occur
-harder to raise finance than a company
-complicated to sell or close
limited liability
shareholders can only lose the value of their investment in the share capital of the company. this makes it easier for companies to raise money by selling shares, investors will not be at risk of losing their personal possessions.
who is a company owned by?
owned by shareholders
-the more shares a person owns, the more of the company that belongs to them
advantage of being a company
-companies have their own legal identity which is separate from its owners, limited liability
disadvantage of being a company
-documents are needed to be made, a process called incorporation.
what must companies do?
-pay to have accounts checked annually by independent accountants
-make their company accounts public
about private limited companies
-LTD
-benefit from limited liability
-owners can place restrictions on who the shares are sold to in the future
advantages of LTD
-limited liability
-easier to raise finance and raise debt
-stable form of structure
disadvantages of LTD
-greater administration costs
-public disclosure of company information
-directors’ legal duties
about public limited companies
-shares are traded publicly
-minimal capital requirement of £50,000
-accounts need to be published in more detail than for a LTD company
market capitalisation
the total value of all the issued shares in a public limited company
market capitalisation formula
share price x number of shares issued
franchise
this exists where a franchisor grants a license to another business to allow it to trade using the brand/ business format
benefits for franchisee
-your own business
-advice, support, training
-easier to raise finance
-no industry expertise required
drawbacks for franchisee
-not cheap
-restrictions on actions, including selling
-problems selling business on
social enterprise
-businesses have social aims as well as trying too make money
-not-for-profit organisations are businesses that trade in order to benefit the community
lifestyle business
a business that generates a living for the owners
-could be based around a hobby
-mostly operated as an unincorporated business
online business
the internet has allowed firms to connect with consumers effectively without ever meeting face to face.
-as the internet has been growing, business opportunities have grown out of the technology
public sector organisations
organisations that provide goods and services that are owned and operated by public bodies
-funded by central and local government
not-for-profit organisations
businesses that trade in order to benefit the community
-have social aims as well
such as job creation and training, providing community services and fair trade with developing countries
