1.5.4 Forms Of Business Flashcards
What are the forms of business
- Sole trader
- Partnerships
- Private limited companies
- Public limited companies
- Social enterprise
- Franchise
- Lifestyle business
- Online business
Sole trader
one person business with unlimited liability
- individual who owns and operates his or her own business (set up by entrepreneur)
- may be employees
- only one to benefit financially
4 ADVS of sole trader
1-no administrative costs / formal rules
2-income = own (profits)=personal satisfaction
3-complete confidentiality
4-less bureaucracy (less legal paperwork)
4 DIS of sole trader
1-unlimited liability
2-limited access to finance for growth
3-long hours of work
4-difficulty to run during ill health
Partnerships
type of business organisation comprising between 2-20 people
pool money/skills/resources/share profit/loss based on partnership agreement/deed of partnership (GENERAL)
-without forming a company
UNLIMITED
4 ADVS of partnerships
1-flexible & easy to set up
2-flow of personal income
3-each partner contributes resources and skills
4-shared workload
4 DIS of partnership
1-little protection/unlimited liability
2-lack of structure
3-easy to fail
4-potential conflict due to clash of interest
Unlimited liability
owners liable for any debts incurred by business
may require selling of assets/possessions = personally bankrupt
Personal possessions of owners are at risk
Limited liability
owners only liable for debts of business , lose no more than sum invested
Owners of business are only responsible to pay back total value invested
(Suing company not investor)
2 ADVS & 2 DIS of forming a limited company
ADV
1-SH= confidence to expand
2-SOF options
DIS
1-financial info public
2-more expensive rules
Private limited company;
Business that sells shares to friends and family
3 ADVS of private limited company
1-limited liability
2-shares to family/friends = trusted circle
3-no risk of hostile takeover
3 DIS of private limited company
1-harder to find funding
2-pay corporation tax
3-no of SH limited to 50
Public limited company
what are the minimum values
Company with limited liability whose securities are traded on stock market bought/sold by anyone
Min SH = 2
Min = 50,00 pounds
4 ADVS of Public limited company
1-capital = selling shares
2-large production scale
3-legal status - benefit publicity
4-limited liability
4 DIS of public limited company
- 50,000 pounds as a share capital
- lose control
- disagree conflict
- publish detailed accounts
flotation
Process of offering a company’s shares for sale on stock market for first time
Social enterprise
focus= put profits -> strong social/env mission social obj rather than monetary
- social problems,
- communities, life challenges & environment
- directly involved in producing goods/services
- social aims/ethical values
- operates as a business
- tradable shares
4 ADVS of social enterprise
1-access to grants
2-doing good socially ethically and environmentally
3-gives opportunities to help others
4-more likely to invest = good cause
4 DIS of social enterprise
1-lack of support structure
2-lack funding
3-monitor market continuous innovation
4-lack public exposure/recognition=less support
Deed of partnership contains info on:
4 things
1-capital invested by each member
2-distribution of future profit
3-rules should a partner leave
4-not compulsory
5 characteristics of Companies:
1-owned by investors SH (owners ) 2-different types of shares (most common =ordinary) 3-separate legal entity 4-limited liability 5-controlled = managers
Seperate legal entity
- Companies can own things such as land equipment
- what share holders own is different compared to what company owns
Dividend (plc):
- payment from profits of company to SH
- cant be payed if no profit
- SH paid a dividend per share
- paid depending on how business organises its financial cycle e.g.quartery
Franchise
business that sells the legal right to use the name and logo of an existing firm and sell the same products and trading methods
E.g. KFC
Franchisee
Someone who buys the right from a franchisor to copy a business format
ADVs and DISs of being a franchisee
ADV:
- easier form of starting/running
- established brand = benefit franchiser adverts
- franchisor = assistance
DIS:
- not full control / own business
- royalties
- pressure of brand
Franchisor:
- Grants license (the franchise)
- another business (the franchisee)
- trade using the brand or business format
ADVS and DISs of being a franchisor
ADV:
- quick expansion
- lump sum/royalties
- less work
- EOS
DIS:
- not 100% of profit
- lose day to day control
- risk of brand name
Royalties
Payment made from the franchisee to the franchisor
Percentage of the franchisees’ total profits
Lifestyle business
- aim = provide great quality of life for owner (live how want & still working)
- may start doing something they really enjoy
- hope to sustain a certain level of income (satisficing)
Aim of a start up business
-big enough
= return of investment for investors
Satisfice
- course of action
- satisfy the minimum requirements
- achieve a particular goal.
Benefits of a lifestyle business
- use all your talents and interests
- startups = risky businesses
- 9-5 structure (avoid it) (hour flexibility)
- location flexibility
- personal profits
5 characteristics of an Online business
- business set up &run online (easily)
- available 24/7
- managed anywhere (no need for office)
- heavy inv in time more than money
- financial risks = lower & potential rewards = higher
Percentage change
New - Old divided by Old x100
5 Factors that influence legal structure chosen for a new firm
- risk
- location
- finance needed
- nature of product
- entrepreneur wants to make all decisions themselves
limited company
company with limited liability
considered business structure whereby company considered legally distinct body
company
organisation sells good/services to make money
incorporation
establishing business as separate legal entity from owners, = give owners limited liability
registrar of companies
gov department which allows firms to be incorporated
