18 - Forms of a business and business choices Flashcards
sole trader
owed by a self employes individual
* easy to start up
* owner keeps profits
* unlimited liability
partnership
business owned by 2+ individuals
* shared repsonibiltiy over owners
* unlimkted liability
* joint ownership
PLC (private limited company)
sell shares privately
* must become leaglly incorporated
* limited liability
* higher status than sole trader
* more acsess to capital
LTD (public limited company)
largely publicly owned companies, sell shares to public
* size measured by market capitalisation
* ability to take over other bsuinesses
* can lose control of business though
limited liability
the liabiltiy of the owners is detached from the business. they will only lose their original investment, not their personal belongings like homes or cars
incorporation
the process of setting up a seperate legal identity for the business, limiting the liability of the owners ect
limited partnership
very rare
when one owner provides capital but has no part in managment, will lose orriginal investment but nothing else
a franchise
limited company that licenses out the right for indiviudals to set up identical operations under their name in a new region
benefits of franchising
good way to grow the business
the franchisee pays fee and royalty payments
risks of franchising
the franchise may damage the brand name if run poorly
benefits of franchising (ON THE FRANCHISEE)
recieve a ready made business
provided with tarining and support
negatives of franchsiing (ON THE FRANCHISEE)
expesnive set up fees and little freedom
royalty payments (all shares got back to the franchisor)
Benefits of operating as an LTD
- limited liability
- easier to rase capital through shareholders
- owners may pay less tax than if they operate as a asole trader
negatives of operating as an LTD
hard to set up
accounts are published and publicy available
cant raise large amounts from shareholders
benefits of operating as a PLC
huge amounts of money can be made through selling shares
easier to raise finance
size makes it easier t gain economies of scale
negatives of operating as a PLC
accounts available to the public
external pressure from media or pressure groups
board of dirctors accountable to external shareholders
social entrprises
non profit organisations such as charities.
may pay lower tax
stock market flotation
sellings shares on the stockmarket and becoming a PLC
factors effecting the price of a business’ shares
company’s perfromance
the business environment
when share prices rise
- managers may get a bonus
- easier to raise caputal
- consumers with shares are more likely to spend
- may recieve good publicity
when share prices fall
vulnerable to a takeover
indicates poor perfomance
hard to raise capital
opportunity costs
the cost is the benefit lost from the next best alternative, for example launching a new advertising campaign instead of investing in employee tarining
non-moentary opporunity costs
usually difficult to calcuate financial loss, especially if the choice effects the brand awarness, employee morale or good will
trade offs
the loss and compromise of another option or factor.
fro example improving productivity may redue quality
factors effecting business decisions
long term/short term benefits
advantages and disadvanatges of each option
investment appraisal
risk v rward
