2. Types of business organisation Flashcards
Describe a sole trader
A business that is owned and controlled by one person
Describe a partnership
A business that is jointly owned and controlled by more than one person
Describe a limited company
A separate legal entity that is owned by shareholders and controlled by executive directors.
There are two types of limited companies : ltd and plc.
Define unlimited liability
The sole traders and partners are responsible for paying any debts that the business is unable to pay even if that means selling their own assets
Describe shareholders
They are part of a limited company.
They can be individuals or institutions/companies who hold one or more shares in a company.
Describe directors
Employees who are responsible for the day-to-day running of the company
Describe dividends
A portion of a company’s earnings distributed to a shareholders
Describe limited liability
The amount of money that shareholders can use is limited to what they paid for their shares; they don’t have to provide any more money to pay the company debts
Typical mistake - An advantage of becoming a plc = limited liability
Don’t refer to limited liability as an advantage of becoming a plc.
This is because shareholders in a ltd already have limited liability and the business would need to be a private limited company before converting to public company
Exam tips
If a question states that an individual owns all the shares in LTD, then they have NOT set up to provide additional finance, although they may do that in the future .
An individual who owns all of the shares in a LTD will NOT have to share the profits with other shareholders .
Control hasn’t been lost if the original owners own more than 50% of the shares .
When discussing whether or not to change from his sole trader to a partnership, refer to the likely impact on profits and the profit sharing ratio.
When discussing whether or not to become a limited company, refer to the actual or predicted profits and how this would affect the business’ ability to attract shareholders.
Which limited company can sell their shares on the stock market?
PLC
Which limited company can’t sell their shares on the stock market?
LTD
