2.1 - Business Organisation Flashcards
Definition of Sole Trader
Owned and controlled by one person
Advantages of Sole Traders
- Private financial statements
- Owner makes all decisions
- Quick and easy to set up
Disadvantages of Sole Traders
- Heavy workload
- Only one source of finance (owner)
- Unlimited liability
- Loss of money if sick / holiday
Risks Involved with Sole Traders
If the business liquidates, the owner 100% liable to the debts of the company, so may have to sell personal assets to pay them off
Definition of Partnership
Owned and controlled by 2-20 people and do not have seperate legal identity
Advantages of Partnerships
- Shared workload
- Private financial statements
- Partners can specialise
- More cover for sickness / holidays
Disadvantages of Partnership
- Profits shared
- Unlimited liability
- Disagreements between partners
- Limited expansion opportunities
Risks involved with Partnerships
Disagreements can lead to the company falling apart and partners losing their jobs
Definition of Limited Companies
- Have a seperate legal identity
- Ownership is in the form of shares
- Business is run by directors, appointed by shareholders, who vote on key decisions
Definition of Private Limited Companies (Ltd)
Shares only sold to friends and family of original owner
Definition of Public Limited Companies (Plc)
Shares sold on the stock exchange to the public
Advantages of Limited Companies
- More capital can be raised
- Shareholders have limited liability
- More cover for sickness / holidays
- Multiple sources of finance
Disadvantages of Limited Companies
- Takes longer to set-up
- More paperwork
- Original owners can lose control
- Financial statements must be open to the public
Risks Involved with Limited Companies
Original owners can lose control if they do not own the majority share
