2.1 Business Organisation Flashcards
What are the types of business organisation?
Sole trader, partnership, limited company (private and public limited company)
These types differentiate based on ownership and control.
Define a sole trader.
A business owned and controlled by one person who may employ others.
List advantages of being a sole trader.
- The owner keeps all the profits
- The owner is their own boss
- Quicker and easier to set up
- Financial statements remain private
List disadvantages of being a sole trader.
- Only one source of capital
- Long working hours and heavy workload
- Financial loss when sick or on holiday
- Unlimited liability
What is a partnership?
A business that is jointly owned and controlled by more than one person.
List advantages of a partnership.
- More than one source of capital
- Shared workload
- Specialization among partners
- Quicker and cheaper to set up
- Financial statements remain private
List disadvantages of a partnership.
- Profits must be shared
- Potential for disagreements
- Unlimited liability for partners
What is a deed of partnership?
A document that outlines profit sharing, responsibilities, and exit strategies for partners.
Define a limited company.
A separate legal entity owned by shareholders and controlled by directors.
What are the key characteristics of a limited company?
- Owned by shareholders
- Minimum of two shareholders required
- Controlled by directors
- Must complete Memorandum and Articles of Association
List advantages of a limited company.
- More capital can be raised
- Shareholders have limited liability
List disadvantages of a limited company.
- Longer and more expensive to set up
- More paperwork and annual costs
- Profits shared with shareholders
- Original owners may lose control
- Financial statements are public
What is the difference between private and public limited companies?
- Private limited companies (‘Ltd’) cannot sell shares on the stock market
- Public limited companies (‘plc’) can sell shares on the stock market
List advantages of becoming a public limited company (plc).
- Large amounts of capital raised through the stock market
- Capital can be used for business expansion
- Higher profits from expansion
- Financial statements are freely available
List disadvantages of becoming a public limited company (plc).
- Profits shared with many shareholders
- Original owners likely lose control
- Higher annual costs and more paperwork
