3.1.2 Buisness Forms Flashcards
What is capital
Money raised to start or develop a business
What is unlimited liability
Where responsibility of all debts of business rests on owner
What is limited liability
Where responsibility of all debts is limited to the amount invested by a sharesholder
What is a dividend
Money paid to shareholder from profits if a limited company
What is a sole trader
A business owned by one Person
Positives of being a sole trader
Easy and cheap to set up
Owner has control
Keep all profits
Financial info not shared
What are the negatives of being a sole trader
Unlimited liability
Long work hours
Continuity
Shortage of capital
What is a private limited company (Ltd)
A business owned by at least two share holders
What are the positives of being a private limited company
Limited liability
Continuity
Control over share
What are the negatives of being a private limited company
Some financial info available
Admin
Dividends
What is a public limited company (plc)
A business pended by shareholders. Shares in business can be bought and sold on stock exchange
What are the positives of being a public limited company
Ability to raise large capital
Easier to borrow
Limited liability
What are the negatives of being a plc
Possibility of takeover
Costs
Financial info available
What are the factors that influence a PLCs share price (within company control)
Dividend policy
Relationship with investors
What are the factors that influence a PLCs share price (outside company control)
State of economy
What is limited liability
unlimited (sole trader)
limited (private limited company and public limited company
What is a public sector organisation
organisations that provide goods and services which are owned and funded by the government
eg NHS, highways agency
What is an unincorporated business
-The owner is the business- no legal difference
-owner has unlimited liability (including debts)
-most unincorporated business operate as sole traders
What is an incorporated buisness
-legal difference between the business (company) and the owners
-owners (shareholders( have limited liability
- most incorporated business operate as private limited companies
What is a social enterprise
Businesses that trade in order to benefit the community.
These businesses have social aims as well as trying to make money for the business
Eg- Man V fat football
social bite-giving people who just left prison jobs
What is annual general meeting
a yearly meeting in which company directors invite all shareholders to come to quiz the board and vote on new resolutions
A legal requirement for plc’s
What is dividend cover
measures how well a firms dividends are covered by its profits for the year
What is external constraint
somethings outside of the firm’s control that can prevent it achieving its objectives
How do shareholders get their rewards
dividends
capital growth (capital gain)
What are dividends
payments made to shareholders from profits
amount paid is “per share”
normally no requirement to pay dividends
What is capital growth
-Arises from an increase in the value of the business
-reflected in an increase in share price
-only received when a share is sold
-no guarantee
What is a share
an individual part of the issued share capital of a company
more shares you have the more voting rights based on number of shares held
What is share price determined by
by the interaction of supply and demand
more buyers than sellers = share price would rise
a falling share price indicates excess supply (more sellers than buyers)
What is the share price for a private company
Initially set when shareholders “subscribe for their shares
Thereafter only determined when shares are bought and sold
Share price of a public company
highly transparent- displayed publicly, in real-time
all trades are disclosed (how many bought/sold and for what price)
share prices widely published and tracked
What is market capitalisation and what is the calculation
represents the total market value of the issued share capital of the company
current share price
X
number of outstanding shares
Factors that influence a PLC’s share price - Within a company’s control
Financial performance
Dividend policy
Relationship with key investors
Management reputation
Factors that influence a PLC’s share price - Outsdie a company’s control
State of economy
Whether company is takeover target
Alternative investment in company’s sector
What is the share price of a public company significantly influenced by
market expectations of business performance
unexpected warnings indicating that market expectations will not be met almost always result in a significant fall in share price
What is share capital
-Known as equity finance
-Returns : dividends and capital growth
-Part of the ownership of a company
-Long-term source of finance
-Returns tend to be higher given higher risk
-Can be repaid
What is debt
Most commonly in the form of loans or overdrafts
Return: intrest on amount loaned and outstanding
Repaid over an agreed period
Can be short or long term
no participation in ownership of the company
Often secured against the assets of the company
Benefits of share issues
Able to raise substantial funds if the business has good prospects
Broader base of shareholders
Equity rather than debt = lower risk finance structure
Drawbacks of share issues
Can be costly and time-consuming
Existing shareholders’ holdings may be diluted
Equity has a cost of capital that is higher than debt
Two main methods of issuing shares for a public company
Floatation
Rights issues
What is floatation (method of issuing shares for a public company
Shares issued on stock exchange for the first time
Opportunity for existing shareholders to get a return on investment
Costly + time consuming
Aims to raise at least £25-50 million + new capital
What is rights issues (method of issuing shares for a public company
fresh issue of new shares to existing shareholders
helps generate funds to expand
