3.1.2 Understanding different business forms Flashcards
What is a business form?
Its the legal structure e.g. sole trader, partnership, PLC or LTD.
What type of business are majority of UK businesses?
PLC
What is limited liability?
It means that the owner has no personal liability for business debts. They are a seperate legal identity.
What is unlimited liability?
If a business gains debt or goes bust the owner might need to pay it with their own savings, finances and they may even need to remortgage their home.
What is a sole trader?
It is a business that is owned by one person but can employ employees or managers to run it.
What are sole traders also known as?
Sole proprietor.
Benefits of being a sole trader:
Easy to form, make decisions quickly, less capital needed, all profits are kept, don’t have to share their information, they are their own boss.
Drawbacks of being a sole trader:
Unlimited liability, dificult to raise money (seen as a risk), don’t have economies of scale (buy in bulk), no one to take over when ill or on holidays unless they take on staff.
What is a private limited company (LTD)?
Its a business that expands by selling shares to friends and family to raise more capital.
Benefits of being a LTD:
Limited liability, can raise capital by selling shares, can employ managers, the business has its own legal status.
Drawbacks of being a LTD:
Accounts cannot be kept private, more dificult and expensive to set up, can’t sell shares on the stock exchange which limites the amount of capital that it can raise.
What is a public limited company (PLC)?
Its a business form where the shares are sold on the London stock exchange.
Benefits of being a PLC:
Limited liability, can sell shares to the public to raise capital, can be traded on the stock market, banks and investors are more likely to lend cash.
Drawbacks of being a PLC:
Going public is expensive:
Lawyers to draw up legal paperwork, Publications, Advertising and admin, Company must have £50,000 in share capital.
What are public sector organisations?
They are organisations owned by the UK government. Taxes paid by the public and businesses go towards paying for them. According ton ONS around 5.2 million people in the UK are employed by them
Examples of public sector workers:
Teachers, social worker, police officer, armed forces, prison officers, doctors, nurses.
Objectives of public sector organisations:
Serve the UK public.
Objectives of private sector organisations:
Survive, profit maximisation, growth, dividends for its shareholders.
Role of the government in public sector organisations:
Full control.
Role of government in private sector organisations:
Only interested in taxation and adhering to UK laws e.g. minimum wage.
Which sector organisation has a stronger competative nature?
Private sector organisation.
Which sector organisation has a higher employee job security?
Public sector organisations.
What are non profit organisations?
A business which as a social objective and puts all retained profits into helping the cause e.g. charities.
What factors lead to the chosen business form?
Objectives, how its financed, what products and services its offering.
What is ordinary share capital?
It provides investors with voting rights (one vote per share) and represent proportional ownership of a company.
What is maket capitalisaition?
It is the toal value of the company or the toal value of the shares in the company.
Market capitalisation formula:
Current share price x Number of shares issued.
What are shareholders?
They are the owners of the company and provide financial backing in return for dividends.
Where will shareholder decisions be made?
General meetings.
Why do shareholders invest?
To get a return on their capital invetment.
What are some influences on share prices?
Suply and demand, interest rates, political climate, management of the company.
