4 - Forms Of Business Flashcards
What is a sole trader/ sole proprietor?
A sole trader is when a business is run by one person eg. A hairdresser or corner shop
What are the advantages of being a sole trader?
Respond quickly to changes in the environment
Keep all profit
Owner has complete control
No legal requirements
Easy to set up
What are the disadvantages of being a sole trader?
Unlimited liability
Independence may be a burden if owner is sick
May struggle to save finance as lenders may consider them too risky to offer credit
What is a partnership ?
2 or more owners in an enterprise (usually between 2-20)
What are the advantages of a partnership?
Spread risk across more people
Partner may bring money, resources, skills, expertise to the business
What are the disadvantages of a partnership?
Have to share profits
One partners legal decision creates legal obligation for all partners
What is a limited partnership?
Partnership where some members contribute capital and share profit but don’t get involved in the running of a business
These partners have limited liability (but at least one has to have unlimited) and are sometimes called sleeping partners
What are limited companies?
Have a separate legal identity from owners
What are the features of limited companies
Pay cooperation tax
Need a minimum of 2 members
Owners have limited liability
Capital is raised by selling shares
After completing the two documents..
You will get a certificate of incorporation
Memorandum of association
Or
Article of association
What is a private limited company (LTD)?
A small to medium sized business, usually run by a family or small group of individuals that is limited by shares eg. Music lessons or Sharaka Holdings
What are the features of a private limited company?
Limited liability of all members
Sell shares on open stock market
Business continues if owner dies
What are the advantages of a private limited company?
Shareholders have limited liability
Control can’t be lost to outsiders
What are the disadvantages of a private limited company
Financial information may be published
Set up costs may be high
What are franchises ?
Franchising arises when a franchisor gives a license (franchise) to another business (franchisee) to allow them to trade using the brand/business format
What are the features of a franchise?
A license is provided for a franchise to trade using business name/model
Pays a start up fee and recieve a start up package
What are the advantages of being a franchisee
Franchises are a tried and tested area and they will get support from franchisor
National marketing is provided so it’s easy to build a customer base
What are the disadvantages of being a franchisee?
Profit is shared with franchisor & franchisees may have less independence
Start up cost may be expensive
What are the advantages of being a franchisor?
Faster and cheaper method for growth
Franchisees take on part of the risk from franchisors and display high levels of motivation
What are the disadvantages of being a franchisor
Profit is shared
Franchisee may damage business reputation
Cost of supporting franchisee may be high
What is a social enterprise
Business that trades with the objective of improving human/enviormental wellbeing
Includes charities and worker cooperatives
What are the features of a social enterprise?
Have a clear environmental/ social mission
Generate most of their income through trade/donations and reinvest most of their profits
Not connected to the government
Eg. UNICEF , WWF, Qatar Charity
What are co-operatives?
Type of social enterprise owned and controlled by their members and members can purchase shares
What are worker co-operatives
Type of social enterprise that is a business jointly owned by its employees
