4.1c Weighing it up Flashcards
Advantages of a sole trader ownership
- The sole trader makes all of the decisions by themselves, this is quick and does not lead to disagreements
- Quick and easy to set up
- Sole Trader keeps all of the profits
- Financial information is kept private
Disadvantages of a sole trader ownership
- Sole Trader has unlimited liability
- May be difficult to raise enough money to establish/ grow the business
- Puts a lot of pressure on one person
- Can be difficult to run if the owner is ill or takes time off
Advantages of a partnership ownership
- Business owners may have a wider expertise and can share ideas and decision making
- Risk is shared between both people
- Can be easier to raise finance to establish or grow the business
- Business’s financial information if kept private
Disadvantages of a partnership ownership
- Decisions made by one partner can affect all partners
- If a partner leaves, the business no longer exists
- Profits are shared
- May be disagreements between partners
Advantages of a Private limited company (PLC) ownership
- Owners have limited liability
- ‘Ltd’ term after the business’s name may make it appear to be bigger or more long-established business
- Can be easier to realise finance to establish or grow the business
- The business continues to trade even if shareholders change
Disadvantages of a Private limited company (PLC) ownership
- More complex to setup than a sole trader or a partnership
- May be disagreements between shareholders
- Business’s financial information is published
- More requirements to report information to organisations such as HMRC and Companies House
Limited company
- people are more likely to trust a limited company
- the government provides more help to smaller businesses
- more people care about your business
Private limited company monetary risk
Owners and shareholders of a private limited company benefit from limited liability. This means that they are not a risk of losing any more money than they have invested in the business.
Limited company
Compared to sole proprietorships and partner ships, it is easier to raise finance in a limited company. Shares in the company can be sold, and banks are more willing to lend money to limited companies.
Private limited company control
Owners of a private limited company are able to maintain direct control of their business, as shares in the company cannot be sold unless all shareholders agree. This is an advantage over public limited companies, which risk takeover because their shares are traded on the stock exchange.
Private limited company set up
On the downside, a private limited company can be costly to set up, and there is quite a bit of paperwork involved. Partnerships and sole proprietorships are comparatively simple to set up.
Private limited companies account publishing
A further disadvantage of private limited ownership is that they have to publish their accounts each year, which anybody can then access. As well as being expensive to publish accounts, it can be a concern for owners if their company has not had a good year.
What is an asset
An asset is a property, such as a house or a car which can be taken away in order to repay a debt if you are unable to repay it.
What does unlimited liability mean for a sole trader?
It means that the entrepreneur’s risk goes beyond the amount invested, so personal assets of the owner can be used to pay off debts.
What does limited liability mean for a Private limited company?
It means that the entrepreneurs risk is limited to the amount they put into and invest into the business and not personal assets which means that it is less risky.
