6. Types of commercial enterprises: Sole traders, Cooperatives and Partnerships Flashcards
What are the two legal forms in the private sector? Explain
Unincorporated- No legal difference between the owner and the business
Incorporated- Has a separate legal identity. The owners are shareholders and they can also be called limited companies.
What is the public sector?
when the government, departments, public corporations, and other agencies provide services that may not be provided by the private sector.
Who is a sole trader?
-The simplest form of commercial enterprise.
-Has one owner but can employ many people.
What are the features of a sole trader?
- No legal requirements
-No special documents
-Raise capital using their own personal resources
-Owner owns all profit.
-Unlimited liability
Advantages of a sole trader?
The owner keeps all profit
The owner has full control
Simple to set up
Flexibility
Can offer personal services
May qualify for government help
Disadvantages of a sole trader?
Unlimited liability
Struggle to raise finance
Too much responsibleity
Has to work long hours
Too small to exploit economies of scale
No continuity if the business owner dies
What is a cooperative?
A private business that is owned and controlled by the people who use its products, supplies, or services.
What are the two types of cooperatives and explain them?
Consumer or retail cooperatives- They are owned and controlled by their members. Members can purchase shares which allow them to vote in the annual general meeting (AGM). The capital raised from selling shares is invested in the cooperative. Profit made is distributed to members as dividends
Worker cooperatives- They are jointly owner by their employees.
What is a partnership?
It exists between 2 to 20 people.
What are the features of a partnership?
No legal requirements
A deed of partnership may be drawn up this
Capital is raised by each partner.
What is the deed s partnership?
It is a legal document that states the partner’s rights in the event of a disagreement. It shows how much capital each partner will contribute, how profits will be shared amongst partners, and the rules for taking new partners.
Who is a sleeping partner?
A partner which only provides capital but takes no part in the management of the business. They will have limited liability and can only lose the money that they invested originally.
Advantages of a partnership?
Easy to set up as there are no legal formalities.
Partners can specialize in their area of expertise.
The job of running a business is shared.
More capital can be raised.
financial information is not published.
Disadvantages of a partnership?
Partners have unlimited liability
Profits have to be shared
Partners may disagree and fallout
any partners decision is legally binding to all
Partnerships tend to be small
