Business - 1.4 Flashcards
private sector businesses
- sole traders
- partnerships
- private limited companies
- public limited companies
- franchise
public sector business
- public corporations
sole traders / proprietors - definition
a business that is owned by one person
sole traders / proprietors - advantages
- fewer legal formalities
- owner has complete control
- owner get all profit
- freedom to change working hours and employ
- has personal contact with customers (decision making is easier)
sole traders / proprietors - disadvantages
- owner has unlimited liability
- limited capital = small business
- owner may spend long working hours
- can be inefficient because of the lack of specialists
- no legal identity & continuity
partnership - definition
a form of business in which two or more people agree to jointly own a business
partnership - advantages
- more capital than a sole trader
- different skills from different partners
- responsibility can be shared
- any losses are shared between partners
partnership - disadvantages
- owners have unlimited liability
- business has no legal identity & continuity
- disagreements = slowed decision making
- one partner is dishonest / inefficient, everyone loses
- profits shared
private limited companies - definition
businesses owned by shareholders but they cannot sell shares to the public
private limited companies - advantages
- sale of shares makes raising finance easier
- shareholders have limited liability (safer to invest)
- original owners can still keep control (restricting share distribution)
private limited companies - disadvantages
- many legal formalities
- accounts of company are less secret than sole trader / partnerships bec of financial info needed to register
- capital is still limited as company cannot sell to the public
public limited companies - definition
businesses owned by shareholders but they can sell shares to the public and their shares are tradeable on the stock exchange
public limited companies - advantages
- limited liability
- potential to raise limitless capital
- no restrictions on transfer of shares
public limited companies - disadvantages
- many legal formalities
- business must publish its annual accounts in public newspaper / website
- selling shares is expensive
- difficult to control (too large)
- owners can lose control
franchise - definition
- a business based upon the use of the brand names, promotional logos and trading methods of an existing successful business.
- franchisee buys licence to operate this business from franchisor
franchisor - advantages
- franchisee pays
- expansion is faster and cheaper
- franchisee managers store
- all products sold is bought from franchisor
franchisor - disadvantages
- failure of one franchise can lead to bad reputation for the whole business
- franchisee keeps profits
franchisee - advantages
- low chance of failure (well known brand)
- supplies are obtained from franchisor
- business decisions made by franchisor
- staff training is provided by franchisor
franchisee - disadvantages
- less independence
- unable to make decisions that would suit the local area
- licence fee must be paid annually
joint ventures - definition
where two or more business start a new project together sharing capital, risks and profits
joint ventures - advantages
- share costs on expensive projects
- risks shared
joint venture - disadvantages
- profits are shared
- disagreements might occur
- two partners might run joint venture differently
public corporations - definition
a business in the public sector that is owned and controlled by the state (government)
public corporations - advantages
- businesses are considered too important to be owned by an individual (monopoly power)
- rescues important businesses when they are failing (nationlise)
