Business Organizations Flashcards
Discuss business organizations in general.
They describe how businesses are structured and how their structure helps them meet their goals.
They all have common features like formal structure,use of resources,aim to achieve objectives,use of resources,legal regulations controlling them etc.
May decide to focus on either generating profit or improving society.
What are the four main business organizations?
•Sole trader (owned by one person)
•Private limited
(owned through establishment of a limited liability company)(LTD)
•Partnership
(Has two or more owners who share management and profits)
•Public limited
(Owned through establishment of a limited liability company)(PLC)
What are the features of Sole Trader?
•Simplest form of a business
•Appropriate for most types of small businesses.
•financed and wholly owned by one person,who receives and administers all the profits that are made by the business.
•not confined to retail trade.
•more than one person may work in the business.
What are the advantages of Sole Trader
•Simple and cheap to set up.
•No legal or administrative set-up costs since it is not a legal entity separate from its owner.
•Not required to file a formal report and accounts each year with the Registrar of Companies.
•Owner makes independent and quick operational decisions.
What are the disadvantages of Sole Trader
•normally remain quite small businesses.
•No co-owners with which to share the management and development of the business.
•Personal assets are at risk because businesses has unlimited liability.
•Sole trader is entirely responsible for all aspects of the business.
•Sole Trader is responsible for all debts of the business.
•Lack collateral so it is difficult for a sole trader to source outside finance.
What are the features of partnership?
•defined by the Partnership Act of 1890.
•There are two types: General and Limited Partnership.
•Ownership of the business is in the hands of two or more persons.
•Partnership agreement specifies and regulates running of the business.
What are the advantages of partnership?
•Few formalities required in setting up the business.
•Not required to file a formal report and accounts each year with the Registrar of Companies.
•Border base of business skills.
•Share risk taking, decision making and the general management of the firm.
What are the disadvantages of Partnership?
•Partners are all jointly and severally liable for the debts of the firm.
•Partners have unlimited liability for the debts of the firm.
•Partners are each liable for the actions of the other partners.
•Personality clashes can affect business greatly if not checked.
•Death or bankruptcy of one partner will automatically dissolve the partnership unless provided for in partnership agreement.
•Less flexibility of operations.
Discuss limited companies
An association where two or more people come together for a common business goal.
When a limited company fall it’s members or shareholders are only required to meet their debts up to the nominal value of their shares.
Limited companies are either private or public.
Private limited companies features.
•designated as Ltd.
•Minimum number of shareholders is 2 and maximum is 50.
•Legal formalities involved in setting up and these are:
-the drafting of the company’s Memorandum and Articles of Association.
-registering the company and it’s directors with the Registrar of Companies.
-registering the name of the company
What are the advantages of Private Limited Company?
•Legally separate entity or personality from owners.
•Liability of shareholders is limited so their personal assets are not at risk.
•Shareholders have direct control over company’s affairs.
•Can easily raise more capital by selling shares though not publicly.
•Has sure continuity,as company does not depend on one person.
What are the disadvantages of Private Limited Company?
•Too many legal formalities to comply with.
•Accounts should be audited annually hence the need to engage services of auditors.
•Company is less flexible when compared with a sole proprietorship.
•It is a costly exercise to form a Limited liability than that of a sole proprietorship.
List the features of public limited company.
•designated as PLC.
•usually starts as a Ltd company then becomes a public limited company by applying for registration and listing of its shares on the stock exchange.
•formed by at least two people, without a maximum number.
•shareholders or members of company elect a Board of Directors to control it.
•Board of Directors deal with the managing director on policy issues.
List the advantages of Public Limited Company
•can raise more capital by sale of shares on the stock exchange.
•can employ professionals in fields like Marketing,Accounting,HRM,making it more efficient.
•its size makes it possible to buy modern equipment and technology.
•has assured continuity.
What are the disadvantages of Public Limited Company?
•there is little secrecy,its accounts must be published annually.
•decisions tend to be delayed because of the amount of bureaucracy involved.
•risk of takeover bids by other companies because shares of a public limited company can easily be bought on the stock exchange
