Business structure Flashcards
What is the main aim of the private sector?
To earn profit
Profit benefits owners, shareholders, and investors.
How is the private sector financed?
By private money from shareholders and investors.
What characterizes the public sector?
Owned and run by the government, funded through taxpayers’ money.
What types of goods does the public sector provide?
- Public goods
- Merit goods
These are often goods that the private sector is unwilling or unable to provide.
What is the main characteristic of unlimited liability?
Personal possessions of the owner are at risk if the business cannot pay its debts.
What does limited liability mean?
Personal possessions of the owner are not at risk if the business cannot pay its debts.
Define sole trader.
A business owned and operated by one person, who may employ staff.
List the advantages of being a sole trader.
- Few legal regulations
- Complete control over the business
- Close contact with customers
- Incentives to work hard
Incentives include profits.
What are the disadvantages of being a sole trader?
- Unlimited liability
- Hard to raise finance
- Likely to remain small
- Lack of continuity
Continuity issues may arise in events like death, sickness, or holiday.
What is a partnership?
An association of between 2 and 20 people who agree to own and run a business together.
List the advantages of being in a partnership.
- Share expenses
- Share responsibility
- Complete control over the business
- More capital available
- Cover each other’s absences
What are the disadvantages of being in a partnership?
- Unlimited liability
- Disagreements between partners
- Potential for unreliability or dishonesty
What is a deed of partnership?
A legal document that protects partners and outlines entitlements.
What is a private limited company (LTD)?
A business that sells shares privately, pays dividends, and has limited liability.
Define dividends in the context of a private limited company.
Profits paid to shareholders after reinvesting some profits back into the business.
List the advantages of a private limited company (LTD).
- Finance can be raised by selling shares
- More staff to handle absences
- Specialist skills among staff
- Shareholders have limited liability
What are the disadvantages of a private limited company (LTD)?
- Shares can only be sold privately
- Expensive to set up
- Decisions may take longer
- Need to share profits as dividends
What defines a public limited company (PLC)?
The largest type of private business in the UK, selling shares to the public through the stock market.
What is the minimum share capital required for a PLC?
£50,000.
List the advantages of a public limited company (PLC).
- Limited liability
- Capital raised by selling shares to the public
- Easier to raise finance from banks
- Likely to benefit from economies of scale
What are the disadvantages of a public limited company (PLC)?
- Anyone can buy shares, risking loss of control
- Increased legal requirements
- Company accounts are public information
